REG - EPE Special Opps Ltd EPE Special Opp-EO.P EPE Special Opp-EL.P - Trading Update

EPE Special OpportunitiesAnnouncement

08/02/2024 16:45

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RNS Number : 5241C  EPE Special Opportunities Limited  08 February 2024

EPE Special Opportunities Limited
("ESO" or the "Company")

 

Trading Statement

 

The Board of EPE Special Opportunities is pleased to provide an update on the
Company's performance for the full year ended 31 January 2024.

 

·      The macro-economic environment has continued to be complex
throughout the year ended 31 January 2024, creating headwinds for the Company
and its portfolio. Economic uncertainty has underpinned an adverse environment
for new investments or disposals within the portfolio at acceptable pricing.
As a result, the Board and Investment Advisor have prioritised positioning the
portfolio to navigate turbulent market conditions and focussed on operating
improvements and liquidity, while progressing longer term growth strategies
which will allow the Company to capitalise as the trading environment begins
to stabilise. The Board and Investment Advisor are encouraged by early signs
of stabilisation in key indicators and look forward to further improvement
over the coming period.

 

·      The unaudited estimate of the Net Asset Value ("NAV") per share
of the Company as at 31 January 2024 was 324 pence, representing a decrease of
1 per cent. on the NAV per share of 328 pence as at 31 January 2023. The
unaudited estimate has been prepared using the Company's historic valuation
methodology and accounting principles.

 

·      The share price of the Company as at 31 January 2024 was 165
pence, representing a decrease of 3 per cent. on the share price of 170 pence
as at 31 January 2023.

 

·      In January 2024, Luceco released a trading update for the year
ended 31 December 2023, announcing trading ahead of market expectations. The
group announced sales of £209 million, with Q4 trading 9.5 per cent. ahead of
the prior year. The business expects to generate operating profit of £24
million, ahead of expectations. The business achieved strong cash generation
driven by higher operating profit and improved working capital efficiency
which supported further deleveraging, with net debt of 0.6x LTM EBITDA as at
31 December 2023. An excellent achievement and well below Luceco's target
range of 1.0-2.0x net debt to EBITDA.

 

·      Whittard of Chelsea ("Whittard") delivered a strong performance
in the period led by growth in its UK retail channel, due to strengthening
domestic and tourist footfall, further enhanced by a new pop-up store in
London Paddington station over the Christmas period. Whittard has continued to
progress its international strategy, with the business entering a strategic
partnership with Rayware to develop its overseas presence and with its South
Korean franchise partner opening a new store in Samsung Town in April 2023.
The business made two senior appointments in January 2024, including a new
Chief Financial Officer and Chief Marketing Officer.

 

·      The Rayware Group ("Rayware") has experienced challenging trading
conditions throughout the period. Financial performance was impacted by
customer destocking, acute supply chain costs, depressed consumer confidence
and well publicised inflationary cost pressures. Rayware's capital structure
has therefore remained stretched due to depressed EBITDA, interest exposure
and mezzanine finance, stapled to the structure at acquisition. In the period
ESO invested £3.35 million to reduce external debt and has a contingent
guarantee of £1.75 million outstanding.  More positively, in support of the
international growth strategy, a new Head of US Sales and Marketing was
appointed in June 2023 and a new Head of Export was appointed in February
2024.

 

·      David Phillips has continued to develop its built-to-rent and
project-based divisions, delivering year-on-year sales growth. Profitability
has improved from better product sourcing, pricing and a focus on recurring
sales channels. Efficiency has been further enhanced through prudent actions
taken to reduce the cost base.

 

·      Pharmacy2U ("P2U") demonstrated an increased rate of organic
growth in its core NHS online prescription division in the period. In October
2023, P2U announced the acquisition of LloydsDirect, the UK's second largest
online pharmacy, from McKesson UK. In November 2023, the UK Competition and
Markets Authority announced they are reviewing the acquisition, with
integration subject to their approval.

 

·      Denzel's has focussed on developing its team and infrastructure
in the period to support its ambitious growth plans, whilst at the same time
achieving strong year-on-year sales growth. The business relaunched its
website and has seen a significant increase in online marketing and
transactional activity to support its early successes in offline retail
channels.

 

·      In January 2024, EPIC Acquisition Corp ("EAC") announced that it
will return all residual capital to third parties and wind up. A perfect storm
of Ukraine, global divestment from China, economic flux from energy prices,
subsequent inflation and inevitable stock market volatility made 2022 and 2023
difficult years with regards to a high conviction, high risk, capital markets
product. Over the 24 month investment period, the EAC team reviewed over 250
opportunities, engaged actively with 12 targets and held over 100 investor
meetings. Interesting transaction opportunities arose but could not be
completed given the lack of appetite for public market transactions during the
period. A disappointing end to an interesting investment product and
opportunity for ESO. ESO's holding in EAC will be realised at par while the
value realised from EAC Sponsor will be determined following the completion of
the liquidation.

 

·      In July 2023, the Company completed the realisation of its
holdings in Atlantic Credit Opportunities Fund and in August 2023 completed
the realisation of its holdings in Prelude Structured Alternatives Master Fund
LP, both realised at carrying value.

 

·      The Company had cash balances of £15.3 million(1) as at 31
January 2024. The Board continues to focus on maintaining satisfactory
liquidity during the ongoing period of market uncertainty. In July 2023, the
Company exercised its right to extend the maturity of its £4.0 million
unsecured loan notes to 23 July 2024. In July 2023, the Company also
repurchased 7.5 million zero dividend preference ("ZDP") shares. Following
this buyback, the Company has 12.5 million ZDP shares remaining in issue,
maturing in December 2026. The Company has no other third-party debt
outstanding.

 

·      As at 31 January 2024, the Company's unquoted portfolio was
valued at a weighted average EBITDA to enterprise value multiple of 7.2x
(excluding assets investing for growth) and the portfolio continues with a low
level of third party leverage, which is commensurate with current market
conditions, with net debt at 1.4x EBITDA in aggregate.

 

Mr Clive Spears, Chairman, commented: "The Company has faced a complicated
operating environment in the period, but the Board and Investment Advisor have
prudently managed its positioning of the portfolio and the Company with
particular focus on maintaining liquidity and structural or operational
support as required at company and portfolio level. The Board would like to
express its gratitude to the Investment Advisor and the portfolio management
teams for their diligence during another turbulent year which has been
particularly demanding to ensure investee companies remain on track. The Board
will continue to monitor developments and looks forward to updating
shareholders at the half year."

 

The person responsible for releasing this information on behalf of the Company
is Amanda Robinson of Langham Hall Fund Management (Jersey) Limited.

 

Note 1: Company liquidity is stated inclusive of cash held by subsidiaries in
which the Company is the sole investor.

 

Enquiries:

 

 EPIC Investment Partners LLP                   +44 (0) 207 269 8865

                                                Alex Leslie
 Langham Hall Fund Management (Jersey) Limited  +44 (0) 15 3488 5200

                                                Amanda Robinson
 Cardew Group Limited                           +44 (0) 207 930 0777

                                                Richard Spiegelberg
 Numis Securities Limited                       +44 (0) 207 260 1000
 Nominated Advisor:                             Stuart Skinner
 Corporate Broker:                              Charles Farquhar

 

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