ELTA.L Regulatory News (ELTA)

Electra Private Equity PLCAnnouncement of the results for the Full Year ended 30 September 2019

Neil Johnson, Chairman of Electra Private Equity PLC commented:

"Our results demonstrate the progress made at Electra over the last year, reflected in a significant NAV uplift on retained assets, as we actively manage our remaining portfolio of investments. We have made tangible progress in both of our two larger businesses, TGI Fridays ("TGI") and Hotter Shoes ("Hotter"). At TGI the new management's focus both on improving customer experience and on operational excellence gives confidence that it is on the right track to further develop the business and deliver profitable growth. The changes at Hotter are now progressing, with improved trading, under a much-strengthened management team.

"The recent sale of Special Product Company ("SPC") reflects the transformation of that business since we internalised management of our portfolio in 2017 and demonstrates our commitment to the timely realisation and distribution of cash to shareholders. I look, with confidence, to more progress from our key portfolio investments in 2020 and further delivery of our strategy."

Group highlights

·; Net asset value ("NAV") at 30 September 2019 of £210.0 million (548.4p per share);

·; Valuation of the four largest controlled investments increased by 30.6% on prior year to £186.6 million, comprising 88.9% of NAV (97.1% excluding cash);

·; The Company's objective is to optimise and realise value in remaining portfolio over a two-year period and distribute to shareholders, and opportunities to accelerate distribution of value will be explored;

·; Special Product Company ("SPC") and two smaller investments realised post year end at a £1 million uplift to NAV with £12 million cash received;

·; Remaining fully controlled assets (TGI Fridays ("TGI"), Hotter Shoes ("Hotter") and Sentinel Performance Solutions ("Sentinel")) have combined LTM maintainable EBITDA of £35.5 million with net debt of £55.3 million (including cash held centrally);

·; Cash operating costs will be reduced to less than £3 million p.a. from January 2020;

·; First Special Dividend of FY20 of £12 million (31p per share) declared and to be paid on 24 January 2020 to shareholders on the register at close on 27 December 2019.

Portfolio highlights

TGI Fridays

·; TGI achieved growth over last twelve months in each of: LFL sales (+1.5%), absolute sales (+2.4%) and EBITDA (+0.5%). LTM EBITDA of £26.9 million with net debt of £47.4 million;

·; Significantly strengthened TGI's management team in place, led by Robert Cook, who joined as the CEO in December 2019 to deliver the next phase of TGI development;

Hotter

·; Hotter started recovery from a difficult 2018 with new management team led by Ian Watson, built during 2019. Strategic initiatives implemented in 2019 are expected to improve sustainable performance from mid-2020 with real progress having already been made - over 70% of channel profits are from direct channels and 20% from markets outside the UK;

Sentinel

·; Sentinel came under Electra control in July 2019. Since then, the management structure has been simplified and strengthened under the new CEO, David Barrett. Running costs reduced by £0.9 million p.a. with focused business plan in place;

SPC

·; SPC investment realised through post year end asset sale. £9 million cash proceeds received with potential for further £1.5m at the end of escrow period;

Other assets

·; Two tail assets realised post year end for £3 million, at a £1 million uplift to NAV. Work underway to realise the remaining tail assets.

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Composition of NAV as at 30 September 2019

For further information: Gavin Manson, Chief Financial and Operating Officer, Electra Private Equity PLC 020 3874 8300

The audited Annual Report and Financial Statements for the year ended 30 September 2019 have not yet been delivered to the Registrar of Companies but are expected to be published in January 2020. The financial information set out below does not constitute the Company's statutory accounts but is derived from those accounts. The auditors have reported on those accounts and their reports (i) were unqualified, (ii) included a reference to matters to which the auditors drew attention by way of emphasis in relation to the basis of preparation other than going concern, without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for the year to 30 September 2019 or 30 September 2018.

The information contained in this announcement is restricted and is not for release, publication or distribution, directly or indirectly, nor does it constitute an offer of securities for sale, in the United States, Canada, Japan, Australia, New Zealand or South Africa.

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Chairman's Statement

"Our results demonstrate the progress made at Electra over the last year, reflected in a significant NAV uplift on retained assets, as we actively manage our remaining portfolio of investments. We have made tangible progress in both of our two larger businesses, TGI Fridays ("TGI") and Hotter Shoes ("Hotter"). At TGI the new management's focus both on improving customer experience and on operational excellence gives confidence that it is on the right track to further develop the business and deliver profitable growth. The changes at Hotter are now progressing, with improved trading, under a much-strengthened management team.

"The recent sale of Special Product Company ("SPC") reflects the transformation of that business since we internalised management of our portfolio in 2017 and demonstrates our commitment to the timely realisation and distribution of cash to shareholders. I look, with confidence, to more progress from our key portfolio investments in 2020 and further delivery of our strategy."

Following the successful exit from our larger non-controlling investments early in the year, at the General Meeting in October 2018 over 99% of our shareholders endorsed the Board's proposal to adopt a strategy to optimise value through a managed wind-down of our portfolio and the return of cash to shareholders. That decision was taken in the context of us having doubled shareholder value over the prior three years, and it is our firm intent to target similar levels of return for shareholders over the two to three years that we believe it will take to optimise the value of our remaining portfolio, although we are vigilant for opportunities to accelerate this time frame. Following consultation with shareholders the Remuneration Committee intends to seek shareholder support at our Annual General Meeting ("AGM") to align our existing executive incentive arrangements with this timeframe for targeted realisation.

