HALF-YEAR REPORT 2019 CONTENTS
SPICE PRIVATE EQUITY 3 KEY FIGURES 5
INVESTMENT STRATEGY 6
BOARD OF DIRECTORS 7
INVESTMENT MANAGER 8
FIRST HALF 2019 REVIEW 10 HIGHLIGHTS 11
PORTFOLIO UPDATE 13
FINANCIAL STATEMENT 15
INVESTMENT PORTFOLIO 16 FOODFIRST GLOBAL RESTAURANTS 17
THE CRAFTORY 19
LEON RESTAURANTS 21
RIMINI STREET 23
RHI MAGNESITA 25
FINANCIAL STATEMENTS (IFRS) 27 SPICE PRIVATE EQUITY SPICE PRIVATE EQUITY
Spice Private Equity Ltd. (“Spice PE”) is an investment company focused on global private equity investments and listed on the SIX Swiss Exchange (SPCE). Our Board of Directors has reorganized Spice PE since 2016 to drive operational efficiency and to provide shareholders with direct access to an attractive portfolio of private equity investments. We have transformed our asset base in the last two years, and at the end of June 2019, Spice PE's exposure to capital committed in direct investments accounted for more than 83%¹ of the company’s total net asset value (“NAV”).
Since building our new portfolio, our focus has been on driving value via strong governance and active management at each of our companies. This approach is at the core of the successful 26-year track record built by our investment manager GP Investments² (“GP”). From its foundation in 1993, GP has deployed over USD 5 billion in more than 50 private equity transactions across numerous sectors, leading operational transformations that created market leaders. GP’s investment professionals have honed their operational expertise in varied C-suite roles, and they have been investing as a team for over a decade.
SPICE PE’S BUSINESS MODEL GP Investments
USD 1.1 billion in +50 private equity deals proprietary capital invested across +15 sectors 1. Active management
4. Permanent 2. Emphasis on capital perspective complex transactions
3. Expertise across wide USD 5 billion raised range of sectors Industrial approach: focus on from investors worldwide operational & growth opportunities
4 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD
Notes: (1) Based on the Jun-19 direct investments portfolio NAV, assuming cash would be fully committed to The Craftory. (2) Our investment manager, GP Advisors (Bermuda) Ltd., is a wholly owned subsidiary of GP Investments, Ltd. KEY FIGURES
NAV COMPOSITION¹ USD 200 MILLION AS OF 30 JUNE 2019
83% 17% DIRECT LEGACY of total of total INVESTMENTS PORTFOLIO NAV NAV
GEOGRAPHIC EXPOSURE¹ INVESTMENT PORTFOLIO PER REGION
54% of 38% of 8% of NORTH total total EMERGING total EUROPE AMERICA MARKETS NAV NAV NAV
DIRECT INVESTMENTS PORTFOLIO COMPANIES
30% of 30% of 18% of 9% of total total total total NAV NAV² NAV NAV
5 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD
Notes: (1) NAV figures reflect Spice PE’s investment portfolio as of June 2019, assuming cash would be fully committed to The Craftory. (2) Assumes Spice PE's USD 60 million commitment in The Craftory is fully deployed. Figures may not add up due to rounding. INVESTMENT STRATEGY
Spice PE’s primary objective is to generate superior returns to shareholders through capital growth. In order to achieve that, we continuously pursue investments that HOW WE can increase our net asset value per share. Our fundamental investment strategy is OPERATE based on long-term direct private equity investments in companies that have global leadership ambitions. Operating as shareholders with relevant ownership and significant governance rights, Spice PE focuses on pulling operational & growth levers.
APPROACH TO VALUE CREATION
ACTIVE MANAGEMENT INDUSTRY EXPERTISE via significant governance and focus solid track record across a wide on operational & growth levers range of sectors
SIGNIFICANT INFLUENCE COMPLEX TRANSACTIONS with control or significant minority where we can unlock substantial value positions to ensure governance rights through our execution capabilities
FOCUS ON FEW COMPANIES PERMANENT CAPITAL dedicating relevant time and supporting companies with business resources to each one models that can thrive across cycles
Owning Spice PE shares (“SPCE”) enables indirect ownership in a portfolio of businesses with transformational growth potential. SPICE PE Our shareholders obtain private equity exposure via freely traded public shares, SHAREHOLDER and face no restrictive conditions such as minimum investment or holding periods. ADVANTAGES Given GP’s substantial SPCE ownership, Spice PE shareholders benefit from full alignment with our investment managers in the pursuit of long-term capital growth.
6 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD BOARD OF DIRECTORS
CHRISTOPHER BROTCHIE CHAIRMAN OF THE BOARD, SWITZERLAND Director of the board at Baring Private Equity, Firmdale Hotel Holdings and Bolero, Mr. Brotchie is an Investment Committee and Advisory Council member in several investment firms.
FERSEN LAMBRANHO VICE-CHAIRMAN OF THE BOARD, UK Chairman of the board at GP Investments Ltd., Mr. Lambranho has 20+ years as a manager and board member in multiple companies across various sectors. Prior to joining GP in 1998, he was CEO at Lojas Americanas, where he worked for 12 years.
ALVARO LOPES MEMBER OF THE BOARD, UNITED STATES Previously a board member and CFO at GP Investments Ltd., Mr. Lopes served as a board member of GP Advisors (a wholly owned subsidiary of GP Investments, Ltd.) and also as a board member of BRZ Investimentos and Wiz Soluções, and as CEO of Banco Bozano Simonsen.
CHRISTOPHER WRIGHT MEMBER OF THE BOARD, UNITED STATES Chairman of EMAlternatives LLC, an asset management firm, and of its former affiliate in China (Yimei Capital). Mr. Wright sits on the board of Merifin Capital, a European investment firm, and also serves as a co-founding board member of Roper Technologies Inc. (NYSE).
DAVID EMERY MEMBER OF THE BOARD, SINGAPORE Founder & CEO of Reciprocus International PTE Ltd, a globally active M&A advisory boutique. Mr. Emery currently serves as an advisor to several organizations and government agencies and sits on multiple boards.
7 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD INVESTMENT MANAGER
GP Advisors (Bermuda) Ltd. is a wholly owned GP Investments is well known for its active subsidiary of GP Investments, Ltd., a leading management approach, which became the private equity and alternative investments firm. hallmark of its successful investment track-record. Since its foundation in 1993, GP Investments has Since 2006, GP Investments has had its Class A completed investments in more than 50 shares traded in the form of Brazilian Depositary companies and executed over 20 equity capital Receipts (BDRs) on the Brazilian Stock Exchange market transactions. GP Investments has a (B3 S.A. – Brasil, Bolsa, Balcão) under the ticker consistent and disciplined investment strategy, GPIV33 and on the Luxembourg Stock Exchange. targeting established companies that have the The firm currently has offices in São Paulo, New potential to grow and be more efficient and York, London and Bermuda. profitable, becoming leaders in their industries.
