A Leader in Private Equity and Alternative Investments
Second Quarter of 2018
Earnings Release
August 14, 2018 HIGHLIGHTS OF THE QUARTER
August 14th, 2018 – GP Investments, Ltd. (“GP”) [B3: GPIV33], a leader in private equity and alternative investments, announces its 2Q18 results. The highlights of the period were:
1. GP Investments, via Spice Private Equity, concluded the acquisition of Bravo Brio Restaurant Group (now FoodFirst Global Restaurants) in a transaction valued at approximately USD 100 million. The company is the owner and operator of the BRAVO! Cucina Italiana and BRIO Tuscan Grille restaurant concepts.
2. The Craftory – a next-generation consumer goods company set out to back challenger brands – was successfully launched. Spice and its co-investors have committed approximately USD 300 million of permanent capital for The Craftory to invest in companies with truly disruptive business models.
3. The company registered total operating expenses of USD 5.9 million in 2Q18, representing a decline of 12.3% when compared to the USD 6.7 million posted in 2Q17. The decrease was mostly related to GP’s continuous cost-cutting efforts.
4. As of June 30, 2018, GP Investments’ NAV totalled USD 341.4 million (USD 3.11 per share), representing a decline of 11.2% since the previous quarter. BRL depreciation was the main driver of this reduction, but its impact was lessened by the decreasing exposure of our portfolio to the Brazilian currency.
ABOUT GP INVESTMENTS
GP Investments is a leading private equity and alternative investments firm. Since its founding in 1993, GP Investments has raised USD 5 billion from investors worldwide, completed investments in more than 50 companies and executed over 20 equity capital market transactions. GP Investments has a consistent and disciplined investment strategy targeting established companies that have the potential to grow and be more efficient and profitable by becoming leaders in their industries. Since 2006, GP Investments has its Class A Shares traded in the form of Brazilian Depositary Receipts (BDRs) on the Brazilian Stock Exchange (B3 S.A. – Brasil, Bolsa, Balcão) under the ticker GPIV33 and on the Luxembourg Stock Exchange. The firm currently has offices in São Paulo, New York, London and Bermuda. For more information, please visit www.gp-investments.com.
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END OF QUARTER FIGURES
8,0 2,4 Market Cap USD 142mm
7,0 1,8
Share Price
BRL USD
USD 1.3 - -
6,0 1,2 Net Asset Value USD 341mm
Price per Share per Price 5,0 0,6 Share per Price NAV per Share USD 3.1
4,0 0,0 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 NAV Discount 58.3% GPIV33 (BRL) GPIV33 (USD)
NAV PER SHARE & DISCOUNT
58% 49% 45% 45% 40% 36% 39% 33% 30%
3,43 3,52 3,36 3,44 3,50 3,06 3,17 3,21 3,11
2,28 2,12 2,14 2,03 1,97 1,84 1,74 1,91 1,30
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18
NAV/Share (USD) Share Price (USD) NAV Discount
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PUBLICLY LISTED PORTFOLIO PERFORMANCE
GP’s portfolio of publicly listed companies contributed a total of USD 4.9 million to the negative change in Fair Market Value (“FMV”) within GP’s results in 2Q18:
. RHI Magnesita (RHIM): The company’s shares appreciated by 41.6%, since they started trading on the London Stock Exchange, reaching GBP 46.00 (by the end of 2Q18). Appreciation in the second quarter of 2018 was 6.0%; . BR Properties (BRPR3): BR Properties shares depreciated by 2.4% in the last 12 months but appreciated by 2.6% in the second quarter of 2018, to stand at BRL 9.10; . Rimini Street (RMNI): The company’s shares depreciated by 31.9% since they started trading on the NASDAQ on October 11, 2017, and by 23.5% in 2Q18, reaching USD 6.55; . Spice Private Equity (SPCE): Spice shares depreciated by 4.9% in the last 12 months and by 2.2% in the second quarter of 2018, reaching USD 27.00.
Standardized at 100
140
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110
100
90
80
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60
50 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18
Magnesita (MAGG3) and BR Properties (BRPR3) in Brazilian reais; RHI Magnesita (RHIM) in pounds sterling; Spice Private Equity (SPCE) and Rimini Street (RMNI) in U.S. dollars.
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PRIVATE EQUITY FUNDS’ PORTFOLIO
Date of Investment Investment Vehicle August 2007 GPCP III & IV
Industry Asset liquidity Refractory Minerals Publicly traded
A global leader in the refractory solutions market, the company is the result of the merger of the operations of Austrian RHI and Brazilian Magnesita (controlled by GP) in October 2017. The company stands out in the global refractory solutions market for its vertical integration, supplying approximately 80% of its raw material requirements from its own mineral reserves and being one of the lowest-cost producers in the refractory industry. Company reserves include the world’s largest and best mines of magnesite and dolomite. Update 2Q18 With the transaction with RHI concluded, management is working on effectively capturing the synergies from the merger. RHI Magnesita expects to save at least EUR 70 million in SG&A, procurement and production costs through 2019. Once all synergies have been captured, a 20% addition to the 2017 recurring pro-forma EBITA would be in place. Additionally, there could also be opportunities in working capital, CAPEX, financing and tax optimization that could boost cash flow generation, so rapidly reducing Net Debt/EBITDA and potentially increasing dividend payments.
