Unbound : Half Year Second Interim Report & Accounts 2021

Electra Private Equity PLC

Second Interim Report 2021

Contents

Strategic and Business Review

1	2	About Electra Private Equity PLC
3	Chairman's Statement
	7	Portfolio Review
	8	Key Investments
	11	Chief Financial and Operating Officer's Review
2	Accounts
13	Condensed Consolidated Income Statement
14	Condensed Consolidated Statement of Changes
		in Equity
	15	Condensed Consolidated Balance Sheet
	16	Condensed Consolidated Cash Flow Statement
	17	Notes to the Accounts
	25	Independent Review Report to Electra Private
		Equity PLC
3	Corporate Governance
26	Second Interim Report
27	Responsibility Statement
4	Further Information
28	Information for Shareholders
30	Glossary
	32	Contact Details

Accounts Review Business and Strategic

Governance Corporate

Information Further

Electra Private Equity PLC | Second Interim Report 2021

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About Electra Private Equity PLC

Electra Private Equity PLC ("Electra" or the "Company") is a private equity investment trust which has been listed on the London Stock Exchange since 1976. The Company is managed as an HM Revenue and Customs approved investment trust and invests primarily in the private equity mid-market. As at 30 September 2021, its net assets were £205.0 million or 525.9p per share.

It is now the Board's intention to seek shareholder approval to transition the Company from the FTSE main market to AIM, renamed as Unbound Group PLC, as a parent company for Hotter Shoes, the Company's last remaining significant investment. Should this transition proceed, the Company will cease to be an investment trust in early 2022.

Investment Objective and Policy

• Electra's investment objective is to follow a realisation strategy, which aims to crystallise value for shareholders, through balancing the timing of returning cash to shareholders with maximisation of value.
• The Company will not make any new investments but will continue to support its existing investments to the extent required in order to optimise returns.
• The Company will retain sufficient cash to meet its obligations and to support its portfolio assets, with cash from realisations being invested in AAA-rated money market funds, pending utilisation or return to shareholders.
• Should it be appropriate to utilise gearing in order to optimise the balance between timing of returning cash to shareholders and maximisation of value, the Company will maintain gearing below 40% of its total assets.
• Since 1 October 2016, the Company has distributed over £2.2 billion to shareholders through ordinary dividends, special dividends, a share buyback and the demerger of Hostmore plc.

Accounts Review Business and Strategic

Governance Corporate

Information Further

Electra Private Equity PLC | Second Interim Report 2021

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Chairman's Statement

"Following the successful demerger of Hostmore plc on 1 November 2021, we are now entering the final stage of our value realisation strategy that has now seen us return over £2.2 billion to shareholders from a starting market capitalisation of £1.1 billion. We will shortly be starting the formal process that we intend will lead in early 2022 to the transition of Electra from the FTSE main market listing to AIM as Unbound Group PLC - a company that will build on the solid foundation of Hotter Shoes to grow value through a digital platform supporting the active lifestyles of the 55 plus demographic with a range of products and services."

Accounts Review Business and Strategic

Background

In late 2018 the Electra Board completed an assessment of the remaining portfolio, principally Sentinel Performance Solutions ("Sentinel"), Hotter Shoes ("Hotter") and TGI Fridays ("Fridays") and concluded that each held a significant value creation opportunity but required significant work in order to realise it. We targeted completion of our strategy by the end of 2021. With new management in place in each business, we embarked on the development and implementation of transformation plans in each business. The emergence of the Covid-19 pandemic required our implementation plans to be significantly adapted but not our targeted end position. We were delighted to complete a very good exit from Sentinel in May 2021 and have thereafter focussed on delivering the platform for future value creation through both the demerger of Hostmore plc ("Hostmore") and the transformation of Electra into Unbound Group PLC ("Unbound").

The successful completion of the Hostmore demerger on

1 November 2021 marked a key point in the implementation of our strategy. Hostmore is a highly profitable and cash generative business with a very strong management team and clear growth strategy. The Board is confident that Hostmore will create future value significantly greater than our necessarily discounted September valuation, in which we continue to take account

of both liquidity discount and transaction execution risk in the discount, reflecting the position in the transaction timetable as at that date when regulatory clearances and shareholder approval had yet to be obtained.