GLOBAL FOOTPRINT London New York UK OVER 50 PRIVATE EQUITY DEALS USA Hamilton ACROSS MORE THAN 15 SECTORS Bermuda
OVER USD 5 BILLION RAISED IN 7 FUNDS
USD 1.1 BILLION OF PROPRIETARY CAPITAL INVESTED São Paulo Brazil OVER USD 4 BILLION OF CAPITAL RETURNED TO INVESTORS
ORGANIZATIONAL STRUCTURE
GP Investments Other (Shareholders) Shareholders
Board of Directors Spice Private Equity LTD ZUG
Investment Committee Spice Private Equity (Bermuda) GP Advisors (Bermuda) LTD LTD
Investment Management Agreement between Spice Private Equity (Bermuda) LTD and GP Advisors (Bermuda) LTD
8 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD GP Investments
GP INVESTMENTS’ BOARD OF DIRECTORS
FERSEN LAMBRANHO CRISTOPHER WRIGHT DANILO GAMBOA CHAIRMAN OF THE BOARD BOARD MEMBER BOARD MEMBER
ANTONIO BONCHRISTIANO ALFRED VINTON BOARD MEMBER BOARD MEMBER
INVESTMENT TEAM
MEMBER ROLE TIME AT GP PAST EXPERIENCE EDUCATION
Johnston Associates, ANTONIO BA: University of CEO 25 years Salomon Brothers & BONCHRISTIANO Oxford Submarino
DANILO Gradus Management BA: USP MD 14 years GAMBOA Consultants MBA: MIT
RUBENS BA: ITA MD 13 years Roland Berger FREITAS MBA: Harvard
JOÃO BA: USP MD 10 years Accenture JUNQUEIRA MBA: Wharton
RODRIGO MD & BA: USP 9 years BCG BOSCOLO CFO MBA: Wharton
9 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD FIRST HALF 2019 REVIEW HIGHLIGHTS
SPICE POSTED A NET PROFIT OF USD 3.4MN IN THE PERIOD AND DISTRIBUTED APPROXIMATELY USD 5.1MN AS DIVIDENDS IN JUNE 2019
INVESTMENT ACTIVITY IN NUMBERS (AS OF 30 JUN 2019) As a result of the completion of two significant direct investments last year, Spice PE’s capital is MARKET CAPITALIZATION nearly fully committed to its current portfolio. USD 117 million Since then, our attention has been focused on driving value in our portfolio companies, NET ASSET VALUE ensuring that excellent management teams are in place and energetically engaged in their USD 200 million efficiency and growth plans. In our legacy portfolio, we continue to see NAV DISCOUNT gradual distributions as funds near the end of 41 % their divestment cycles. Noticeably, in July 2019, Spice received approximately USD 6.9mn 1 from the partial divestment of funds managed TOP FIVE INVESTMENTS (AS % OF NAV) by GP relative to RHI Magnesita. Over time, we 95 % expect to redeploy that capital into new investments.
NAV PER SHARE AND PRICE EVOLUTION
70.0 44% 41% 39% 39% 36% 36% 60.0 32% 30% 31% 33%
50.0 43.0 42.3 41.7 41.0 42.0 40.0 39.1 37.8 38.3
40.0 37.5
30.0
20.0
25.9 28.4 28.7 28.9 27.6 27.0 25.0 10.0 23.2 21.4 22.0
- Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Share Price (USD) Discount Discount
11 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD
Notes: (1) Based on the Jun-19 direct investments portfolio NAV, assuming Spice PE's USD 60 million commitment in The Craftory is fully deployed. NET ASSET VALUE Love – a company that makes underwear and swimwear with a no-leak design. Spice PE’s NAV per share was USD 37.5 at the semester-end, compared to USD 37.8 on 31 DIVIDEND PAYMENT December 2018. Total NAV moved from USD In June, Spice concluded a USD 0.95 per share 202mn to USD 200mn, driven by the USD 5.1 dividend payment, amounting to a total dividend of million dividend payment and a USD 3.4mn net USD 5.1mn. The distribution marks the first profit in the period. payment under the new dividend policy. The The SPCE share price fell by 5%, from USD 23.2 on program has a three year term, and dividends 31 December 2018, to USD 22.0 by the end of June should gradually increase based on minimum 2019. target pay-outs of USD 5.5mn and USD 6.0mn in 2020 and 2021, respectively. Specific payouts are LEGACY PORTFOLIO decided based upon Spice PE’s liquidity position, In June 2019, the NAV of our legacy portfolio the performance of its investment portfolio and increased from USD 31.1 million in December 2018 the board’s assessment of new potential to USD 33.1 million, mainly driven by the investments or divestments. appreciation of RHI Magnesita. CURRENCY EXPOSURE UPDATE ON THE CRAFTORY Throughout the semester, the depreciation of the In and shortly after 1H19, The Craftory announced GBP had a negative impact on Spice’s balance three investments. In March, USD 30mn in NotCo, sheet, reducing the FMV of LEON and RHI a food technology business that produces food Magnesita. The total impact for Spice in the with plant-based ingredients; in May, USD 17.5mn semester was -USD 267k. in TomboyX, a company that manufactures eco- friendly underwear; and in July, USD 15mn in Ruby
LEGACY PORTFOLIO - IMPLICIT RETURNS
DATE OF COST FMV C-o-C FUND INVESTMENT (USD MN, Jun-19) RETURN
Global EM Funds 2015 9.0 14.4 1.6x
Sub-Saharan African 2015 5.0 2.5 0.5x Funds
Latin American Funds 2015 3.8 14.8 3.9x
DLJ South America 2015 1.0 0.9 0.9x Partners
Asia-Pacific Funds 2014 3.0 0.5 0.2x
TOTAL 21.9 33.1 1.5x
12 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD PORTFOLIO UPDATE
COMPANY INVESTMENT FAIR SIZE LOCATION SECTOR NAME DATE VALUE¹ North 1 FOODFIRST GLOBAL RESTAURANTS Consumer May-18 USD 60mn America 2 THE CRAFTORY UK Consumer May-18 USD 60mn 3 LEON RESTAURANTS UK Consumer Aug-17 USD 36mn North 4 RIMINI STREET Technology Oct-17 USD 17mn America DIRECT INVESTMENTS USD 173mn 5 RHI MAGNESITA UK/LatAm Industrial Apr-15 USD 17mn LARGEST LEGACY PORTFOLIO UNDERLYING INVESTMENT USD 17mn
TOP FIVE INVESTMENTS USD 190mn (% OF TOTAL NAV) (95%)
NAV COMPOSITION
Legacy portfolio sold New strategy execution
+ Cash & Receivables Leon Restaurants Rimini Street FoodFirst The Craftory
83% committed to direct investments²
28%
54% 57% 62%
53% 27% 28% 22%
19% 19% 15% 17% Dec-17 Jun-18 Dec-18 Jun-19
Direct Investments Cash Legacy Portfolio
13 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD
Notes: Figures may not add up due to rounding. (1) NAV figures reflect Spice PE’s investment portfolio as of Jun-19, assuming Spice PE's USD 60 million commitment in The Craftory is fully deployed. (2) Assumes cash would be fully committed to The Craftory. PORTFOLIO INVESTMENT TIMELINE
2017 2018 1H19 LOOKING AHEAD
Focus on same-store Continued USD 60mn sales growth and - turnaround invested store-level focus profitability
Gradual capital Investments in deployment; USD 60mn - NotCo, TomboyX increased attention commitment and Ruby Love¹ to newly invested brands
U.S. expansion with Sustained +14% NAV new stores in DC; USD 31mn double digit increase in 2018 increased attention invested same-store sales FMV review to technology and and margins new channels
Top-line growth USD 24mn Revenue growth Continued client acceleration with invested of 19% YoY in base growth enhanced sales 2018 vs. 2017 capabilities
Merger Continued Successful Sustained margin concluded & operational partial expansion through RHIM listed on integration divestment by synergies and the LSE driving synergies GP Investments¹ optimization
USD 55mn USD 120mn Dividend Focus on value deployed under deployed under payment totaling creation in our new strategy new strategy USD 5.1mn portfolio
14 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD
Notes: (1) The investment in Ruby Love and the partial divestment from RHI Magnesita occurred in July 2019. FINANCIAL STATEMENTS
FINANCIALS IN TUSD 30-Jun-19 30-Jun-18 Spice PE’s gross portfolio return (comprising both realized and unrealized variations) reached USD Income 4.9 million at 30 June 2019, mostly driven by Change in FMV 4,769 (7,062) unrealized changes in FMV. Total expenses were Net realized gain/(loss) USD 2.1 million, pointing to a significant 136 (265) on investments improvement when compared to the USD 3.0 - million reported in June 2018. Accordingly, Spice Dividend income 8 PE registered a net profit of USD 3.4 million in 30 Interest income 596 727 June 2019 (compared to a net loss of USD 9.7 Others 6 (42) million in 30 June 2018). Total income 5,515 (6,642) Our balance sheet remained strong, with cash & cash equivalents and other short-term financial Total expenses (2,097) (3,045) assets standing at USD 44.3 million as of 30 June 2019. Spice PE continued to hold no debt at the Income tax expenses - - group level. Net profit/(loss) for the 3,418 (9,687) period
TOTAL EXPENSES PROPOSED DIVIDENDS & YIELD¹ (USD MILLION) (USD MILLION) 5.1% 44% 6.0 4.7% 3.8 3.4 5.5 3.0 4.3% 2.1 5.1
HY 16A HY 17A HY 18A HY 19A FY 2019F FY 2020F FY 2021F
15 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD
Notes: (1) Dividend yield based on Spice PE’s market capitalization of USD 117.4 million as of 30 June 2019 INVESTMENT PORTOLIO FOODFIRST GLOBAL RESTAURANTS
CONTINUED FOCUS ON DELIVERING THE OPERATIONAL TURNAROUND
PORTFOLIO: DIRECT INVESTMENT ASSET CLASS: PRIVATE
FoodFirst Global Restaurants (formerly Bravo Brio Restaurant Group) is a leading US-based owner and operator of two distinct Italian restaurant brands: BRAVO! Cucina Italiana and BRIO Tuscan Grille. The company has over 100 outlets across 32 states in the United States, most of which are strategically positioned in high-traffic areas and A+ shopping centers. FoodFirst strives to be the best Italian restaurant company in America and is focused on providing its guests with an excellent dining experience through consistency in its execution. To achieve that goal, an experienced management team was put in place under the leadership of Brad Blum, former CEO of Burger King and former president of Olive Garden.