Date of Investment Investment Vehicle November 2012 GPCP V
Industry Asset liquidity Sporting Goods Retail Privately-held
Centauro is Latin America’s largest retailer of sporting goods. Founded in April 1981 in Belo Horizonte, Minas Gerais, Brazil, the company is now present throughout the country with more than 190 stores across 22 states and the Federal District. Centauro is betting on the concept of the “full size” store – a true temple dedicated to sports – where the customer not only shops, but has a unique experience in his/her relationship with the brand. Update 2Q18 Centauro continued to deliver very positive results in the second quarter of 2018, with sales volume increasing in both brick-and-mortar stores and e-commerce (strong double-digit SSS growth in both segments), compared to the same period of 2017. The outperformance in the quarter is mainly explained by the increasing relevance of omni-channel initiatives such as Click & Collect and Ship from Store; the strong results from the new concept stores (11 such stores have already been launched); and the positive impact of the World Cup. Furthermore, the company remains focused on: (i) enhancing its omni-channel offering through the integration of on- and off-line operations – all omni functionalities should be implemented throughout the entire Centauro network by the end of 2018 – achieving full inventory integration; and (ii) rolling out the new store concept, which is focused on enhancing the customer's purchasing experience by offering, among other things, omni-channel integration and self-checkout functionalities, all of which should help to further boost the company’s sales.
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Date of Investment Investment Vehicle June 2016 GPCP VI
Industry Asset liquidity Commercial Real Estate Publicly traded
BR Properties is one of the leading commercial real estate investment companies in Brazil. The company focuses on the acquisition, lease, management, development and sale of commercial real estate. Its focus is mostly directed at high-end real estate, such as offices and warehouses (both industrial and retail) located in the main metropolitan areas of Brazil, including São Paulo, Rio de Janeiro, Curitiba and Belo Horizonte. Update 2Q18 BR Properties is constantly working on projects to improve its occupancy rates, operating efficiency and capital structure. The strategy of portfolio recycling continues to be pursued, with the company having concluded the acquisition of a land plot in Cajamar (SP) for the development of a logistics warehouse, for BRL 63 million. The physical and financial vacancies in 2Q18 remained virtually flat, compared to the previous quarter, with market conditions gradually improving in both São Paulo and Rio de Janeiro. However, immediately after the end of the quarter (July), the Company signed two very important lease agreements: one with Caixa Econômica Federal (a major federal bank), for a 36 thousand sqm in the Passeio Corporate building, and another one with Shell in the Ventura Towers, for 13.6 thousand sqm. With those leases, total physical vacancy has been reduced from 31% at the end of the quarter to 27%. Finally, management also made progress in its continuous effort to reduce debt costs and increase duration.
Date of Investment Investment Vehicle January 2008 GPCP IV
Industry Asset liquidity Hotels Privately-held
BHG is the largest hotel real estate owner in Brazil and has more than 25 hotel properties in strategic locations, offering budget, mid-scale, up-scale and luxury accommodations. Update 2Q18 BHG's performance in the second quarter of 2018 was below 2Q17, but with market conditions showing some early signs of recovery. The three main reasons for this performance were: (i) challenging market conditions, especially in Rio de Janeiro; (ii) the transition process of the management agreements of hotels owned by BHG (excluding Marina Palace) to Accor; and (iii) the partial closure of some hotels and total closure of Marina Palace and Pullman in Rio as part of the renovation process. Despite the weaker short-term performance, BHG has been advancing in strategic initiatives that aim to unlock value in the company’s assets, such as: (i) keeping the hotels comprehensive renovation plan on track to be delivered in the next 2-3 years; (ii) finalizing negotiations to convert the Marina Palace into a high-standard luxury hotel; and (iii) selling non-core assets.
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Date of Investment Investment Vehicle January 2012 GPCP V
Industry Asset liquidity Mineral Aggregates Privately-held
EBAM is a market benchmark in the supply of mineral aggregates and construction materials, with a vast portfolio of mineral exploitation rights in strategic regions of Brazil. Update 2Q18 The uncertain political scenario continues to depress activity in the infrastructure and civil construction segments and important projects have been delayed or slowed down. However, the overall outlook for the aggregates industry is improving. Maintaining the positive trend experienced throughout 2017, EBAM posted higher net revenues in 2Q18 than in the previous quarter, with operating results coming in significantly better than expected. The company remained focused on managing its short-term liquidity position, while continuously discussing strategic alternatives to create value via M&A opportunities.
Date of Investment Investment Vehicle June 2013 GPCP V
Industry Asset liquidity Beauty Privately-held
Beleza Natural is a Brazilian beauty institute chain, focusing on lower middle class consumers. It provides solutions for curly hair through the services of its beauty institutes and an extensive product line. The company opened its first store in 1993 in Rio de Janeiro, Brazil and in 2005 joined Endeavor, an international NGO team aimed at fostering high impact entrepreneurship. After receiving GP's investment in 2013, Beleza Natural inaugurated beauty institutes in other states of Brazil and has recently debuted in the United States. Update 2Q18 The company continues to fight against challenging market conditions. Even though consumer confidence levels have shown signs of recovery, the purchasing power of the lower middle class (the majority of the company's client base) has been eroded and the market is still struggling to recover after the significant retraction of recent years. In order to address this challenging market, the company has continued to implement new strategies to create value. These include an extensive cost-cutting initiative and the development of new product lines and services to increase customer traffic in the stores, as well as the average ticket. The company is also in the process of establishing partnerships with specialized local beauty stores in order to increase the offering of its products through different channels. As part of the company’s expansion plan, Beleza Natural has opened its first store in the U.S. market. The store, which is located in a street with high target customer traffic in Harlem, New York City, started full operations in the second half of July and is expected to ramp up its revenues at a strong pace through the next few months, as the brand awareness grows in the region.