After a challenging year in 2018 for the markets in which our larger investments, TGI Fridays ("TGI") and Hotter Shoes ("Hotter") operate, we have been active in working to ensure that the performance of these businesses recovers and in implementing our plans to deliver stronger, more profitable, resilient and desirable businesses. A key element of this work has been to put in place strengthened leadership and management at both businesses.

Ian Watson joined Hotter as CEO in March 2019 and, whilst market conditions continue to be challenging, excellent progress has been made in strengthening management and implementing the key strategic changes to the business and its products, necessary to significantly improve the performance and resilience of the business. The immediate actions taken by the new management improved trading performance which is reflected in Hotter's improved valuation. We anticipate that the sustainable benefits of longer-term initiatives will be increasingly apparent from the third quarter of 2020.

Whilst the changes being made at Hotter are structural and transformational, the management changes we have implemented at TGI are intended to take what is already a good business to the next level. Robert Cook joined TGI as CEO at the beginning of December 2019 with a remit to focus on growth through improved customer experience, operational excellence and accelerated evolution of the business, with profitable growth, to adapt to evolving market conditions and customer expectations. We are confident that Robert and the strengthened team that he has assembled will revitalise and grow the TGI brand and business. I would thank Karen Forrester, the outgoing CEO of TGI, for her long and significant contribution to the business, and wish her well.

Whilst TGI and Hotter will provide the majority of our targeted value growth and cash returns, we are also encouraged by progress at Special Product Company ("SPC") and Sentinel Performance Solutions ("Sentinel"). Both were distressed investments when we internalised our portfolio management in 2017. Through focus and support for management, the performance, business and prospects of SPC have improved significantly and I am pleased to confirm that we have very recently completed an exit that realised our increased valuation of £9 million in cash at close, with a further £1.5 million due on expiry of an escrow period. Sentinel continued to be controlled by a third party until we obtained control in July this year. We have moved quickly to strengthen the management team, simplify and focus the business and have agreed renewed banking facilities with £1.5 million to be invested to support restructuring and growth. With these actions implemented and with continued focus, Sentinel provides an opportunity to build a strong and sustainable business and to realise good value growth within out targeted time frame.

Post year end we have also completed the disposal of two of our smaller investments, bringing in £3 million of cash at a small uplift to carrying value.

To allow future focus on value creation within our portfolio, we have taken action to materially reduce our internal cost base early in 2019. With a head office relocation later in December 2019, we will have successfully reduced our cash overheads from over £26 million p.a. as recently as early 2017 to under £3 million p.a. going forward. Even with costs at this reduced level, we remain conscious of the need both to continue to manage our costs and to ensure that we conclude the delivery of our strategy within the targeted timeframe.

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As indicated at the half year, in reflection of the reduced scale of our business, we have also reduced the size of our Board. Roger Perkins and Ian Brindle both stepped down at our AGM in February 2019 following many years of much valued service. With Sherborne Investors Management LP ("Sherborne Investors") having first become a shareholder in 2014, Edward Bramson joined the Board in 2015 and initiated the changes that transformed the Board and strategy and led to the delivery of the shareholder returns referred to above. Whilst continuing to be supportive, Mr Bramson stepped down as a Non-Executive Director in July 2019. On behalf of our shareholders I would thank him for his contribution and support of the recent Board. Stephen Welker, a fellow Partner of Mr Bramson in Sherborne Investors, joined the Board in July 2019 and we welcome him.

I should like to thank all my Board colleagues for their support and advice throughout the year, and particularly to thank our former staff who so positively assisted with the downsizing programme. Gavin Manson's continued importance in delivering our strategic intent was recognised by his being appointed Chief Operating Officer ("COO") in addition to his previous role as Chief Financial Officer ("CFO"). I thank Gavin for his continuing loyalty and energetic professionalism.

Subsequent to the disposal of our non-controlling investments in October and December 2018, we distributed a further £161 million to shareholders in the period, bringing our total distributions to shareholders over the last three years to £2.0 billion. Consistent with our strategy of returning realised cash to shareholders and reflecting the realisations noted above, I am pleased to announce that we will pay a further Special Dividend of £12 million or 31p per share on 24 January 2020 to shareholders on the register at close on 27 December 2019. In light of this Special Dividend, the Board has elected not to declare ordinary dividends for the year ended 30 September 2019.

2019 has been a positive year for Electra and for each of our portfolio companies. We are well placed to deliver value creation and realisation within our targeted time frame and look forward to delivery through continued focus on execution.

Neil Johnson

Chairman

11 December 2019

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Strategic Report

The Strategic Report provides a review of the Company's business, the operating performance during the year to 30 September 2019, and its strategy going forward. It also considers the principal risks and uncertainties facing the Company.