INVESTMENT SELECTED NUMBERS
SPICE PE'S 56% REVENUES 2018 > USD 300 million OWNERSHIP
SECTOR Consumer SITES +100 sites
INVESTMENT May-18 - BRIO ~50 sites DATE
FMV USD 60mn - BRAVO ~50 sites
# OF COST USD 60mn +9,000 EMPLOYEES % OF SPICE 30% PE'S NAV
17 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD INVESTMENT BACKGROUND UPDATE ON FOODFIRST In May 2018, Spice PE took FoodFirst private, Shortly after the completion of our investment, becoming its largest shareholder (56% stake FoodFirst’s new management team implemented through an investment vehicle). system-wide cost reductions and closed several Given the company’s poor performance prior underperforming stores. to our acquisition, Spice PE was able to obtain Concurrently, the team also started to lay the an attractive entry valuation of approximately foundations to reignite revenue growth. While USD 100 million, compared to a market multiple changes to the menus in 4Q18 have capitalization of nearly USD 500 million in impacted guest counts in recent months, previous years. management continues to refine each brand’s Our investment in FoodFirst represents offering and has launched numerous initiatives to another opportunity to leverage our restaurant drive service excellence. industry expertise to reignite the company’s Given the unpredictability of turnaround projects, growth by implementing an operational the company’s priorities continue to be centered turnaround. Together with Brad Blum, who led around stabilizing the top line, preserving cash, the transformation of Olive Garden into one of optimizing the store portfolio and keeping costs the premier players in the casual dining space, under control. we form a powerful partnership to build the FoodFirst platform.
18 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD THE CRAFTORY
TWO NEW DISRUPTIVE COMPANIES JOIN THE CRAFTORY: TOMBOYX AND RUBY LOVE
PORTFOLIO: DIRECT INVESTMENT ASSET CLASS: PRIVATE
The Craftory is an investment holding company THE CRAFTORY INVESTMENT PORTFOLIO with approximately USD 300 million of permanent capital to deploy in up to 10 of the world’s boldest challenger brands within the fast-moving consumer goods space. It focuses on Europe and the U.S., searching for high-growth consumer brands with annual revenues of at least USD 10 million. The goal is to boost sales with scalable operations, effective storytelling and digital marketing. The Craftory is being led by entrepreneurs and brand experts such as its founders Elio Leoni – a board member of Anheuser-Busch InBev and former CEO of Iglo Birdseye and EMI Music – and Ernesto Schmitt, previously the Founder and CEO of Peoplesound, one of the world's first online music companies.
INVESTMENT SELECTED NUMBERS
SPICE PE'S 23% PIPELINE +2,000 companies OWNERSHIP PERMANENT SECTOR Consumer USD 300 million CAPITAL INVESTMENT INVESTED May-18 3 companies DATE COMPANIES CAPITAL DEPLOYED PORTFOLIO USD 11mn 10 companies (as of 30 June 2019) TARGET TARGETS’ COMMITMENT USD 60mn > USD 10mn in revenues SIZE % OF SPICE 30% PE'S NAV¹
19 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD
Notes: (1) Assumes Spice PE's USD 60 million commitment in The Craftory is fully deployed. INVESTMENT BACKGROUND THE CRAFTORY’S PORTFOLIO UPDATE Spice PE launched The Craftory as a catalyst In May, The Craftory completed a USD 17.5mn for disruption in the consumer products investment in TomboyX for a majority stake in the space. Once fully deployed, our commitment company. TomboyX manufactures eco-friendly to The Craftory should become one of Spice underwear that anybody can feel comfortable in, PE's most significant assets, representing regardless of size or gender. 30% of our NAV¹. Built with a unique proposition, substantial capital, and a differentiated team with complementary skills, The Craftory has enormous potential for value creation.
The Craftory’s goal is to form a distinctive Subsequently, in July, The Craftory completed a platform of like-minded challengers and a USD 15mn investment in Ruby Love, a company brain trust of some of the finest disruptors that makes underwear and swimwear with a around the globe. The company started its unique no-leak design that can be worn alone or journey with nearly USD 300 million in in combination with other feminine care committed capital, and the team comprises products. hands-on, strategic and creative The Craftory professionals will partner with Ruby professionals who are experts in branding, Love to increase its distribution through e- storytelling, growth platforms, supply chains, commerce and large retailers. and investing. Under the investment leadership of Thiago Rodrigues, a former Managing Director of GP Investments, The Craftory will execute a very selective investment process, targeting significant minority or controlling positions. Spice PE holds one of the three board seats Looking ahead, The Craftory should dedicate in The Craftory, despite committing only 22% considerable resources to the newly invested of total capital. brands and continue to pursue investments in selective challenger brands with great potential.
20 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD
Notes: (1) Based on Spice PE’s NAV as of June 2019 and assuming Spice PE's USD 60 million commitment in The Craftory is fully deployed. LEON RESTAURANTS
SUSTAINED ORGANIC GROWTH AND ACCELERATING EXPASION ACROSS EUROPE AND THE U.S.
PORTFOLIO: DIRECT INVESTMENT ASSET CLASS: PRIVATE
LEON is a UK-based, globally ambitious natural NEW LEON STORES IN EUROPE AND U.S. fast-food chain. The company joined the food scene in 2005, when it was named the Best New Restaurant in the UK by The Observer, a British newspaper. Over the past four years, LEON has doubled in size and managed to continuously deliver same-store sales growth, despite a challenging market backdrop in the UK. With more than 60 restaurants and over 1,000 employees, LEON offers Mediterranean dishes and a natural menu at reasonable prices. As part of its expansion plan, LEON continues to open stores with franchise partners across Europe and has recently opened its first store in the United States, located in Washington D.C.