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PROPRIETARY INVESTMENTS
Spice Private Equity Ltd. (“Spice PE”) is an investment company focused on global private equity investments and listed on the SIX Swiss Exchange (SPCE). GP Investments became the controlling shareholder of Spice PE in 2016 as part of the company’s strategy of pursuing a portfolio of companies with global leadership ambitions, using proprietary capital. As a listed vehicle, Spice PE provides GP with a permanent pool of capital through which it can invest in companies around the globe. Leon, Rimini Street, FoodFirst and The Craftory are all examples of direct investments realized by GP via Spice PE. Update 2Q18 Spice PE posted Net Asset Value of USD 40.16 per share, compared to USD 42.97 per share reported on March 31, 2018. Total NAV for the second quarter was USD 214.5 million comprising cash & cash equivalents (32%), direct investments (49%), and the Legacy Portfolio (19%). The company’s balance sheet is debt-free. As of June 30, 2018, the company’s shares were trading at a 32.8% discount to NAV. During the second quarter, Spice’s Board of Directors announced the intention of proposing a new dividend program with the aim of providing a path for returning capital to shareholders. The program would have a three- year term, ensuring predictability as well as gradually increasing dividends. It would include minimum target pay- outs of USD 5.0m, 5.5m and 6.0m in 2019, 2020 and 2021, respectively. Specific yearly pay-outs would be decided based on Spice’s liquidity position, the performance of its investment portfolio and the board’s assessment of new potential investments or divestments. Spice PE also added two important investments to its portfolio in the quarter. The company committed up to USD 60 million in The Craftory – a next-generation consumer goods company designed to back challenger brands – which was successfully launched on May 11 with nearly USD 300 million of permanent capital for investing in a portfolio of disruptive brands. Spice PE also concluded the acquisition of FoodFirst Global Restaurants (previously the Bravo Brio Restaurant Group), obtaining a controlling position by directly investing USD 60 million on May 25.
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Date of Investment Investment Vehicle August 2017 Spice Private Equity
Industry Asset liquidity Restaurants Privately-held
Founded in 2004, LEON is a quick service restaurant chain based in the UK. The founders set out to prove that it was possible to serve fast food that both tastes good and does you good – Naturally Fast Food. The menu is inspired by the flavors, variety and natural healthiness of Mediterranean cooking, with reasonable prices. Update 2Q18 Despite the difficult environment for the restaurant market in the United Kingdom, where LEON has most of its outlets, the company was able to deliver strong and growing same-store sales that led to solid net revenues in the second quarter of 2018. In accordance with LEON’s international expansion plan, the company is focused on starting its operations in the United States and on developing new franchise partnerships to expand its activities across Europe.
Date of Investment Investment Vehicle October 2017 GP, Spice PE & GPIAC
Industry Asset liquidity Enterprise Software Support Publicly traded
Rimini Street (Nasdaq: RMNI) is the global leader in providing third-party enterprise software support services. With over 1,500 active clients, the company enables licensees of Oracle, SAP, IBM, Microsoft and other enterprise softwares to enjoy ultra-responsive support, saving up to 90% on total support costs and freeing up funds to drive innovation. Update 2Q18 During 2Q18, the company announced an agreement to refinance its credit facility with the issuance of USD 140 million in Series A convertible preferred stock and 2.9 million shares of common stock. The refinancing is expected to: (i) reduce, by more than USD 95 million over the next three years, debt-related costs that would have been incurred under the previous credit facility; (ii) free up cash flow for investments in growth; and (iii) extend the expected "maturity" from June 2020, under the prior credit facility, to July 2023, when the preferred equity may be redeemed by the holders (if not already converted). Rimini Street stockholders approved the transaction on July 12, 2018, and the refinancing (with full repayment and termination of the credit facility) was completed on July 17, 2018.
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Date of Investment Investment Vehicle May 2018 Spice Private Equity
Industry Asset liquidity Investment Platform Privately-held
The Craftory was officially launched in 2Q18. Based in London, The Craftory is backed by a senior management team with complementary skills. The company is focused on acquiring & scaling high-growth consumer brands mainly within the Consumer Packaged Goods segment that have revenues exceeding USD 10 million. The Craftory’s senior management team has already evaluated several hundred investment opportunities, seeking targets with truly disruptive business models and where The Craftory’s team can leverage their experience and expertise to help catapult growth. Spice PE has committed to investing USD 60 million and, together with other investors, will provide The Craftory with nearly USD 300 million of permanent capital. As a result, GP (through Spice) will exert significant governance at The Craftory, with direct representation on the company’s Board of Directors. The Craftory presents a new model of growth in fast-moving consumer goods: (i) its capital is permanent; (ii) its principals are entrepreneurs and brand experts themselves; and (iii) its focus is on amplification – multiplying the impact and reach of its brands from tens of thousands to hundreds of millions of consumers, without compromising a brand’s mission or purpose.
Date of Investment Investment Vehicle May 2018 Spice Private Equity
Industry Asset liquidity Restaurants Privately-held
FoodFirst, Inc. (formerly Bravo Brio Restaurant Group, Inc.) is a leading owner and operator of two distinct Italian restaurant brands: BRAVO! Cucina Italiana and BRIO Tuscan Grille. FoodFirst has positioned its brands as multifaceted culinary destinations that deliver the ambiance, design elements and food quality reminiscent of fine dining restaurants at a value typically offered by casual dining establishments – a combination known as the upscale affordable dining segment. 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 of execution. The transaction was approved by the majority of Bravo Brio’s shareholders and closed on May 24, when GP Investments, through Spice PE, acquired Bravo Brio for an enterprise value of approximately USD 100 million. Following the transaction, the company changed its name to FoodFirst Global Restaurants and hired a new team of experienced industry managers to lead the turnaround of the business.
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REAL ESTATE PORTFOLIO
Date of Investment Industry February 2012 Real Estate
Asset liquidity Investment Vehicle Privately-held GPRE
GPRE is a GP Investments fund dedicated to investing in real estate. The fund’s strategy is to invest primarily at the asset level, directly in projects within the residential, office and retail segments. Launched in 2012, the fund is currently implementing its divestment plan. As a limited partner, GP holds a c.41% stake in the fund. Update 2Q18 During second quarter, GP had the following developments regarding its real estate portfolio: (i) Sale of almost 130 apartment units; (ii) Sale of one floor in the “Paulista” commercial project in São Paulo.