Outcome of Strategic Review

In the third quarter of 2018, the Board concluded its strategic review covering all options for the future direction of the Company. This resulted in the announcement on 4 October 2018 that:

·; The Board considered that each of the remaining controlled corporate investments represented an opportunity for value creation within an acceptable time frame. However, the concentration of the portfolio and the structural inefficiency in reinvesting in a listed private equity vehicle with a significant market discount to net asset value made it inappropriate to seek to do this within the existing investment objective and policy of the Company at that time;

·; The Board concluded and recommended that it was in the best interests of shareholders to conduct a managed wind-down of the portfolio over a period of time, allowing optimisation of returns, return of cash to shareholders, and ultimately the winding-up of the Company. The Board intends that until it is finally wound up, the Company will continue to be listed on the London Stock Exchange in its existing listing category and will pay annual dividends funded by cash generated from the portfolio.

At the same time, the outcome of the third phase of our strategic review was announced, which was that an agreement had been reached for the sale of the larger non-controlled assets, Photobox and Knight Square, for a total consideration of £117 million.

Adoption of Revised Strategy

At the General Meeting on 30 October 2018, the shareholders approved the adoption of a revised investment objective and policy with over 99% voting in favour.

Investment Objective and Policy

With effect from 30 October 2018, 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.

Implementation of Investment Objective and Policy

Following the adoption of the Company's revised strategy, Electra is continuing to actively manage its remaining portfolio of investments to maximise value for shareholders through the delivery of well-managed, resilient and desirable portfolio companies, delivering strong results whatever the market conditions. During the period the Company has continued to support each of its controlled corporate investments through:

·; investing where required;

·; preparing plans to optimise performance and value;

·; implementing required management changes; and

·; commencing delivery focused execution.

Through these actions, the Board confidently expects to deliver optimised value to shareholders within a targeted time frame of two to three years. We continue to manage our operating costs with rigour and by the end of 2019 will have reduced cash operating costs to below £3 million p.a. from £6 million p.a. in 2018 and £26 million p.a. in 2017.

Principal Risks and Risk Management

The Board considers that the risks detailed below are the principal risks currently facing the Company, along with the risks detailed in Note 16 of the Notes to the Financial Statements ("Notes"). These are the risks that could affect the ability of the Company to deliver its strategy. The Board of Directors can confirm that the principal risks of the Company, including those which would threaten its future performance, solvency or liquidity, have been robustly assessed throughout the year ended 30 September 2019, and that processes are in place to continue this assessment.

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Portfolio Diversification Risk

At the General Meeting on 30 October 2018, shareholders overwhelmingly voted in favour of the new investment objective and policy. With the switch towards a strategy of realisation without new investments, the Company is increasingly exposed to the performance, favourable or unfavourable, of the remaining individual investments which may lead to greater volatility in fair value or in extreme conditions may impact on the Company's ability to realise a significant proportion of its portfolio value in the planned timeframe.

Solvency and Liquidity Risk

The strategy adopted in October 2018 is for the phased wind-down of the portfolio and the return of cash to shareholders as investments are sold. In doing this, we recognise that the remaining portfolio investments operate in challenging markets and balancing the desire to optimise distributions to shareholders with the need to retain sufficient cash to be able to support the portfolio companies in optimising value is key.

Strategy Implementation Risk

The Company is subject to the risk that implementation of its strategy and its level of performance fail to meet the expectations of its shareholders. The Board has undertaken a thorough review of the Company's investment strategy and policy and its structure, with the objective of maximising shareholder value.

Given the overwhelming support for adoption of the revised strategy in October 2018, the implementation risk is now focused on balancing the timing of returning cash to shareholders with achieving maximisation of value. The Directors consider that clear alignment between executive incentives and shareholder value optimisation, with ongoing close oversight from the Non-Executive Board, is the optimal way to manage this.

Macroeconomic Risk

The performance of the Company's investment portfolio is materially influenced by economic conditions. These may affect demand for products or services supplied by investee companies, foreign exchange rates, the price of commodities or other input costs, interest rates, debt and equity capital markets, and the number of active trade and financial buyers. There remains significant uncertainty around the likely terms of the post-Brexit arrangements between the UK and the EU, as well as possible transitional arrangements. All of these factors may have an impact on the Company's ability to realise a return from its investment portfolio and cannot be directly controlled by the Company. This risk has not materially changed in impact from the previous year, and the Board of Directors does not believe there will be a significant impact on the valuations or operations of its portfolio companies.

Valuation Risk

The valuation of investments in accordance with IFRS 13 and International Private Equity and Venture Capital Valuation ("IPEV") guidelines requires considerable judgement and is explained in the Notes. This risk has not materially changed in impact from the prior year.

Gearing Risk

Gearing is used across the Company's investment portfolio. One of the principal risks of gearing is that it can cause both gains and losses in the asset value of portfolio investments to be magnified. Another significant risk associated with gearing is the potentially severe impact on portfolio investments of any breaches of the lenders' banking covenants. Secondary risks relate to whether the cost of gearing is too high and whether the contracted terms of the gearing, including those relating to the terms of borrowings, are appropriate.

Gearing is actively monitored across the investment portfolio, including working closely with management teams to ensure that the terms of any borrowing facilities are being forecast and through maintaining relationships with the lenders who make facilities available. Given the levels of cash held and the lack of borrowing at the Company level, this risk is considered to be in line with previous years.