INVESTMENT SELECTED NUMBERS
SPICE PE'S REVENUES 40% > GBP 60 million OWNERSHIP 2018
SECTOR Consumer SITES +60
INVESTMENT # OF Aug-17 +1,000 DATE EMPLOYEES
FMV USD 36mn
COST USD 32mn
% OF SPICE 18% PE'S NAV
21 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD INVESTMENT BACKGROUND UPDATE ON LEON Our investment in LEON, concluded in August LEON delivered double-digit same-store sales 2017, was Spice PE's first investment under growth in 2018 and the pace was sustained the new direct private equity strategy, and it throughout the first half of 2019. The now accounts for 18% of the total NAV. The company’s strong performance is a result of opportunity to invest in LEON emerged as the continuous food innovation and consistent company was looking for a long-term investor service execution. Leon’s recently launched that would be able to support its global growth Summer Menu has proved to be very popular ambitions. Based on the potential arising from and further boosted revenues during the the combination of our operational and sector period. expertise with LEON’s visionary leadership, Looking at unit expansion, Leon opened its Spice PE decided to invest GBP 25 million in second store in the U.S. in August and new the company, becoming its largest shareholder. openings are expected in the near term. LEON’s Spice PE's manager, GP Investments, enjoys a team is confident about delivering more successful track record in the sector, having led openings than last year and accelerating store international expansion projects while, at the growth even further in 2020. same time, sustaining sector-leading margins.
22 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD RIMINI STREET
DOUBLE DIGIT GROWTH IN CLIENT BASE AND REVENUE
PORTFOLIO: DIRECT INVESTMENT REVENUES +10% ASSET CLASS: PUBLIC USD MILLION 122 134 101 Rimini Street is a leading independent provider of enterprise software support. The company was founded in 2005 with the aim of delivering an innovative and value-driven solution for enterprises, targeting an addressable market of 1H17 1H18 1H19 USD 15 billion, considering currently supported products. Rimini’s clients have saved over USD 3 GROSS PROFIT billion in maintenance costs to date. Rimini +17% USD MILLION provides software support to more than 1,800 active clients, including 81 companies in the 85 73 Fortune 500 and 18 in the Fortune Global 100. 63 The company offers not only a low-cost solution, but also superior service in its support delivery. As a result, Rimini Street has achieved consistent revenue growth throughout the years. 1H17 1H18 1H19
INVESTMENT SELECTED NUMBERS
SPICE PE'S # OF ACTIVE 5% +1,800 OWNERSHIP CLIENTS # OF SECTOR Technology +900 EMPLOYEES INVESTMENT RETENTION Oct-17 +91% DATE RATE
FMV USD 17mn
COST USD 24mn
% OF SPICE 9% PE'S NAV
23 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD INVESTMENT BACKGROUND UPDATE ON RIMINI STREET Spice PE invested in Rimini Street in October Throughout the first half of 2019, Rimini Street 2017 as part of the new direct investment made meaningful progress expanding sales strategy. Rimini currently represents 9% of capacity, improving sales productivity and Spice PE's NAV. The acquisition involved a effectiveness, and investing in new enterprise complex transaction which combined GP software products and services such as the Investments Acquisition Corp. (GPIAC) – a Application Management Services for SAP. Special Purpose Acquisition Company (SPAC) – Rimini Street’s client base keeps growing by with Rimini Street. The SPAC was listed before double digits, having increased by 17% over the the merger and, as soon as the combination last 12 months (as of 30 Jun 2019) and reaching was completed, Rimini Street shares began 1,896 active clients by the end of the first trading on the Nasdaq Exchange as ‘RMNI’. Of semester. the USD 50 million equity raised, Spice PE Revenues exceeded the high end of the guidance invested USD 24 million. Despite owning just a range in both quarters this year. Rimini has raised 5% stake, Spice PE holds two of the nine board the low end of the full year 2019 revenue seats. guidance from USD 265 million to USD 270 Our investment in Rimini Street was based on million, while maintaining the high end of the the attractiveness of: (i) a proven, disruptive range at USD 280 million. and low capital-intensity solution, with a large Collection has also beaten expectations, and the addressable market; and (ii) a strong founder- company finished the semester with USD 49.8 led team, with the capabilities and right million in cash. incentives to pursue long term value creation. In March, the U.S. Supreme Court issued a unanimous decision reversing earlier decisions by lower courts and ruling that Oracle must return USD 12.8 million in non-taxable expenses (plus interest) that Rimini Street had paid to Oracle in 2016. This refund is in addition to the USD 21.5 million that Oracle previously returned to Rimini Street on March 31, 2018, following a decision and order by the U.S. Ninth Circuit Court of Appeals. By the end of the semester, the share price had increased 3%, from USD 5.15 to USD 5.30.
24 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD RHI MAGNESITA
SUCCESSUL PARTIAL DIVESTMENT FROM RHI MAGNESITA; USD 6.9 MILLION IN PROCEEDS
PORTFOLIO: LEGACY INVESTMENT REVENUES ASSET CLASS: PUBLIC EUR MILLION +2.2%
A global leader in the refractory solutions market, the company is the result of the October 2017 1,541 merger between RHI of Austria and Brazilian 1,508 company Magnesita (controlled by GP Investments). RHI Magnesita stands out in the 1H18 1H19 global refractory solutions market for its vertical integration, meeting approximately 80% of its ADJUSTED EBITA raw material requirements from its own mineral EUR MILLION reserves. This model allows RHI Magnesita to operate with one of the lowest cost structures in +12% the refractories sector. The company’s reserves include the world’s largest and best mines of 234 magnesite and dolomite. 209
1H18 1H19
INVESTMENT SELECTED NUMBERS
SPICE PE'S 1% FACILITIES 35 OWNERSHIP
SECTOR Industrial COUNTRIES 16
INVESTMENT # OF Apr-15 +10,000 DATE CUSTOMERS # OF FMV USD 17mn +14,000 EMPLOYEES
COST USD 4mn
% OF SPICE 8% PE'S NAV
25 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD INVESTMENT BACKGROUND UPDATE ON RHI MAGNESITA Accounting for 8% of our NAV, RHI Magnesita The company’s adjusted EBITA margin improved is the largest underlying asset in our legacy by 140 bps based on synergy gains, with adjusted portfolio. Counting on a robust business EBITA reaching EUR 234 million at the end of the model, unique positioning and strong cash semester compared to EUR 209 million in June flow generation, RHI Magnesita has delivered 2018. By the end of the year, RHI Magnesita superior performance since Spice PE’s expects to save an additional EUR 20 million via investment. The merger was concluded less synergies. then two years ago, so there is still On July 9, GP Investments announced a partial considerable potential for value creation via divestment from RHIM. Funds managed by GP further synergies. sold 2,156,794 ordinary shares in RHI Magnesita, As a controlling shareholder of Magnesita, GP representing approximately 4.36% of RHI Investments invested in the company more Magnesita’s entire issued capital, at a price of GBP than 10 years ago, having appointed multiple 46 per share. Total transaction proceeds executives including the CEO (and later CFO of amounted to roughly GBP 100mn, of which Spice RHI Magnesita). received approximately USD 6.9mn as Since the conclusion of the merger of distributions. Following the completion of this Magnesita with RHI, in October 2017, and the transaction, GP funds still hold approximately resulting listing on the London Stock Exchange, 4.36% of the issued share capital of RHI RHI Magnesita shares have appreciated by 28% Magnesita. (as of 30 June 2019). The transaction has reshaped the sector, with RHI Magnesita emerging as the global market leader.