Project updates during 2Q18:
Iguatemi Business – Sorocaba Paulista – São Paulo
Partner: BKO Partner: Bueno Netto Launched: Dec/12 Launched: Mar/13 Delivery: Apr/15 Delivery: Aug/15
Office building Office building In the city of Sorocaba Office Located in São Paulo
(State of São Paulo) (State of São Paulo) Residential
Update: Update: Sale of the remaining inventory Sale of 1 floor
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GP INVESTMENTS’ RESULTS
GP Investments presents its results excluding non-controlling interests from its private equity and real estate activities and segregates its results into: . Fund Management, which includes the fees received by GP Investments as the General Partner in its private equity and real estate funds and its ownership as the controlling shareholder of BRZ Investimentos and GP Advisors; and . Capital Results, which include the participation of GP Investments as an investor in the funds it manages and other directly held investments. In addition, Spice Private Equity’s financial accounts are consolidated within GP’s balance sheet. The proportional balance sheet consolidates 100% of Spice’s individual accounts within GP’s financials and the minority interests are excluded from the company’s equity. These are management figures and, as such, are unaudited. The complete financial statements that include all non-controlling interests and are reviewed by our independent auditors are presented at the end of this release. These financial statements are in accordance with U.S. GAAP standards and are being released simultaneously in all jurisdictions in which GP Investments has its securities traded. In compliance with requirements of the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários) the issuer also releases financial statements in accordance with IFRS standards, which may differ from these financial statements due to the different basis of the accounting standard.
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NET ASSET VALUE (NAV)
The following table shows the breakdown of GP Investments’ NAV by company:
Value of Investments GP Spice GP + Spice
USD million 30-Jun-18
Publicly Traded Companies BR Properties¹ 21.3 - 21.3 RHI Magnesita¹ 59.7 - 59.7 Rimini Street1 11.2 - 11.2
Publicly Traded Companies 92.2 - 92.2
Privately-held Companies/Investments Spice's Portfolio - 192.9 192.9 Centauro³ 39.8 - 39.8 BHG³ 16.6 - 16.6 Real Estate Investments4 20.9 - 20.9 EBAM³ 12.7 - 12.7 Beleza Natural³ 7.7 - 7.7 BRZ Investimentos² 3.2 - 3.2
Privately-Held Companies 100.8 192.9 293.7 Total Companies 193.0 192.9 386.0
Assets and Liabilities Cash and Cash Equivalents 72.5 41.5 114.0 Financial Investments 31.5 15.2 46.7 Other Assets 91.5 12.1 103.6 Liabilities (172.6) (0.4) (173.1) Minority Interest - (135.9) (135.9)
Assets and Liabilities 22.9 (67.5) (44.6)
NAV (Shareholders' Equity) 215.9 125.4 341.4
(1) The value of the investment is based on the company’s market capitalization as of June 30, 2018. (2) The investment in BRZ Investimentos is consolidated in GP Investments' balance sheet. BRZ's valuation shown above is based on its shareholders' equity as of June 30, 2018. (3) Discounted cash flow methodology, adjusted by the foreign exchange rate as of June 30, 2018. (4) Value of the investment is based on the acquisition value for some of the fund's projects and on DCF methodology for others, according to GPRE's Policies described in the 1Q13 Earnings Release, both adjusted by the exchange rate as of June 30, 2018. (5) The investment in Rimini Street is based on the company’s market capitalization as of June 30, 2018, as well as the GP’s direct investment in the company and the GP’s 16.7% stake in the vehicle that holds the sponsor shares, warrants and the expenses reimbursement related to the Rimini Street transaction to be received by GP from GPIAC.
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GP Investments’ NAV totalled USD 341.4 million as of June 30th, 2018, with NAV per share of USD 3.11, representing an 11.3% decrease in NAV per share from March 31st, 2018.
Change in FMV: USD (24.7) million 384.4 (0.2)
(4.9) (1.3)
(18.5)
(6.4)
(8.8)
(1.0) 341.4 (2.0)
NAV 1Q18 Fund Mark-to- Privately Held BRL variation Net Financial Spice’s Net Intercompany Others NAV 2Q18 Management Market Effect Companies impact on Results Income Mgmt. Fee Results Portfolio Expenses
The NAV depreciation of USD (43.0) million in the second quarter of 2018 was mainly driven by the impact of the BRL depreciation on our portfolio companies, totalling USD (18.5) million in the period. Overall, the changes in fair market value amounted to USD (24.7) million in the second quarter of 2018, also being impacted by the negative performance of our publicly listed portfolio companies, which contributed with USD (4.9) million.
Net financial results came in at USD (6.4) million in the quarter, mainly related to (i) financial expenses of USD (3.6) million, which were mostly impacted by the Perpetual Notes’ interest; and (ii) the foreign exchange loss of USD (3.1) million relating to the negative impact of BRL depreciation in the period on our assets (ex-portfolio).
Finally, Spice contributed a negative impact of USD (8.8) million in the quarter, related to GP's 58.48% stake in Spice's results for the period.
2Q18 results will be further detailed.
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RESULTS OVERVIEW
GP Investments posted a net loss of USD 40.2 million for the second quarter of 2018, mostly as a result of:
(i) USD (24.7) million in unrealized changes in FMV, mainly impacted by the BRL depreciation in the period, totalling USD (18.5) million; (ii) GP’s stake of Spice’s net result in the quarter, totalling USD (8.8) million; (iii) The financial results of USD (6.4) million, mostly related to the financial expenses from the Perpetual Notes.
These impacts were partially offset by the Fund Management revenues of USD 6.4 million, as well as a 12% improvement in operating expenses, which were reduced to USD (5.9) million.