Foreign Currency Risk

Foreign exchange exposures also exist across the Company's investment portfolio as a result of the denomination of revenues, costs, assets and liabilities in different currencies. The Executive Directors work with the Company's investment portfolio to make use of natural and derivative hedges, if required, to mitigate these exposures.

Cash Drag Risk

Returns to the Company through holding cash deposits are currently low. Due to the Board's recommendation of a managed wind-down of the portfolio, the revised investment object and policy and the distribution policy, announced in October 2018, this level of risk is considered to be broadly similar year on year.

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Viability Statement

The Directors have carefully assessed the Company's current position and prospects as well as the principal risks stated above and have formed a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three financial years, irrespective of the timing of portfolio wind-down events. In making this assessment, the Directors have assumed that the threats to the Company's solvency and liquidity incorporated in the principal risks will be managed or mitigated as outlined above.

Should appropriate conditions exist the Directors may recommend the winding-up of the Company sooner than three years.

The particular factors the Directors have considered in assessing the prospects of the Company and in selecting a suitable period in making this assessment are as follows:

·; the Company is presently invested primarily in long-term illiquid investments which are not publicly traded; The Company will not make any new investments although it has committed to support its existing portfolio to the extent required to optimise returns;

·; the Board considers that each of the remaining corporate investments represents an opportunity for value creation within a medium-term time frame;

·; the Board reviews the liquidity of the Company and regularly considers any commitments it has, cash flow projections and the use of gearing;

·; as detailed in the Directors' Report, the Valuations Committee oversees the valuation process. Typically, the medium-term prospects of each portfolio company form an important part of the valuation process;

·; the new investment objective and policy with the objective of optimising returns and distributing cash to shareholders.

It is important to note that the fact that the Company is no longer considered to be a going concern has no impact on the Directors' expectations on the Company's viability, as further explained in the CFO Review.

Community, Social, Employee, Human Rights, Environmental Issues, Anti-bribery and Anti-corruption

The Company is committed to carrying out business in an honest and fair manner with a zero-tolerance approach to bribery and corruption. As such, policies and procedures are in place to prevent bribery and corruption. In carrying out its activities and in its relationships with the community the Company aims to conduct itself responsibly, ethically and fairly, including in relation to social and human rights issues.

As an investment trust with limited internal resource, the Company has little impact on the environment. However, the Company believes that high standards of corporate social responsibility make good business sense and have the potential to protect and enhance investment returns. Consequently, the Group's investment process ensures that social, environmental and ethical issues are taken into account and best practice is encouraged.

Diversity

There are currently five male Directors and one female Director on the Board. The Company aims to have a balance of relevant skills, experience and background amongst the Directors and believes that all Board appointments should be made on merit and with due regard to the benefits of diversity, including gender.

There are no non-Director employees at the Company as at 30 September 2019.

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Performance Review

Performance

The summary of performance of results can be seen on the Consolidated Income Statement.

Various key performance indicators ("KPIs"), also referred to as alternative performance measures ("APMs"), are considered by the Board in assessing the Company's success in achieving its objectives. Following adoption of the realisation strategy, net asset value per share total return and total shareholder return are considered to be the most appropriate KPIs to monitor the Company's performance and return on equity ("RoE") is no longer classified as a KPI.

Net Asset Value ("NAV") per Share Total Return

This is the aggregate of income and capital profits per ordinary share of the investment portfolio for the period less all costs. It is expressed as a percentage of the opening NAV.

The Company's NAV per share total return for the year ended 30 September 2019 is 8% (2018: negative 8%) and 8% (2018: 48%) over the three years to 30 September 2019.

Total Shareholder Return ("TSR")

This is the total returns delivered by the Company through a combination of dividends distributed to shareholders and share price performance. This is expressed as a percentage, calculated by dividing the dividend adjusted closing share price by the opening share price. Electra compares its TSR with the returns from the FTSE 250 Index over twelve months and three years.

The Company's TSR for the year ended 30 September 2019 is negative 15% (2018: 9%) and 24% (2018: 71%) over the three years to 30 September 2019. These compared with returns of 1% (2018: 5%) and 19% (2018: 32%) respectively from the FTSE 250 Index.

This report was approved by the Board of Directors and signed on its behalf by:

Neil Johnson

Chairman

11 December 2019

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Portfolio Review

Portfolio Overview

As at 30 September 2019, Electra's investment portfolio is valued at £193 million (2018: £267 million). The investment portfolio consists of buyouts, secondaries and debt investments, which are held on the balance sheet as £182 million of non-current investments (2018: £150 million) and £11 million of held for sale assets (2018: £117 million).

Electra also held £17 million (2018: £72 million) in money market funds, which are short-term liquidity investments for the purpose of cash management and are not included as part of the Portfolio Review.

Buyouts

Buyouts consist of direct equity investments in seven private companies (2018: nine) with an aggregate value of £190 million (2018: £264 million). These include TGI, Hotter, SPC and Sentinel, which together represent 98% (2018: 95%) of the value of buyouts.

Secondaries

At 30 September 2019, Electra held investments in one secondary portfolio with a value of £1 million (2018: £1 million).

Debt

Debt investments consist of loans to UK or international borrowers acquired in the primary or the secondary market as either individual or portfolios of assets. As at 30 September 2019, the Company held one debt investment, which has subsequently been disposed of in November 2019. Refer to Note 11 for more details.

