ELTA.L Regulatory News (ELTA)

Electra Private Equity PLC

Response to Covid-19, Approval of Hotter Shoes CVA, and Update on Portfolio Businesses

29 July 2020

Electra Private Equity PLC ("Electra" or the "Company") is pleased to provide an update on the Company's response to Covid-19, to report on the outcome of the restructuring of Hotter Shoes via a company voluntary arrangement ("CVA") announced on 19 June 2020, and to provide an update on its portfolio businesses.

Response to Covid-19

The Covid-19 pandemic has had significant impact on the global economy, particularly on the retail and hospitality sectors, in which our two larger businesses operate.

During this period our portfolio companies have and continue to receive significant support from the UK Government. This support, comprising rates relief, furlough support, the hospitality industry VAT rate reduction and the 'Dine out to help out' scheme, has contributed significantly to the ability of our management teams to respond effectively to the crisis, to the preservation of over 4,000 UK jobs, and the continuation of the resultant tax revenue streams.

Our focus in recent weeks has been on ensuring that each of our portfolio businesses emerges from the situation as strong and resilient as possible, leaving us well positioned to recover and grow shareholder value.

Approval of Hotter Shoes CVA

Electra confirms that the CVA proposal launched on 9th July for its portfolio company, Hotter Shoes, has been approved by 99.5% in value of those creditors who voted, with a majority vote in favour of the proposals from each category of creditor.  

In accordance with the statutory provisions there now commences a 28-day period in which creditors may challenge the CVA outcome. A further announcement regarding the outcome is expected in late August.

Commenting on the approval of the CVA proposal, Ian Watson, Chief Executive of Hotter Shoes, said:

"I would like to thank my colleagues for their support and understanding through this process. Following the impact of Covid-19 the CVA was a regrettable but necessary step to avoid the likelihood of Hotter going into administration causing a much larger number of job losses, and was critical to ensure a viable future for the business. Now, we can focus on accelerating the implementation of our strategy to develop the respected and valuable Hotter brand with a greater emphasis on its online offering, which should establish a successful long-term future for the business."

Update on Portfolio Businesses

The Company provides an update on each of its larger portfolio businesses as follows:

· TGI Fridays

TGI Fridays ("Fridays") now has 71 of its 85 stores fully open with a further 9 being reopened within the next week. The remaining stores will reopen as location specific circumstances develop (e.g. at event driven destinations such as the London O2). Throughout the phased reopening to date the level of trading activity has exceeded our expectations. Whilst the future trading environment remains highly uncertain with many competitors yet to re-open, the year on year sales performance and weekly sales progression that we have seen since reopening, combined with the excess capacity that has come out of the market and the early reaction to the new initiatives being implemented by Fridays, give us grounds for optimism. 

Fridays' CEO, Robert Cook and his team are implementing a development strategy in response to a detailed review of customers' aspirations which has an increased focus on consistent quality, provenance, simplification and point of relevance. The 'click and collect' channel successfully launched in May marked the first of a series of brand and channel developments that will be launched in the coming months.

Fridays has acquired two new sites (Cobham and Lincoln) at attractive prices that will open in the fourth quarter and continues to explore other opportunities for measured expansion.

· Hotter Shoes

Hotter Shoes is expected to emerge from the CVA process with its targeted sales channel structure in place and its fixed cost base significantly reduced. This, combined with the delivery of a number of strategic initiatives, including an enhanced web platform launched in June, and the anticipated benefits of enhanced product development and design activity reflected in the upcoming autumn/winter product, leaves the business well placed to face the uncertainties of the current market.

The Covid-19 crisis has accelerated Hotter's strategy of digitisation, which will refocus the business on its online and direct-to-consumer channels. This strategy will also see a return to the company's core area of success, which is a focus on comfort and fit, supported by industry-leading, bespoke technology.

UK e-commerce sales growth of 11% YTD with 35% coming from new customers gives confidence that as an e-commerce focussed business Hotter has the opportunity for a positive future with profitable growth and value creation.

On a pro-forma basis, using actual results for the year to January 2020, and therefore excluding any retail revenue retained through channel shift, following the significant structural changes being implemented before the end of August, Hotter's total revenue would be reduced from £85.6m to £59.8m, with 80% of sales being direct to consumer compared with 55% in the prior year. Non marketing overheads would be reduced by approximately £15.4m, resulting in a 30% increase in EBITDA margin prior to the significant marketing efficiencies enabled by the transformed sales channel structure.

· Sentinel Performance Solutions

The management changes and cost reductions implemented at Sentinel since Electra acquired control in July 2019 have left the business well positioned to come through the period of Covid-19 disruption. Sentinel has performed well and whilst revenue has recovered significantly ahead of expectations to close to prior year levels, this remains at a seasonally low level. The business development plans initiated in the last year and preparations for the coming winter season are on plan.

Commenting on the performance of the Company and its underlying portfolio businesses Neil Johnson, Chairman of Electra Private Equity PLC, said:

"The past five months of Covid-19 related lockdown and restrictions have been extremely challenging for the management teams and employees in each of our portfolio businesses. In common with other retail and hospitality brands we have had to adapt to survive, and this has necessitated sometimes significant structural change and regrettable job losses, particularly at Hotter. We thank all of our portfolio businesses' employees for their understanding and dedication throughout the crisis, and we wish all those leaving us well. The actions taken will ensure positive futures for the businesses going forward.

The impact of recent events and continuing restrictions make it hard to forecast future trading with clarity. However, we believe that our portfolio businesses are now stronger and better placed to face this uncertain environment with relative confidence. We therefore continue to target successful delivery of the Electra corporate strategy by the end of 2021."

-ENDS-

For further information please visit www.electraequity.com or contact:

Gavin Manson

Chief Financial and Operating Officer

Electra Private Equity PLC

17 Old Park Lane

London W1K 1QT

Tel: 44 (20) 3874 8300