2Q18 1H18 Income Statement Fund Fund Capital Results Total Capital Results Total In USD million Management Management Management fees 6.4 - 6.4 12.9 - 12.9 Performance fees 0.1 - 0.1 0.1 - 0.1 Unrealized change in FMV - (24.7) (24.7) - (18.2) (18.2) Net realized gains ------Dividends and others - 1.2 1.2 - 1.2 1.2 Unrealized performance fees (0.1) - (0.1) 1.7 - 1.7 Net Revenues 6.4 (23.5) (17.1) 14.8 (17.0) (2.2) Operating expenses (5.9) - (5.9) (11.6) - (11.6) Bonus and carried interest sharing (0.5) - (0.5) (1.1) - (1.1) Unrealized carried interest sharing 0.0 - 0.0 (1.7) - (1.7) Expenses (6.3) - (6.3) (14.3) - (14.3) Intercompany management fees - (1.0) (1.0) - (1.9) (1.9) Intercompany performance fees ------Stock options - (0.2) (0.2) - (0.6) (0.6) Financial income / loss net - (6.4) (6.4) - (7.1) (7.1) EBT 0.1 (31.1) (31.0) 0.4 (26.5) (26.1) Income taxes (0.3) - (0.3) (0.6) - (0.6) Spice's Net Income - (8.8) (8.8) - (5.7) (5.7) Net Income (0.2) (39.9) (40.2) (0.2) (32.2) (32.4)
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REVENUES
FUND MANAGEMENT: Management fees, including intercompany management fees, totalled USD 6.4 million in the second quarter of 2018, combined with USD 0.1 million in performance fees and USD (0.1) million in unrealized performance fees.
CAPITAL RESULTS: During this quarter the total FMV of our portfolio companies decreased by USD (24.7) million. The main drivers were: (i) the USD (18.5) million impact of BRL depreciation on our portfolio companies; and (ii) the negative performance of our publicly listed portfolio companies, which contributed USD (4.9) million.
Change in Fair Market Value 2Q18 1H18
BRL Change in BRL Change in Total Total Variation Valuation Variation Valuation (In US$ million)
RHI Magnesita - (1.0) (1.0) - 7.8 7.8 BR Properties (3.0) (0.3) (3.3) (2.8) (4.9) (7.7) BHG (2.7) - (2.7) (2.8) - (2.8) EBAM (2.0) - (2.0) (2.1) - (2.1) Centauro (6.4) - (6.4) (6.6) - (6.6) Real Estate (3.2) (1.3) (4.5) (3.3) (0.0) (3.3) Beleza Natural (1.2) - (1.2) (1.2) - (1.2) Rimini Street - (3.7) (3.7) - (2.2) (2.2)
Total (18.5) (6.2) (24.7) (18.8) 0.6 (18.2)
AGGREGATED REVENUES: Aggregated revenues were USD (17.1) million in the quarter, mainly impacted by a USD (24.7) million decrease in the FMV of our portfolio companies, which was partially offset by management fees of USD 6.4 million (including intercompany management fees).
Aggregated Revenues 2Q18 1H18 (In US$ million)
Fund Management 6.4 14.8 Management Fees 6.4 12.9 Performance Fees 0.1 0.1 Unrealized Performance Fees (0.1) 1.7
Capital Results (23.5) (17.0) Net Realized Gains - - Dividends and Other 1.2 1.2 Change in FMV (24.7) (18.2)
Total (17.1) (2.2)
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EXPENSES
Operating expenses totalled USD (5.9) million in 2Q18, against USD (6.7) million in 2Q17. The 12.3% year-over- year decrease stems from GP’s continuous efforts to reduce expenses. The reduction is mainly related to a 26.2% drop in personnel expenses, from USD (3.3) million in 2Q17 to USD (2.4) million in 2Q18. G&A expenses totalled USD (3.4) million in the quarter, in line with the same period of 2017. Stock option expenses totalled USD (0.2) million. These are non-cash expenses, recorded according to U.S. GAAP standards.
In USD million Operating Expenses 2Q18 2Q17 In USD million Operating Expenses (5.9) (6.7) -12.3% G&A Expenses (3.4) (3.4) 6.7 (2.4) (3.3) Payroll 5.9 Intercompany Management Fees (1.0) (1.3) Stock Options (0.2) (0.4) Total Expenses (ex- Bonus and Unrealized Carried Interest Expenses) (7.1) (8.5)
Bonus and carried interest sharing (0.5) (1.6) Unrealized carried interest sharing 0.0 (0.3) 2Q17 2Q18 Total Expenses (7.5) (10.4)
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BREAKDOWN OF FUNDS
On June 30, 2018, the aggregate value of investments in the 10 portfolio companies and more than 20 real estate projects totalled USD 1,561 million, and included:
. USD 29.4 million from GPCP III; USD 186.4 million from GPCP IV; USD 146.6 million from GPCP V; USD 1,005.9 million for GPCP VI; and USD 49.7 million from GPRE, with: o USD 1,242.2 million from limited partners; and o USD 175.8 million from GP Investments; . USD 125.4 million from GP Investments’ direct stake in Spice Private Equity at book value; . USD 2.8 million from GP Investments’ direct stake in RHI Magnesita; . USD 7.9 million from GP Investments’ direct stake in Rimini Street; . USD 3.4 million from GP Investments’ direct stake in GPIAC.