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Portfolio Movement

The value of Electra's investment portfolio decreased from £267 million at 30 September 2018 to £193 million at 30 September 2019. The decrease resulted from net realisations of £110 million (2018: £18 million) and a portfolio gain of £36 million (2018: loss of £73 million).

Realisations

Total realisations for the year was £119 million (2018: £63 million) which consisted of the following assets:

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Key Investments Background

TGI Fridays

The UK franchise of an American-themed restaurant chain providing a high energy and fun environment, with a wide demographic appeal.

Investment valuations

*Adjusted for additional investments made post year end 

Portfolio company performance

**Based on last twelve months ("LTM") unaudited management accounts.

In the 12 months to 30 September 2019, TGI Fridays achieved growth in revenue and EBITDA on both an overall and a "like-for-like" basis from the prior period. This reflects both the sustainable new restaurant roll-out plan maintained by TGI Fridays and the resilience of maintaining gross margins during the challenging prior year of 2018. The business continues to be strongly cash generative and provides increasingly attractive returns on capital despite challenging market conditions and uncertainties around Brexit.

Whilst underlying market demand continues to grow modestly, market conditions remain challenging with continued oversupply in the casual dining market being compounded by rising costs across a number of areas. In response to these conditions TGI Fridays continually seeks to improve its proposition, updating its menus, refreshing its restaurants and developing its staff, as it aims to provide an experience that is valued by its customers.

TGI Fridays consistently performs strongly in UK brand perception surveys, consistently outperforms its market from a financial perspective and has an enviable reputation in the industry for operating processes and efficiency. We intend to build on this strong base by ensuring the business continues to evolve in meeting changing customer needs and expectations whilst retaining and building on its strong brand heritage and values.

In early December 2019, Robert Cook succeeded Karen Forrester as CEO. Robert brings experience of leading growth and profitable development within the multi-site food and beverage industry and also of successfully managing businesses through challenging times in adjacent sectors. We are also strengthening the wider TGI leadership team with a blend of sector-specific and adjacent skills and experience in key areas. Through these changes we confidently believe that we can build on the strong position and heritage of TGI to match evolving customer expectations and develop profitability in a strong, growing and sustainable business.

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Key Investments Background

Hotter Shoes

The UK's largest shoe manufacturer with a strong focus on comfort and service.

Investment valuations

*Adjusted for additional investments made post year end

Portfolio company performance

**Based on last twelve months ("LTM") unaudited management accounts.

Hotter Shoes operates in the comfort footwear market primarily in the UK and US through direct consumer marketing, where demographic changes offer significant opportunities for growth over the long-term. Currently 71% of channel profitability comes through direct consumer marketing and delivery with 20% of channel profitability coming from direct marketing and delivery to customers outside the UK. Further strategic digitisation will increase growth in the direct channels both in the UK and internationally and lead to the realisation of significant cost and marketing efficiency opportunities.

The development of UK retail estate between 2010 and 2016 contributed to a very challenging year in 2018, in which the resilience of the direct business was undermined by retail losses. Electra remains committed to Hotter and, despite the challenging performance of 2018, has taken action to accelerate the change required to deliver a profitable and resilient international business. This included changing key members of the management team to bring in a blend of sector-specific and implementation focused turnaround skills and investing £7.5 million in early 2019 to support transformation.

Hotter already sells over 60% of its product through direct to consumer channels. It has a clear strategy to further improve the profitability and resilience of its direct business through increased digitisation whilst continuing the evolution of its UK retail portfolio in objective and scale to support overall multichannel profitability. Whilst the relatively short average lease term of the UK retail estate reduced Hotter's ability to seek an immediate solution to retail performance in 2018, it provides an opportunity to manage channel transition whilst maintaining the benefit and flexibility of its UK manufacturing facility.

Following the appointment of Ian Watson as CEO in March 2019 and with other key hires that followed, Hotter has made real progress both in optimising short-term trading performance and in commencing the implementation of strategic initiatives that will influence financial performance in the longer term. Whilst Hotter will continue to be significantly susceptible to challenging market conditions for the next six to twelve months, the key changes necessary to deliver an increasingly profitable and resilient international business focused on the direct to consumer segment are being implemented together with a cultural change to one of accountability with a focus on results - building on Hotter's traditional values of comfort, quality and customer service. The Board considered the implications of Brexit on Hotter's operations and future earnings, and at this stage do not believe there are any material impacts.

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Key Investments Background

Special Product Company

A US-based manufacturer of industrial cabinets, serving the telecom and cabling sectors.

Investment Valuations

Despite Electra's initial investment in 1999, SPC has been troubled in recent years. The initial cost of investment was written off several years ago following difficulty in implementing its strategy of diversification of customers and products which had led to recurring trading issues. Following the internalisation of Electra's management in 2017, SPC has been given renewed focus. Working with the SPC management team, led by CEO Jerry Garrett, real progress has been made in reducing reliance on core customers and in addressing the product lifecycle. As a result, a stronger and more resilient business has been developed that should be attractive to future buyers.

Since the year end, an agreement for the sale of the business has been reached, with cash settled at close of £9 million and a further £1.5 million due on expiry of an escrow period.