RHI MAGNESITA’S GLOBAL FOOTPRINT
Production facilities
Raw material sites
26 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD FINANCIAL STATEMENTS (IFRS) CONSOLIDATED BALANCE SHEET (UNAUDITED)
IN TUSD Note 30.6.2019 31.12.2018 30.06.2018 Assets Current assets – Cash and cash equivalents 29 064 40 834 41 490 – Financial instruments 6 14 897 15 056 15 207 – Receivables and prepayments 365 591 1 115 Total current assets 44 326 56 481 57 812 Non–current assets – Investments 7 Equity portfolio 156 335 146 023 157 132 Total non–current assets 156 335 146 023 157 132
Total assets 200 661 202 504 214 944
Liabilities and Shareholders’ Equity Current liabilities – Payables and accrued charges 152 349 264 – Provision 164 164 164 Total current liabilities 316 513 428
Total liabilities 316 513 428
Shareholders’ Equity 4 – Share capital 53 980 53 980 53 980 – Share premium 324 810 346 991 346 991 – Treasury shares (at cost) (625) (633) (545) – Retained earnings /(accumulated deficit) (181 711) (176 696) (176 696) – Net profit /(loss) for the period 3 418 (22 124) (9 687) – Currency translation difference 473 473 473 Total Spice PE Shareholders’ Equity 200 345 201 991 214 516
Total liabilities and Shareholders’ Equity 200 661 202 504 214 944
Net Asset Value per share Number of shares outstanding at reporting date 5 338 611 5 338 257 5 341 977 Net Asset Value per share 37.53 37.84 40.16
28 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
1.1.2019 – 1.1.2018– IN TUSD Note 30.6.2019 30.6.2018 Income Interest income 596 727 Net realized gain/(loss) on investments 7 136 (265) Net unrealized gain/(loss) of investments designated at fair value through profit or loss 7 4 769 (7 062) Dividend income 8 - Net gain/(loss) on foreign currency exchange (6) (78) Other income 12 36 Total income 5 515 (6 642)
Expenses Management fees 5 (1 396) (2 019) Administration fees 5 (49) (52) Other operating expenses (652) (974) Total expenses (2 097) (3 045)
Income tax expenses - -
Net profit/(loss) for the period 3 418 (9 687)
Earnings per share Weighted average number of shares outstanding during the period 5 339 278 5 341 851 Net profit/(loss) per share – basic 0.64 (1.81) Net profit/(loss) per share – diluted 0.64 (1.81)
Other comprehensive income or (loss) for the period - - Total comprehensive income or (loss) for the period 3 418 (9 687)
29 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
IN TUSD 30.6.2019 30.6.2018 Cash flows from operating activities Proceeds from non–current assets 3 056 2 172 Purchase of non–current assets (8 463) (61 894) Dividends received 8 - Operating costs (2 049) (3 874) Other income 32 22 Total net cash used in operating activities (7 416) (63 574)
Cash flows from investing activities Investment in financial instruments (20) (15 329) Interest income 731 854 Total net cash generated from/(used) in investing activities 711 (14 475)
Cash flows from financing activities Payments on behalf of unconsolidated subsidiary - (4) Treasury share purchases (267) (112) Treasury share sales 276 107 Dividends paid to shareholders (5 072) - Total net cash generated from/(used) in financing activities (5 063) (9) Foreign exchange effect on cash and cash equivalents (2) (79) Increase /(decrease) in cash and cash equivalents (11 770) (78 137)
Cash and cash equivalents as of 1 January 40 834 119 627 Cash and cash equivalents as of 30 June 29 064 41 490
30 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
Less Retained treasury Currency earnings/ Total Spice PE Shareholders’ Equity Share Share shares translation (accumulated Shareholders‘ IN TUSD capital premium (at cost) differences deficit) Equity
Balance as of 53 980 362 087 (541) 473 (191 792) 224 207 1 January 2018
Net loss for the period - - - - (9 687) (9 687)
Other comprehensive ------income
Total comprehensive loss - - - - (9 687) (9 687)
Reclass reserve to retained - (15 096) - - 15 096 - earnings
Purchase and sale of (4) - - (4) treasury shares
Total equity changes - (15 096) (4) - 5 409 (9 691)
Total Equity as of 53 980 346 991 (545) 473 (186 383) 214 516 30 June 2018
Balance as of 53 980 346 991 (633) 473 (198 820) 201 991 1 January 2019
Net profit or (loss) for the - - - - 3 418 3 418 period
Other comprehensive ------income
Total comprehensive loss - - - - 3 418 3 418
Reclass reserve to retained - (17 109) - - 17 109 - earnings
Purchase and sale of - - 8 - - 8 treasury shares
Dividends paid - (5 072) - - - (5 072)
Total equity changes - (22 181) 8 - 20 527 (1 646)
Total Equity as of 53 980 324 810 (625) 473 (178 293) 200 345 30 June 2019
31 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
NOTE 1 CORPORATE INFORMATION The Group expects to invest significant amounts of capital in each individual transaction and will Spice Private Equity Ltd (“the Company”) is a Swiss therefore be expected to sustain a higher portfolio stock corporation established under the relevant concentration than was evident in prior years. In provisions of the Swiss Code of Obligations and the case of an investment in any blind pool fund domiciled in Zug. The Company’s shares are listed or limited partnership of which GP or its affiliates on the SIX Swiss Exchange. The address of the is the General Partner, the Group’s investment registered office of the Company is shall not represent more than 10% of such fund’s Industriestrasse 13c, 6302 Zug, Switzerland. aggregate committed capital. As of 31 December 2017, the Group was formed The group Board of Directors currently has the by Spice Private Equity Ltd. and Spice Private following composition: Equity (Bermuda) Ltd (“Spice Bermuda”), a wholly owned subsidiary. • Mr. Christopher Brotchie, Chairman of the Board of Directors On 5 May 2016, GP Investments Ltd (“GP”) agreed to acquire the shares in Spice Private Equity Ltd • Mr. Christopher Wright, member of the Board (ticker symbol “SPCE”) which were held by of Directors investment vehicles managed by Fortress • Mr. Fersen Lamas Lambranho, member of the Investment Group LLC (“Fortress”) and Newbury Board of Directors Associates LLC (“Newbury”). The closing of the • Mr. David Justinus Emery, member of the Board transaction took place right after the annual of Directors general meeting of shareholders on 28 June 2016. GP now indirectly holds 58.48% of the shares and • Mr. Alvaro Lopes da Silva Neto, member of the voting rights of the Group. Board of Directors The investment objective of Spice Private Equity Ltd and its subsidiaries is to achieve long–term capital growth for shareholders by investing directly in companies (“Direct Investments”) and in private equity specialized funds (“Fund Investments”). The Group will invest in assets denominated in foreign currencies and may from time to time enter into transactions with the objective of hedging foreign currency exposure. Direct Investments and Fund Investments may include investments in private equity and private equity related instruments and opportunistically in certain categories of credit products. Investments will typically be made through Spice Bermuda. Net profits generated upon realizations will typically be re–invested.