Value of Investment* Ownership as of June 30, 2018 In USD million (%) GP's GP Direct Co- GP Direct GP Total Portfolio Companies GPCPIII GPCPIV GPCPV GPCPVI GPRE LPs Total GPCPIII GPCPIV GPCPV GPCPVI GPRE Stake Stake Investors Stake Ownership** RHI Magnesita¹ 29,4 133,7 - - - 56,9 106,3 2,8 8,6% 2,5% 1,1% 4,9% - - - 0,1% 2,2% BHG³ - 52,7 - - - 16,6 36,0 - 100,0% 72,6% - 27,4% - - - - 8,6% EBAM³ - - 30,9 - - 12,7 18,2 - 80,0% - - - 80,0% - - - 34,3% Centauro³ - - 97,0 - - 39,8 57,2 - 36,2% 12,1% - - 24,1% - - - 10,4% Beleza Natural³ - - 18,8 - - 7,7 11,1 - 33,7% - - - 33,7% - - - 14,4% BR Properties¹ - - - 1.005,9 - 21,3 984,5 - 70,0% - - - - 70,0% - - 2,2% Real Estate Investments4 - - - - 49,7 20,9 28,8 - 100,0% - - - - - 100,0% - 40,9% Total Fund Investments 29,4 186,4 146,6 1.005,9 49,7 175,8 1.242,2 2,8 Spice² ------125,4 58,5% ------58,5% 58,5% GPIAC5 ------3,4 16,7% ------16,7% 16,7% Rimini Street¹ ------7,9 3,3% ------3,3% 3,3% Total 29,4 186,4 146,6 1.005,9 49,7 175,8 1.242,2 142,7
* The value of the investments represents GP Investments’ direct and indirect stake in each company within the portfolio. (1) The value of the investment is based on the company’s market capitalization as of June 30, 2018. (2) The investment in Spice Private Equity is consolidated in GP Investments' balance sheet. The valuation shown above is based on its shareholders' equity as of June 30, 2018. (3) Discounted cash flow methodology, adjusted by the foreign exchange rate as of June 30, 2018. (4) Value of the investment is based on the acquisition value for some of the fund’s projects and on DCF methodology for others, according to GPRE’s policies described in the 1Q13 Earnings Release, both adjusted by the exchange rate as of June 30, 2018. (5) GPIAC is related to GP’s 16.7% stake in the vehicle that holds the sponsor shares, warrants and the expenses reimbursement related to the Rimini Street transaction to be received by GP from GPIAC.
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BALANCE SHEET
On the asset side, investments are calculated according to GP Investments’ pro-rata stakes in funds GPCP III, GPCP IV, GPCP V, GPCP VI, GPRE and direct investments. On the other hand, BRZ Investimentos and GP Advisors have their figures consolidated in GP’s financials. Also, following the increase of the stake in Spice to a total of 58.48% of ordinary shares, GP Investments started to consolidate Spice figures within its balance sheet. As demonstrated at the end of this document, GP consolidates the entirety of Spice’s accounts and excludes minority interests from the company’s equity. . Assets from the Proportional Balance Sheet totalled USD 650.3 million. . Cash & Cash Equivalents and Financial Investments totalled USD 160.7 million. . Non-current assets totalled USD 457.2 million. . Total liabilities stood at USD 173.1 million. . Current liabilities totalled USD 16.6 million. . Non-current liabilities of USD 156.5 million are fully represented by GP Investments’ balance sheet, comprising the Perpetual Notes and provision for contingencies. . The proportional shareholders’ equity amounted USD 477.3 million.
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ABOUT GP INVESTMENTS
Rodrigo Boscolo CFO and Investor Relations Officer
Eduardo Coutinho Corporate Development and Investor Relations Manager
GP Investments +55 (11) 3556-5505 [email protected]
Conference Call
English August 15, 2018 9:00 am (New York time) 10:00 am (Brasília time) Phone (International): +1 (412) 317 5455 Phone (Brazil): 0800 891 0015 Code: GP Investments
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GP Investments – Proportional Income Statement
Proportional Income Statement In USD million 2Q18 2Q17 1H18 1H17 Fund Management Revenues 6.4 9.4 14.8 16.8 Management fees 6.4 8.8 12.9 15.2 Performance fees 0.1 0.3 0.1 0.3 Unrealized performance fees (0.1) 0.3 1.7 1.3
Capital Results Revenues (23.5) 10.3 (17.0) 33.8 Appreciation / Depreciation in fair value of investments (24.7) 8.5 (18.2) 30.0 Net realized gains - (1.6) - (1.5) Dividends and others 1.2 3.4 1.2 5.4 tTotal Revenues (17.1) 19.7 (2.2) 50.6 Operating expenses (5.9) (6.7) (11.6) (12.0) -General and administrative (3.4) (3.4) (6.1) (6.3) -Payroll (2.4) (3.3) (5.5) (5.8) Bonus and carried interest sharing expenses (0.5) (1.6) (1.1) (3.5) tUnrealized carried interest sharing 0.0 (0.3) (1.7) (1.3) tOperating Expenses + Bonuses (6.3) (8.6) (14.3) (16.9) Intercompany management fees (1.0) (1.3) (1.9) (2.6) Intercompany performance fees - (0.0) - - Stock options (0.2) (0.4) (0.6) (1.1) Financial income / loss net (6.4) (4.0) (7.1) (10.6) -Financial income (2.8) (0.1) (0.2) 1.1 t -Financial expenses (3.6) (3.9) (6.9) (11.7) tNet Income / loss before taxes and Spice's results (31.0) 5.3 (26.1) 19.4 Income taxes (0.3) (0.6) (0.6) (1.1) tSpice's results (8.8) 1.1 (5.7) (1.9) Net Income / loss for the period (40.2) 5.7 (32.4) 16.3