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Key Investments Background

Sentinel Performance Solutions

A leading UK manufacturer of products to improve the performance of residential heating and hot water systems.

Investment valuations

Electra initially invested in Sentinel in 2011, but despite being the majority shareholder Electra management was not in management control until July 2019, when we bought out a minority shareholder with retained control rights. We identified that the business lacked focus and had become over complicated and quickly implemented changes in the management team and structure. David Barrett, a highly experienced industry professional, has been appointed CEO and we have implemented other key changes to simplify the management structure and wider organisation and to develop a culture of accountability and delivery.

The business operates in a mature UK market in which focus, agility and cost and operational efficiency are paramount, as well as in a number of international markets with the opportunity for growth, in which organisational structure and methodical planning and delivery are required. Recent changes have addressed both market groups and initial indications of progress are encouraging.

Electra is committed to investing £1.5 million into Sentinel to fund restructuring costs that will support future profitability and growth. This commitment is reflected in our valuation as at 30 September 2019.

In taking control of Sentinel and committing to further investment in 2019, we are conscious of the need to deliver value to shareholders through an exit co-ordinated with our other remaining investments.

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CFO Review

"Following challenging trading conditions in 2018 for each of our remaining UK businesses, our focus in 2019 has been on managing short-term trading recovery whilst ensuring that each business has management and plans in place that will optimise performance and the value achieved in exits within the time frame envisaged for implementation of Electra's strategy.

Whilst we have made progress in developing value from the low point of early 2019, we believe that further significant value can be achieved at portfolio level, which on successful realisation will provide a good return to our shareholders."

Investing Activities

Consistent with the revised investment objective and policy approved by shareholders in October 2018, the investing activities of the Company going forward will be limited to supporting the optimisation of value from the existing portfolio.

An investment of £7.5 million was made in Hotter in early 2019 to support working capital and strategic delivery. The need for this investment was known in advance and was reflected in our September 2018 valuation. Similarly, a planned investment of £1.5 million in Sentinel is reflected in our September 2019 valuation.

Significant management changes have been implemented in each of TGI, Hotter and Sentinel in order to ensure these businesses and their values are optimised within the time frame envisaged for implementation of Electra's strategy. These management changes resulted in the implementation of updated management incentives at each portfolio company level that are consistent in objective and timing with those being proposed at Electra level by the Electra Remuneration Committee for shareholder approval at the AGM. Implementation of the portfolio company management changes and aligned incentives for new management incurred recruitment and advisory costs as well as investment to buy out prior management, costing less than £3 million in total.

Going Concern and Viability

As reported at the end of 2018, the Board concluded that it was in the best interests of shareholders to conduct a managed wind-down of the portfolio over a period of time, return of cash to shareholders, and ultimately the winding-up of the Company. The Board decided last year that the Company was no longer a going concern and has continued its reporting on this basis for the year ended 30 September 2019. It is important to note that this has no impact on the reported results for the year (for reasons described in Note 23) and that, as set out in the Strategic Report, the Directors have assessed and continue to have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three financial years. The Directors believe that if they recommend the winding-up of the Company earlier than September 2022, the Company will be able to continue in operation and meet its liabilities as they fall due over this shortened period.

Analysis of Movement in Net Asset Value ("NAV") per Share

The Special Dividends of 365p and 54p per share paid on 14 December 2018 and 12 April 2019 respectively, offset by investment returns of 90p, are the most significant factors in the reduction of NAV per share from 892p to 548p.

Distributions

During the year, the Company distributed two Special Dividends of 365p and 54p per share respectively. These reflected the distribution of the proceeds of the sale of Photobox (251p per share) and Knight Square (54p per share), and excess cash (114p per share). Post year end, the Board has declared a further Special Dividend of £12 million or 31p per share payable on 24 January 2020 to shareholders on the register at close on 27 December 2019.

Operating Costs

Following adoption of our realisation strategy, the Company undertook action to reduce its recurring cash operating costs by 50%, to approximately £3 million p.a. These costs will be reduced further following the relocation of the Company's head office to smaller premises in December 2019. The organisational changes implemented to reduce costs resulted in exceptional redundancy and related costs of £1 million and a further £1 million was incurred in the corporate rationalisation activity, which is now well advanced.

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CFO Review (continued)

Operating Costs (continued)

The adoption of the revised investment objective and policy triggered a "Corporate Event" in respect of the 2017 Long-Term Incentive Plan ("LTIP"). The resultant share awards were fully hedged; however, the Corporate Event resulted in a £0.7 million non-cash expense in the income statement due to the acceleration of charges under IFRS 2. The Share of Value Plan ("SoVP") was unaffected by the Corporate Event. In light of the adoption of a wind-down strategy, we have considered the need for the provision of closure/wind-up costs under IAS 37, and have concluded that any such costs are unlikely to be material and that, as we anticipate continuing to generate shareholder value, operating costs should be reported normally until the targeted medium-term realisation of the portfolio investments is complete.

Net Liquid Resources

As at 30 September 2019, the Company held £1 million (2018: £3 million) of cash and £17 million (2018: £72 million) of money market fund investments.

Gearing

At 30 September 2019, Electra was ungeared at the Group level. Certain of the portfolio companies are funded in part by third-party debt.