32 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
In 2013, the Company and GP Advisors Ltd. ORGANIZATIONAL STRUCTURE (formerly APEN Services GmbH) amended their AS OF 30 JUNE 2019 AND 31 DECEMBER 2018 agreement on administrative services to be provided to the Company. Under the agreement, GP Investments Other the Company issued a power-of-attorney to GP (Shareholders) shareholders Advisors Ltd. (a wholly owned subsidiary of GP 58.48% Investments, Ltd.) staff to handle matters of a Board of Directors merely administrative nature. Under this 100% Spice Private Equity LTD agreement, the Company shall pay to GP Advisors ZUG Ltd. (a wholly owned subsidiary of GP 1 Investments, Ltd.) an annual fee of CHF 100 000 plus out-of-pocket expenses reasonably incurred. Investment Committee 100% On 01 July 2017, this agreement was transferred GP Advisors Spice Private Equity to GP Advisor (Bermuda) under the same terms. (Bermuda) LTD (Bermuda) LTD
Investment Management Agreement between Spice Private The consolidated condensed interim financial Equity (Bermuda) LTD and GP Advisors (Bermuda) LTD statements are presented in US Dollars (USD) and all values are rounded to the nearest thousands, (1) Administrative Services Agreement between GP Advisors (Bermuda) Ltd and Spice Private Equity Ltd. except per share data or when otherwise indicated. NOTE 2 BASIS OF PRESENTATION The consolidated condensed interim financial statements per 30 June 2019 are prepared in accordance with IAS 34 Interim Financial Reporting and comply with Swiss Law and the accounting guidelines laid out in the SIX Swiss Exchange’s Directive on Financial Report (DFR) for Investment Companies. These consolidated condensed interim financial statements do not include all the information and disclosures required in annual financial statements. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2018. The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the adoption of new and amended standards as set out below.
33 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
The following new standards and amendments to Share capital is broken down as follows: standards are mandatory for the first time for the financial years beginning 1 January 2019. The Number of Shares Group has assessed the potential impact of the Outstanding shares at 1 January 2019 5 338 257 below-mentioned standards and interpretations. – Treasury shares sold 12 740 Based on the analysis performed, the Group – Treasury shares purchased (12 386) concludes that the new standards have no or no Outstanding shares at 30 June 2019 5 338 611 material impact on the Group's accounting policies, its overall results and financial position. Number of Shares
New IFRS Expected to be applied Outstanding shares at 1 January 2018 5 342 157 pronouncement Title first in financial year – Treasury shares sold 3 988 IFRS 16 Leases 2019 – Treasury shares purchased (4 168) Outstanding shares at 30 June 2018 5 341 977 NOTE 3 FOREIGN EXCHANGE RATES The following exchange rates have been used for The Group can trade in treasury shares in the preparation of these consolidated condensed accordance with the relevant guidelines (the interim financial statements: Company’s Articles of Association, Swiss company law, listing rules of the SIX Swiss Exchange).
30 June 31 December 30 June Treasury shares are treated as a deduction from Unit 2019 2018 2018 the consolidated Shareholders’ Equity of TUSD 625 USD USD USD (31 December 2018: TUSD 633). Foreign exchange rates: Swiss Franc 1 CHF 1.02420 1.01850 1.00890 DIVIDEND PROGRAM Euro 1 EUR 1.13680 1.14690 1.16830 UK Pound On 29 May 2018, the Board of Directors of the 1 GBP 1.26930 1.27570 1.32070 Sterling Group announced their intention to propose the creation of a dividend policy starting in 2019. The 1.1.2019– 1.1.2018– 1.1.2018– program would have a three-year term, ensuring Unit 30.6.2019 31.12.2018 30.6.2018 USD USD USD predictability as well as gradually increasing Average rates: dividends. The objective is to propose minimum Swiss Franc 1 CHF 1.00001 1.02214 1.03433 target pay-outs of USD 5.0mn, USD 5.5mn and USD Euro 1 EUR 1.12948 1.18069 1.21001 UK Pound 6.0mn in 2019, 2020 and 2021 respectively, with 1 GBP 1.29376 1.33490 1.37562 Sterling the specific pay-outs to be decided based upon Spice PE’s liquidity position, the performance of its NOTE 4 SHAREHOLDERS’ EQUITY investment portfolio and the board’s assessment of The share capital of the Group as of 30 June 2019 new potential investments or divestments. amounts to TUSD 53 980 (31 December 2018: In June 2019, the Company paid a dividend of USD TUSD 53 980) consisting of 5 363 717 registered 5.1mn to the shareholders in accordance with the shares (31 December 2018: 5 363 717) with a par dividend program as indicated above. value of USD 10.1 (31 December 2018: USD 10.1) each. All issued shares are fully paid–in.
34 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
NOTE 5 RELATED PARTY TRANSACTIONS management agreement, the management fee per quarter is calculated as follows: (a) during the Related Parties are individuals and companies that period from 1 January 2015 to 31 December 2018 have the ability, directly or indirectly, to control (“Initial Period”), the management fee is equal to the other party or to exercise significant influence the sum of (i) CHF 1 250 000 plus (ii) 1 /4 of 1.5% over the other party in making financial and of the New Capital Amount (meaning the total operating decisions. amount of capital raised by the Company from the Related Parties include: issuance and sale of ordinary registered shares or • Board of Directors of Spice Private Equity Ltd; other securities of the Company after 1 January 2015) and (b) after the Initial Period, the • GP Investments Group consisting of GP Swiss management fee is equal to 1 /4 of 1.5% of the Ltd, GP Investments Ltd. (Bermuda), GP Company’s NAV. Advisors (Bermuda) Ltd. (a wholly owned subsidiary of GP Investments, Ltd.) The management fee paid in respect to the six- month period ended on 30 June 2019 was 5.1 MATERIAL TRANSACTIONS partially offset by monitoring fees paid directly by BOARD OF DIRECTORS’ EXPENSES one of the Company’s investees to GP Advisors Expense of TUSD 270 (30 June 2018: TUSD 287) (Bermuda) Ltd. (a wholly owned subsidiary of GP were booked during the reporting period for Investments, Ltd.). Board of Directors compensation and travel The Group is invested as of 30 June 2019 in four expenses. Board of Directors members did not funds managed by GP Investments (GP Capital receive any new SARs during 2019. Partners IV, L.P., GP Capital Partners V, L.P., Magma ADMINISTRATION FEES Fund and Magma Fund II.). The fees paid by the During the six month period ended 30 June 2019, Group under these investments amounts to TUSD administration fee expenses and payments to GP 0 (2018 – TUSD 0). The Group also invests directly Advisors (Bermuda) Ltd (a wholly owned in two vehicles, which hold Rimini Street’s subsidiary of GP Investments, Ltd.) amounted investment (RMNI InvestCo, LLC and RMNI TUSD 49 (30 June 2018: TUSD 52 (paid to GP InvestCo II, LLC) and indirectly in other four Advisors (Zurich) Ltd). Please refer to Note 1 in vehicles, which hold FoodFirst’s investment respect to the agreement transferred from GP (FoodFirst Global L.P., FoodFirst Intermediate I, Advisors Ltd, Zurich to GP Advisors (Bermuda) Ltd. FoodFirst Intermediate II and FoodFirst Global (a wholly owned subsidiary of GP Investments, Holdings Inc.). Ltd.). MANAGEMENT AND PERFORMANCE FEES In the reporting period the Group paid management fee of USD 1.4 million (30 June 2018: USD 2 million) to GP Advisors (Bermuda) Ltd. (a wholly owned subsidiary of GP Investments, Ltd). Based on the investment
35 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
GP Advisors (Bermuda) Ltd. (a wholly owned The Group determines fair value as follows: subsidiary of GP Investments, Ltd.) is entitled to a 6.1 DIRECT INVESTMENT performance fee of 10% of the increase, if any, in the Company’s NAV after a 5% hurdle and subject In estimating the fair value of unquoted direct to customary catch–up and high–watermark investments, the Group considers the most clauses. The high–watermark was reset to the USD appropriate market valuation techniques, using a value of the Company’s NAV as of 31 December maximum of observable inputs. This analysis will 2014 of USD 203.6 million to reflect the new typically be based on one of the following structure and size of the Company after the sale of methods (depending on what is appropriate for the “Legacy Portfolio”. No performance fees have that particular company/industry): been accrued or paid as of 30 June 2019 and • Result of multiple analysis; 2018. • Result of discounted cash flow analysis; As long as there remains in effect an investment • Reference to transaction prices (including management agreement between GP Advisors subsequent financing rounds); (Bermuda) Ltd. (a wholly owned subsidiary of GP Investments, Ltd.) and Spice Private Equity • Reference to the valuation of other investors; (Bermuda) Ltd, the Group shall not pay any • Reference to comparable companies. additional management or performance fees to For venture capital investments, the following is GP or affiliates of GP related to any investment also considered: made by the Group in respect of primary fund A new financing round that is material in size for commitments where GP or an affiliate thereof also the Group and having new, sophisticated acts as the general partner or manager. institutional investors making up a significant Customary fees may, however, be payable in piece of the financing round. An inside round of respect of secondary limited partnership interests financing does not qualify. in funds managed by GP or affiliates of GP which have been or may in the future be acquired from The Group monitors investments by analysing third parties in arm’s length transactions. regular reports and through direct contact with the companies’ management. Financial and market performance is compared with budget NOTE 6 DETERMINATION OF FAIR VALUE information, data obtained from competitors and The Group’s investments are primarily non– subsequent rounds of financing. current financial assets and are measured at their The Board of Directors reviews and discuss the fair value using the most appropriate valuation valuations at least once a year, and may techniques as described in detail below. independently apply adjustments to determine The responsibility for determining fair value lies the investments’ fair value. with the Board of Directors. Due to inherent uncertainties, fair valuations may differ significantly from values that would have been used in actual market transactions.