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GP Investments – Proportional Balance Sheet
Proportional Balance Sheet In USD million Assets 2Q18 1Q18 2017 Liabilities and shareholders' equity 2Q18 1Q18 2017 Current assets 193.1 253.9 285.8 Current liabilities 16.6 18.5 23.4 Cash and cash equivalents 114.0 171.5 240.3 Accounts payable 4.3 6.1 3.3 Financial investments trading securities 46.7 50.9 17.4 Taxes payable 0.7 1.1 7.2 Management and performance fees 0.1 0.2 1.2 Payroll accruals and related charges 3.1 3.1 6.3 Deferred costs and prepaid expenses 1.0 1.4 1.4 Accrued interest 2.6 2.6 3.2 Receivable related to derivative instruments - 0.0 0.0 Other 6.0 5.6 3.6 Other 31.3 30.0 25.5 Non-current liabilities 156.5 155.6 182.8 Perpetual notes 130.7 130.7 157.8 Provision for contigencies 25.8 25.0 25.0
Non-current assets 457.2 399.9 391.2 Investments 400.7 353.7 339.4 Shareholders' equity 477.3 479.8 470.9 -Equity Portfolio 391.5 342.9 327.9 Share capital 0.3 0.3 0.3 -Financial investments available for sale 9.2 10.8 11.6 Share premium 597.1 596.7 596.3 Funds held in escrow 8.6 10.0 9.9 Accumulated deficit (235.7) (195.5) (203.3) Receivables from employees and shareholders 10.7 12.2 13.6 Treasury shares (0.4) (0.4) - Furniture and equipment 0.7 0.8 0.9 Other accumulated comprehensive loss (19.9) (16.6) (15.5) Loans and receivables from related parties 19.6 19.8 19.8 Minority Interest 135.9 95.3 93.1 Other 16.9 3.5 7.6 Total assets 650.3 653.9 677.1 Total liabilities and shareholders' equity 135.2 137.0 161.4
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GP Investments – Balance Sheet (GP Investments and Spice Private Equity)
Balance Sheet GP Investments Spice GP + Spice GP Investments Spice GP + Spice In USD million Assets 2Q18 2Q18 2Q18 Liabilities and shareholders' equity 2Q18 2Q18 2Q18 Current assets 135.3 57.8 193.1 Current liabilities 16.2 0.4 16.6 Cash and cash equivalents 72.5 41.5 114.0 Accounts payable 3.8 0.4 4.3 Financial investments trading securities 31.5 15.2 46.7 Taxes payable 0.7 - 0.7 Management and performance fees 0.1 - 0.1 Payroll accruals and related charges 3.1 - 3.1 Deferred costs and prepaid expenses 0.8 0.2 1.0 Accrued interest 2.6 - 2.6 Receivable related to derivative instruments - - - Other 6.0 - 6.0 Other assets 30.3 1.0 31.3
Non-current liabilities 156.5 - 156.5 Provision for contigencies 25.8 - 25.8 Non-current assets 253.3 203.9 457.2 Perpetual notes 130.7 - 130.7 Investments 207.8 192.9 400.7 -Equity Portfolio 198.6 192.9 391.5 -Financial investments available for sale 9.2 - 9.2 Receivables from employees and shareholders 10.7 - 10.7 Furniture and equipment 0.7 - 0.7 Shareholders' equity 215.9 261.3 477.3 Loans and receivables from related parties 19.6 - 19.6 Funds held in escrow 8.6 - 8.6 Other 5.9 11.0 16.9 Total assets 388.6 261.8 650.3 Total liabilities and shareholders' equity 388.6 261.8 650.3
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GP Investments – Consolidated Income Statement
Consolidated Income Statement In USD million 2Q18 2Q17 1H18 1H17 Fund Management Revenues 4.5 5.6 7.5 8.2 Management fees 4.2 5.4 7.2 7.9 Performance fees 0.3 0.2 0.3 0.2 Capital Results Revenues (64.4) 30.8 (33.7) 59.5 Appreciation / Depreciation in fair value of investments (66.0) 22.1 (35.4) 48.0 Net realized gains (0.3) 2.6 (0.3) 2.8 Dividends and others 1.9 6.1 1.9 8.8 Total Revenues (59.8)- 36.4- (26.2)- 67.7- Operating Expenses (6.0) (7.6) (12.2) (13.4) -General and administrative (3.3) (4.1) (6.4) (7.4) -Payroll (2.7) (3.5) (5.8) (6.0) Bonus and carried interest sharing expenses (0.7) (1.7) (1.4) (3.7) Unrealized carried interest 0.1 (0.6) (0.3) (0.8) Stock options (0.2) (0.5) (0.6) (1.1) Contingencies (3.7) (5.6) (3.7) (5.9) Total Expenses (10.6) (15.9) (18.3) (24.9) Financial income / loss net (8.3) (2.4) (8.1) (7.8) -Financial income 1.4 3.0 4.9 6.1 -Financial expenses (9.7) (5.6) (13.0) (14.1) -Other 0.0 0.1 (0.0) 0.1 Net Income / loss for the period before taxes (78.7) 18.0 (52.6) 34.9 Income taxes (0.4) (0.7) (0.7) (1.2) Net Income / loss for the period (79.1) 17.3 (53.3) 33.7 Non-controlling net income / loss for the period (39.0) 11.5 (21.0) 17.4 Net Income / loss for the period attributable to GP (40.2) 5.7 (32.4) 16.3
GP Investments – Consolidated Balance Sheet