Foreign Exchange

At 30 September 2019, the estimated foreign currency exposure in the balance sheet was €1 million (2018: €5 million) and $12 million (2018: $9 million) based on the currency of underlying securities in the investment portfolio. The US dollar has strengthened against sterling by 5.7% (2018: 2.7%) during the year, while the euro has weakened slightly by 0.5% (2018: strengthened by 1.0%), resulting in a small gain in respect of the investment portfolio.

Also included in the Consolidated Income Statement is a £6 million (2018: £8 million) credit representing the reclassification of foreign exchange gains previously recognised in the translation reserve. This item has been moved to the Consolidated Income Statement as a result of the liquidation of three overseas subsidiaries during the year and has no impact on NAV.

Gavin Manson

Chief Financial and Operating Officer

11 December 2019

16

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

17

Consolidated Statement of Changes in Equity

The accompanying Notes are an integral part of these financial statements.

18

Company Statement of Changes in Equity

The accompanying Notes are an integral part of these financial statements.

19

Consolidated Balance Sheet

The accompanying Notes are an integral part of these financial statements.

These financial statements were approved by the Board of Directors and signed on their behalf by:

Neil Johnson Gavin Manson

Chairman Chief Financial and Operating Officer

11 December 2019 11 December 2019

Electra Private Equity PLC

Company Number: 00303062

20

Company Balance Sheet

The Company's profit for the year was £27 million in 2019 (2018: loss of £57 million).

The accompanying Notes are an integral part of these financial statements.

These financial statements were approved by the Board of Directors and signed on their behalf by:

Neil Johnson Gavin Manson

Chairman Chief Financial and Operating Officer

11 December 2019 11 December 2019

Electra Private Equity PLC

Company Number: 00303062

21

Consolidated Cash Flow Statement

The accompanying Notes are an integral part of these financial statements.

22

Notes to the Financial Statements

1 Segmental Analysis

The Group operates a single business segment for reporting purposes and is managed as a single investment company, with multiple investment categories including buyouts, secondaries and debt. Reporting is provided to the Board of Directors on an aggregated basis. These investments are located across multiple geographic regions and total investment returns are allocated as follows:

2 Revenue Investment Income

3 Other Expenses

Auditor's Remuneration - Deloitte LLP

23

3 Other Expenses (continued)

Non-audit services

It is the Group's practice to employ Deloitte LLP on assignments additional to their statutory audit duties only when their expertise and experience with the Group are important or where they have been awarded assignments on a competitive basis. Details of the Group's process for safeguarding and supporting the independence and objectivity of the external auditor are given in the Audit and Risk Committee Report.

4 Income Reversal

Income reversal is the reversal of accrued interest on investments recognised in previous periods. There were no income reversals during the year. The amount recorded in the year ended 30 September 2018 related to accrued interest reversed on the Group's loan investment in TGI.

5 Employee Costs

The average number of employees, excluding Directors, for the Group and Company during the year was 5 (2018: 10). As at 30 September 2019, there were no non-Director employees in the Company (2018: 10).

Wages and salaries shown above include salaries, benefits and social security costs of £0.3 million (2018: £0.3 million), as well as pension contributions of £0.1 million (2018: £0.1 million) in the year for the Group and Company. These costs are included in other expenses in the Consolidated Income Statement.

6 Operating Leases

The Company leases the property for its head office. Operating lease expenses of £0.6 million (2018: £0.6 million) are included in other expenses in the Consolidated Income Statement.

The future minimum lease payments payable under operating leases are as follows:

7 Tax

Income tax expenses

24

7 Tax (continued)

The difference between the income tax expense shown above and the amount calculated by applying the effective rate of UK corporation tax, currently 19% pro-rata (2018: 19% pro-rata), to the (loss)/profit before tax is as follows:

The Finance Act 2016 included legislation to reduce the standard rate of UK corporation tax to 19% from 1 April 2017 to 17% from 1 April 2020.

8 Dividends

As at 30 September 2019, the Company had distributable reserves of £77 million (2018: £220 million), being the sum of the realised capital reserve and the revenue reserve. The Board does not consider the unrealised capital reserve of negative £34 million (2018: negative £44 million) to be distributable, and therefore the Company's net distributable reserves as at 30 September 2019 were £33 million (2018: £176 million).

Post year end, the Board has declared a first Special Dividend FY20 of £12 million or 31p per share payable on 24 January 2020 to shareholders on the register at close on 27 December 2019.

9 Earnings per Share

The weighted average number of undiluted ordinary shares in issue as at 30 September 2019 was 38,282,763 (2018: 38,282,763). There were no dilutive shares in the Company during the current and comparative financial years.

10 Net Asset Value ("NAV") per Share

The basic NAV per share is calculated by dividing the NAV of £210 million (2018: £342 million) by the number of ordinary shares in issue, as at 30 September 2019, of 38,282,763 (2018: 38,282,763). There were no dilutive shares in the Company during the current and comparative financial years.

25

11 Assets Held for Sale

Post yearend, an agreement for the sale of Special Product Company ("SPC") has been reached, with cash settled at close of £9 million and a further £1.5 million due on expiry of an escrow period. The Company also completed the disposal of its investment in HC Starck, the remaining one debt investment in the portfolio for €1.8 million (£1.6 million) in December 2019. Both investments are recognised as held for sale assets as at 30 September 2019. The amount recognised in 2018 related to Photobox and Knight Square, on which sale transactions were completed shortly after the financial year ended 30 September 2018.