36 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
6.2 FUND INVESTMENTS remaining period until the reporting date is added The valuation of Fund Investments is generally to and subtracted from the valuation as based on the latest available Net Asset Value appropriate. Where more recent reporting is not (“NAV”) of the fund reported by the available, valuations are based on the latest capital corresponding fund manager provided that the accounts provided by portfolio funds, with capital NAV has been appropriately determined by using drawdowns and capital distribution activity being proper fair value principles as per generally added to and subtracted from the valuation. The accepted accounting standards. The Board of Group monitors current market activity related to Directors reviews and approves the NAV provided these funds and the overall market developments by the fund’s General Partners unless the Board of to determine implications on the valuations and Directors is aware of reasons that such a valuation apply appropriate adjustments if necessary. The may not be the best approximation of fair value. In Board of Directors reviews the valuations of these general, NAV is adjusted by capital calls and funds and discusses portfolio company distributions falling between the date of the latest performance with the relevant portfolio fund NAV of the fund and the reporting date of the managers. The portfolio fund managers determine Group. Additionally, a mark to market adjustment fair values of the underlying investments by using is applied if funds are invested in listed quoted the same valuation techniques as noted above for securities which are traded in active markets. Direct Investments. Investment valuations are further generally based 6.3 INVESTMENTS IN SECURITIES AND OTHER on previous quarter ended (compared to the FINANCIAL INSTRUMENTS reporting date) capital accounts. Adjustments to Investments in securities and in other financial the valuation are considered when either of the instruments traded on recognized exchanges following applies: (including equities, futures contracts, options and • The Group becoming aware of subsequent funds), are mainly valued at the last price, which is changes in the fair values of underlying most representative of fair value on the reporting companies; date. Bonds are held in order to collect contractual cash flows and recognized at • New/amended features of the fund agreement amortized cost using the effective interest rate that might affect distributions; method. • Changes to market or other economic The Group has assessed the expected credit loss in conditions impacting the value of the fund; financial instruments at amortized cost, in • NAV reported by the fund has not been connection with the IFRS 9 – Financial appropriately determined by applying the Instruments, and concluded that there was no valuation principles as per generally accepted significant expected credit losses. The following accounting standards. table summarizes the Group’s financial Further, when information is used based on data instruments position: different from the reporting date, capital drawdowns and capital distribution activity of the
37 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
As of 30 June 2019 securities listed in active markets, securities in TUSD Amortized Cost Total traded in other than active markets, derivatives, Corporate Bonds 14 897 14 897 corporate bonds and loans. Total 14 897 14 897 Level 3 – inputs to the valuation methodology are unobservable and significant to overall fair value As of 31 December 2018 measurement. The inputs into the determination in TUSD Amortized Cost Total of fair value require significant management Corporate Bonds 15 056 15 056 judgment or estimation. Investments that are Total 15 056 15 056 included in this category include investments in privately held entities. 6.4 OTHER FINANCIAL ASSETS In certain cases, the inputs used to measure fair Investments in securities and in other financial value may fall into different levels of the fair value instruments traded in the over the counter market hierarchy. In such cases, an investment’s level and listed securities for which no trade is reported within the fair value hierarchy is based on the on the valuation date are valued at the price lowest level of input that is significant to the fair within the bid–ask spread that is most value measurement. The Board of Directors representative of fair value in the circumstances. assessment of the significance of a particular input to the fair value measurement in its entirety 6.5 DERIVATIVE FINANCIAL INSTRUMENTS requires judgment, and considers factors specific Fair values for derivative financial instruments are to the investment. obtained from quoted market prices, discounted The following table summarizes the Group’s cash flow models, or option pricing models as investments measured at fair value on a recurring appropriate. basis by the above fair value hierarchy levels:
NOTE 7 FAIR VALUE ESTIMATION As of 30 June 2019 in TUSD Level 1 Level 2 Level 3 Total
The Group is required to disclose fair value Financial assets measurements by level of the following fair value at fair value - - 156 335 156 335 measurement hierarchy: through profit or loss Level 1 – inputs to the valuation methodology are Total - - 156 335 156 335 quoted prices available in active markets for identical investments as of the reporting date. The type of investments listed under Level 1, include As of 31 December 2018 unrestricted securities listed in active markets. in TUSD Level 1 Level 2 Level 3 Total Level 2 – inputs to the valuation methodology are Financial assets at fair value other than quoted prices in active markets, which - - 146 023 146 023 through profit or are either directly or indirectly observable as of loss
the reporting date. Investments which are Total - - 146 023 146 023 included in this category include restricted
38 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
There were no changes in valuation techniques Sub–Saharan Africa 2 475 1 970 during the periods. UK 46 506 38 232
Due to the nature of the business, the Group Total 200 661 202 504 assures there are no transfers between level 1, 2 The geographical analysis of total income is and 3 assets. The following table discloses the determined by specifying from which region the changes to the fair value of level III financial investment profits are generated: assets:
in TUSD 30 June 2019 30 June 2018 in TUSD 30 June 2019 31 December 2018 Switzerland 141 435 Level 3 assets fair value 146 023 104 543 at 1 January USA 166 (887) Purchases and capital 8 463 62 606 Asia–Pacific 2 264 (5 096) calls Latin America 2 576 (277) Distributions (3 056) (3 747) Sub–Saharan Africa 505 (607) Change in unrealized gain/(loss) of Level 3 4 769 (15 923) Bermuda 18 24 assets UK (149) (710) Realized gain/(loss) of 136 (1 456) Level 3 assets Other (6) (78) Level 3 assets fair value 156 335 146 023 Total 5 515 (6 642) at 30 June NOTE 8 SEGMENT REPORTING NOTE 9 TAXES The sole operating segment of the Group is to invest in private equity. The investment manager works as a team for the entire portfolio, asset 30 June 2019 30 June 2018 allocation is based on a single, integrated Current income tax - -
investment strategy and the Group’s performance Reconciliation of income tax calculated is evaluated on an overall basis. Thus the results with the applicable tax rate: published in this report correspond to the sole – Profit (loss) before tax expense 3 418 (9 687)
operating segment of investing in private equity. – Applicable tax rate 7.8% 7.8% The geographical analysis of total assets is – Income tax 267 (756) determined by specifying in which region the Effect from:
investment was made: – unrecognized tax loss 267 (756)
Total income tax expenses - - in TUSD 30 June 2019 31 December 2018
Switzerland 12 980 10 517
USA 94 953 110 188
Bermuda 433 67
Asia–Pacific 10 394 10 607
Latin America 32 920 30 923
39 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
During the six-month period ended June 30, 2019, NOTE 11 SUBSEQUENT EVENTS the Company did not pay non–refundable On July 9, GP Investments announced a partial withholding taxes (30 June 2018: nil). The divestment from RHIM. Funds managed by GP Company did not recognize income tax assets in sold 2,156,794 ordinary shares in RHI Magnesita, the form of losses that can be carried forward representing approximately 4.36% of RHI against future taxable income. No deferred tax Magnesita’s entire issued capital, at a price of GBP assets are capitalized due to the inherent 46 per share. Total transaction proceeds uncertainty of a refund which depends on amounted to roughly GBP 100mn, of which Spice achieving taxable net incomes in Switzerland in received approximately USD 6.9mn as the foreseeable future. distributions. Following the completion of this transaction, GP funds still hold approximately Expiry of unrecognized tax losses 30 June 2019 31 December 2018 4.36% of the issued share capital of RHI Magnesita. Within 1 year 5 742 9 160
Within 2-4 years 35 062 35 062
Within 5-7 years 18 722 18 722
Total 59 526 62 944
NOTE 10 SHARE BUYBACK PROGRAM The Board of Directors of Spice Private Equity Ltd. decided on 20th March 2017 to initiate a share buyback program for up to 7.2% (equivalent to 20% of the company’s free float) of the issued share capital. Spice Private Equity Ltd. has thus launched a share buyback program on a second trading line comprising a maximum of 386’187 registered shares with a nominal value of CHF 10.00 each. The shares were repurchased in the period between April 2017 and April 2018. This program expired on April 2018 and Spice repurchased 3’100 common shares on an average price of USD 2.71 per share. The common shares were repurchased at a maximum of the daily volume– weighted average price.