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Consolidated Balance Sheet In USD million Assets 2Q18 1Q18 2017 Liabilities and shareholders' equity 2Q18 1Q18 2017 Current assets 179.1 245.7 275.1 Current liabilities 18.9 16.7 20.8 Cash and cash equivalents 116.0 172.2 241.0 Accounts payable 5.1 7.1 4.0 Financial investments trading securities 47.2 55.4 17.5 Taxes payable 0.9 1.4 2.4 Management and performance fees 0.6 1.3 1.3 Payroll accruals and related charges 5.1 5.0 9.4 Deferred costs and prepaid expenses 1.0 1.5 1.4 Accrued interest 2.6 2.6 3.2 Receivable related to derivative instruments - 0.0 0.0 Other 5.1 0.7 1.9 Other 14.4 15.3 13.9 Non-current liabilities 166.5 163.7 196.8 Perpetual notes 130.7 130.7 157.8 Provision for contigencies 35.8 33.0 33.0 Other - - 6.0 Non-current assets 734.3 698.0 680.7 Investments 663.4 635.0 611.9 -Equity Portfolio 653.6 623.4 599.6 Shareholders' equity 728.1 763.4 738.2 -Financial investments available for sale 9.8 11.6 12.4 Share capital 0.3 0.3 0.3 Loans and receivables from related parties 19.6 19.8 19.8 Share premium 597.1 596.7 596.3 Funds held in escrow 21.0 24.1 23.9 Accumulated deficit (235.7) (195.5) (203.3) Receivables from employees and shareholders 10.7 12.2 13.7 Other accumulated comprehensive loss (19.9) (16.6) (15.5) Furniture and equipment 0.7 0.8 0.9 Treasury shares (0.4) (0.4) - Other 18.9 6.1 10.6 Minority Interest 386.7 378.9 360.5 Total assets 913.5 943.7 955.8 Total liabilities and shareholders' equity 913.5 943.7 955.8
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GP Investments – Consolidated Cash Flow
Consolidated Cash Flow In USD million 2Q18 2Q17 1H18 1H17
Net income (loss) for the period (79.1) 17.3 (53.3) 33.7
Reconciliation of net income (loss) to net cash flows from operating activities 74.3 (17.8) 42.6 (43.4) Appreciation (depreciation) in fair value of the investments 66.0 (22.1) 35.4 (48.0) Reversal of unrealized fair value on disposal of investments - 10.7 5.4 38.2 Realized gain (loss) - private equity, net 0.3 (13.3) (5.1) (40.9) Net unrealized gain (loss) on derivative instruments (0.0) (0.1) 0.0 (0.1) Stock based compensation 0.2 0.2 0.6 0.8 Unrealized loss on items denominated in foreign currency, net - - - 2.4 Accrued interests 3.3 0.6 3.3 (1.4) Accrued interests on available for sale 1.0 0.9 0.9 0.6 Amortization of deferred costs and prepaid expenses 0.5 0.2 0.4 0.4 Accrued interest on perpetual notes 0.0 (0.5) (1.0) (1.0) Accrued interest on loan receivable 0.2 0.0 0.2 (0.1) Provision for contingencies 2.8 5.6 2.8 5.6 Depreciation of fixed assets 0.1 0.1 0.1 0.2 Other (0.2) (0.1) (0.4) (0.1)
Change in assets/liabilities (7.5) 3.9 (16.8) 1.0 Management and performance fees receivables 0.8 3.5 0.8 2.9 Receivable from employees and shareholders 1.5 0.3 2.3 0.0 Accounts payable (1.9) (0.0) 1.1 (1.0) Taxes payable (0.5) (2.8) (1.5) (2.8) Other liabilities (long term) - - (6.0) - Payroll, accruals bonuses and related charges 0.2 1.2 (4.2) 0.2 Receivables (payables) related to derivative instruments 0.0 (0.0) 0.0 0.3 Other liabilities 4.4 (0.0) 3.2 0.9 Other assets (12.0) 1.8 (12.6) 0.6 Net cash provided by (used in) operating activities (12.4) 3.3 (27.6) (8.6) Acquisition of financial investments (16.4) (6.8) (50.5) (10.4) Transfer to SPVs for payment of expenses (0.2) (0.1) (0.3) (0.4) Financial investments and trading securities, net 4.3 0.2 4.3 0.0 Proceeds from sale of financial investments 20.2 6.5 20.9 32.6 Proceeds from sale of investments – Wiz (ex. Par Corretora) - 10.7 - 45.6 Proceeds from escrow accounts - 4.2 - 4.2 Proceeds from sale of investments – private equity - - 7.4 - Proceeds from sale of investments owned through Spice 1.8 - 1.9 37.3 Acquisition of investment through Spice - FoodFirst Global Restaurants, Inc. (95.5) - (95.5) - Acquisition of investment through Spice - The Craftory (2.2) - (2.2) - Acquisition (sale) of financial investments available for sale (0.0) 0.5 (0.0) 1.1 Sale of furniture, properties and equipment 0.1 0.0 0.1 0.0 Acquisition of other assets (0.2)- (0.3)- (0.8)- (0.2)- Net cash provided by (used in) investing activities (88.0)- 14.8- (114.8)- 109.8- Distribution to Limited Partners - private equity investments - (3.5) - (4.2) Distribution to Limited Partners - real estate investments (1.1) - (1.1) - Capital contribution from Limited Partners - real estate investments 0.4 - 0.4 - Amortization of perpetual notes, net - 0.5 (26.7) 1.0 Acquisition of treasury shares (0.0) - (0.4) - Acquisition of treasury shares by non-controlling Spice - - - 0.0 Non-controlling interest FoodFirst 46.8 - 46.8 - Repayment of loans and financing - - - (49.8) Capital subscription 0.2 1.4 0.2 1.4 Capital subscription of minorities of BRZ Investimentos S.A. - 0.0- 0.4- 0.0- Net cash provided by (used in) financing activities 46.3- (1.6)- 19.6- (51.6)- Effects of exchange rate changes on cash and equivalents (2.1)- 1.5- (2.2)- 1.9- Net increase (decrease) in cash and cash equivalents (56.3)- 18.1- (125.0)- 51.5- Cash and cash equivalents at beginning of the period 172.2 191.0 241.0 157.6 Cash and cash equivalents at end of the period 116.0- 209.1- 116.0- 209.1- Supplemental information 3.7 4.8 8.2 9.4 -Interest paid 3.5 4.3 7.8 8.5 -Income taxes and social contributions paid 0.2 0.5 0.5 0.9
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