12 Trade and Other Receivables

13 Trade and Other Payables

Other payables include accrued expenses.

14 Provisions for Liabilities and Charges

The provisions as at 30 September 2019 relate to National Insurance contributions provided on the incentive schemes operated by the Company and other liabilities such as rental incentives received upfront which are recognised as deferred income. Details of the incentive schemes are shown in the Remuneration Report. The actual timing and costs of future cash flows are dependent on future events and therefore are uncertain. During the year ended 30 September 2018, incentive provisions of £23 million relating to carried interest to the former investment manager were released to the income statement.

26

15 Deferred Tax Liability

The following are the deferred tax liabilities recognised by the Group and Company and movements thereon during the current and prior periods.

16 Financial Instruments

(i) Management of Risk

The Group's financial instruments comprise securities in unlisted companies, partnership interests, trade receivables, trade payables, money market funds and cash.

The main risks arising from the Group's and Company's financial instruments are fluctuations in market price, interest rate, credit, liquidity, capital and foreign currency exchange rate. The policies for managing each of these risks are summarised below. The financial risks of the Company are aligned to the Group's financial risks.

Market Price Risk

Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Group's operations. It represents the potential loss the Group might suffer through holding market positions in the face of price movements, mitigated by stock selection.

The Group is exposed to the risk of the change in value of its investments in unlisted equity, non-equity shares, fixed and floating rate securities, and funds. For unlisted equity and non-equity shares the market risk is deemed to be the price/earnings ratio or other appropriate valuation methodology as set out in the accounting policy. The impact on profit or loss after tax and on shareholders' equity, in absolute and percentage terms of those figures, due to movements in these variables, is set out in part (v) of this note.

Foreign Currency Risk

The Group's total return and net assets are affected by foreign exchange translation movements on investments that are denominated in currencies other than sterling. As at 30 September 2019, the Company held two investments denominated in currencies other than sterling: one in the USA valued at £10 million ($12 million) and the other in Continental Europe valued at £2 million (€2 million).

The impact on profit after tax and on shareholders' equity due to increases and decreases in the value of the US Dollar and Euro, in absolute terms and as a percentage of those figures, is analysed in part (ii) of this note.

Interest Rate Risk

The Group finances its operations through retained profits including realised capital profits. These profits are held as cash balances to the extent they have not been distributed. The Company had no gearing at 30 September 2019 (2018: no gearing).

Interest rate risk profiles for financial assets and liabilities and the impact of the profit or loss after tax and on shareholders' equity due to increases or decreases in interest rates, in absolute terms and as a percentage of those figures, are shown in part (iii) of this note. These profiles exclude short-term receivables and payables.

Liquidity Risk

The Group's assets comprise unlisted equity and non-equity shares, fixed income securities, liquidity funds and secondaries. Whilst unlisted equity is illiquid, short-term flexibility is achieved through cash which is available on demand and liquidity funds which are available within 24 hours. The Group's financial liabilities are expected to be settled in less than a year.

27

16 Financial Instruments (continued)

Credit Risk

The Group's exposure to credit risk principally arises from its cash deposits. Only major banks are used when making cash deposits and the level of cash is reviewed on a regular basis. In total, cash balance of £1 million (2018: £3 million) was principally held with two UK banks, whose credit ratings are listed in the table below.

Capital Risk Management

The Group's capital comprised:

The Group's objective in the management of capital risk is to safeguard its liquidity in order to provide returns for shareholders and to maintain an optimal capital structure. In doing so the Group may adjust the amount of dividends paid to shareholders (whilst remaining within the restrictions imposed by the investment trust status) or issue new shares or debt. During the year the Group paid £161 million (2018: £359 million) in dividends.

The Group has an existing authority to implement an on-market share buy-back programme to generate shareholder value. There are no externally imposed requirements on the Company's capital.

(ii) Foreign Currency Exposures

As at 30 September 2019, the Group and Company had €2 million euro-denominated investments remaining in the portfolio, and foreign currency exposure on these investments is minimal. The table below shows the Group and Company's exposure to US dollar fluctuations.

In determining reasonable currency movements in the US dollar, the Group analysed observable market rates on the currency for the preceding 10-year period and the 10% movement is determined using the historical average of absolute changes.

(iii) Interest Rate Risk Exposures

The financial instruments held by the Group include equity and non-equity shares as well as floating interest securities. The financial instruments shown below are separated into the type of income those instruments generated. Base interest rate in the UK has been less than 1% for a number of years and, for the purpose of sensitivity analysis, the Group analysed a 1% rate change scenario, which is considered to be a reasonable movement.

Interest on floating rate financial assets is at prevailing market rates.

28

16 Financial Instruments (continued)

(iii) Interest Rate Risk Exposures

The weighted average interest rate and period to maturity of the Group's and Company's investments are as follows:

29

16 Financial Instruments (continued)

(iii) Interest Rate Risk Exposures (continued)

Impacts on the Group's results after tax and shareholders' equity due to a 1% movement in interest rates are as follows:

(iv) Financial Assets and Liabilities