40 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
NOTE 12 INVESTMENTS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
Cumulative Unrealized Dividend Interest Realized Opening Opening balance Cumulative Paid in capital Returned capital Sales As of 30 June 2019 Cost Fair value gain/(loss) gain/(loss) income income gain/(loss) Investment Vintage balance at cost at fair value gain/(loss) 1.1.2019 - 1.1.2019 – 1.1.2019 - 30.06.2019 30.06.2019 YTD YTD 01.01.2019 - 01.01.2019 - 01.01.2019 - Currency year in TUSD 1.1.2019 1.1.2019 1.1.2019 30.06.2019 30.06.2019 30.06.2019 30.06.2019 30.06.2019 30.06.2019 30.06.2019 30.06.2019
Direct Co-Investments
FoodFirst Global Restaurants 59 686 59 686 - - - 59 686 59 686 - (0) - - - USD 2018 -
Leon Restaurant Ltd. 31 579 36 066 4 487 - 31 579 35 855 4 306 (181) - - - GBP 2017 - -
Rimini Street Inc. 24 000 12 360 (11 640) - 12 720 (11 280) 360 - - - USD 2017 - - 24,000 GPIAC LLC - 4 606 4 606 - - - - 4 354 4 354 (252) - - - USD 2017
The Craftory 2 166 2 166 - 8 455 - - 10 621 10 621 - - - - - USD 2018
Subtotal Direct Co-Investments 117 431 114 884 (2 547) 8 455 - - 125 886 123 266 (2 620) (73) - - -
As % of Total Spice Private Equity Group Investments 79%
Fund investments
Global EM Funds Portfolio
GP Capital Partners IV 1 345 2 106 761 - - - 1 345 2 074 729 (32) - - - USD 2015
GP Capital Partners V 4 571 2 154 (2 417) - - - 4 571 2 428 (2 143) 274 - - - USD 2015
Tara India III 1 292 2 496 1 204 - 2 476 - (1 184) 1 478 2 663 1 280 - - 178 USD 2015
NYLIM Jacob Ballas III 4 316 7 613 3 296 - - - 4 316 8 418 4 102 806 - - - USD 2015
Subtotal Global EM Funds Portfolio 11 524 14 369 2 845 - 2 476 - 9 048 14 398 5 351 2 327 - - 178
Sub-Saharan African Funds Portfolio
Africa Oil Corporation 5 043 1 970 (3 073) - - - 5,043 2 475 (2 568) 505 - - - USD 2015
Subtotal Latin American Portfolio I Funds 5 043 1 970 (3 073) - - - 5 043 2 475 (2 568) 505 - - -
Latin American Funds Portfolio
LatAm Portfolio I
GP Capital Partners IV 2 708 3 949 1 241 - - - 2 708 3 890 1 182 (60) - - - USD 2015
MAGMA FUND I 907 7 801 6 895 - - - 907 9 486 8 580 1 685 - - - USD 2015
MAGMA FUND II 137 1 130 993 - - - 137 1 376 1 238 245 - - - USD 2015
Subtotal Latin American Portfolio I Funds 3 752 12 881 9 129 - - - 3 752 14 752 11 000 1 871 - - -
DLJ South America Partners 1 606 1 422 (185) 8 574 - 1 040 946 (95) 139 8 - (42) USD 2015
Subtotal Latin American Funds Portfolio 5 359 14 303 8 944 8 574 - 4 792 15 698 10 905 2 009 8 - (42)
Asia-Pacific Funds Portfolio
Quvat Capital Partners II 3 033 498 (2 536) - - - 3 033 498 (2 536) - - - - USD 2014
Subtotal Asia-Pacific Funds Portfolio 3 033 498 (2 536) - - - 3 033 498 (2 536) - - - -
Subtotal Fund Investments 24 959 31 139 6 181 8 3 050 - 21 916 33 069 11 153 4 842 8 - 136
21%
Total of all Investments 142 389 146 023 3 634 8 463 3 050 - 147 802 156 335 8 533 4 769 8 - 136
As % of Total Spice Private Equity Group 100% Investments
41 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD ADDRESSES & CONTACTS
ORGANIZATION REGISTERED OFFICES BOARD OF DIRECTORS Spice Private Equity Ltd Christopher Brotchie, Chairman Industriestrasse 13c Fersen Lamas Lambranho, Vice–Chairman CH–6302 Zug David Justinus Emery, Member Phone +41 41 710 70 60 Alvaro Lopes da Silva Neto, Member Fax +41 41 710 70 64 Christopher Wright, Member info@spice–private–equity.com
INVESTMENT COMMITTEE SPICE PRIVATE EQUITY (BERMUDA) LTD Antonio Bonchristiano Clarendon House Fersen Lamas Lambranho 2, Church Street Rubens Freitas Hamilton, HM 11 João Junqueira Bermuda www.spice–private–equity.com AUDITORS PricewaterhouseCoopers AG INVESTOR RELATIONS Birchstrasse 160 Rodrigo Boscolo CH–8050 Zürich Investor & Media Relations investor.relations@spice–private–equity.com KEY INFORMATION Swiss Security Number: 915.331 ISIN: CH0009153310 Ticker symbol: SPCE Reuters: SPCE.BN Bloomberg: SPCE:SW
42 HALF-YEAR REPORT 2019 SPICE PRIVATE EQUITY LTD EXCELLENCE IN GLOBAL PRIVATE EQUITY www.spice-private-equity.com