We recognise that the market capitalisation of Hostmore immediately following the demerger is below what we believe is the true value of the business. Contributing factors to the discount now prevailing, as at the date of this statement, include the expected recycling of shares by Electra investors and some short-term associated volatility following the demerger, the impact of a negative forward-looking statement from a peer group comparator, arising in part from reasons wholly unconnected with Hostmore's own investment case and ongoing uncertainty over Covid risk to trading conditions. Whilst both Electra and Hostmore management acknowledge the existence of forward-looking non Covid-19 pressures affecting the outlook which may affect some peer group companies, Hostmore's management actions and mitigations provide us with confidence that Hostmore's future performance will not be significantly impacted by these issues.

Accordingly, we believe that the fair value of Hostmore as an independent listed business is more closely aligned to that implied by our adjusted 30 September 2021 valuation (reflected in Table 2 on page 4) announced today, which is reinforced by the valuations referenced in the post-demerger research notes published by Numis and Edison. The Electra Board is confident that Hostmore can deliver significant value for shareholders going forward and wish the company, its employees and management well.

Change of Accounting Period

In shortly instigating the process that will, subject to shareholder approval, see Electra transition to AIM as Unbound Group PLC in early 2022, we intend aligning the Electra accounting period with that transition. As such, the current Electra accounting period will be extended to a date immediately before the admission to trading on AIM, and therefore this report is a second interim report to 30 September 2021. It is anticipated that Electra will cease to be an investment trust with effect from its transition to AIM in early 2022.

Board Valuation as at 30 September 2021

This report reflects the value the Board considers appropriate for each of our portfolio assets as at 30 September 2021 individually on the basis of the circumstances in effect at that time. Given the subsequent demerger of Hostmore and the planned transition to Unbound, Table 1 on page 4 reflects the assets held at 30 September grouped appropriately to reflect both the implied equity value attributable to each of Hostmore and Unbound as well as the value attributable to Electra shareholders based on our 30 September 2021 valuations. These valuations reflected in Table 1 on page 4 continue to reflect an enterprise value subject to a transaction execution risk, liquidity and other discounts (in comparison to listed peers) that reflects the circumstances as at 30 September 2021 when completion of the demerger and subsequent transition of Electra to Unbound were both uncertain (discounts: Fridays 33% and Hotter 35%).

In the circumstances of the subsequent successful demerger of Hostmore and proposed admission of Unbound to AIM, in Table 2 we have illustrated the impact of removing these discounts to reflect the adjusted estimated value of Hostmore and Hotter/ Unbound as independent listed businesses with valuation multiples equivalent to their listed peers.

Governance Corporate

Information Further

Electra Private Equity PLC | Second Interim Report 2021

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Chairman's Statement continued

Board Valuation as at 30 September 2021 continued

The 35% discount applied to Hotter in the 30 September valuation and reflected in Table 1 below includes an assessment of the risk at the time of completing the extension of its existing banking facilities. Hotter is currently engaged with its existing bankers

to extend its current facilities to 31 December 2024 whilst at the same time reducing its gross debt from £17.1 million to £12.1 million (through an equity investment from Electra). The Board are confident that this facility amendment will be completed in order to allow the AIM transition to proceed.

Table 1: As reported as at 30 September 2021 - including application of discount

£million	Electra	Hostmore	Unbound
Hostmore equity value*	176.0*	176.0*	-
Hotter equity value*	33.5*	-	33.5*
Management
shareholding	(15.9)	(12.7)	(3.2)
Assets being realised**	1.3	-	1.3
Assets being
retained***	2.2	-	2.2
Cash	8.2	-	8.2
Other net liabilities****	(0.3)	-	(0.3)
NAV attributable to
Electra shareholders
as at 30 September		205.0	163.3	41.7
NAV per share (Electra)	525.9p	418.9p	107.0p
NAV per share (Hostmore)	-	129.5p	-

• Reflects transaction execution/liquidity discounts of 33% (Fridays) and 35% (Hotter)

• Assets expected to be realised prior to transition to Unbound
• An illiquid property investment expected to be retained with annual income of approx. £0.3 million
• Includes accrual for operating costs prior to transition to Unbound

Table 2: Pro-forma as at 30 September 2021 - assuming demerger and unwind of discount reflected as at 30 September

£million	Electra	Hostmore	Unbound
Hostmore equity value*	278.2*	278.2*	-
Hotter equity value*	59.4*	-	59.4*
Management
shareholding	(25.3)	(20.2)	(5.1)
Assets being realised**	4.0	-	4.0
Assets being
retained***	2.2	-	2.2
Cash	8.2	-	8.2
Other net liabilities****	(1.2)	-	(1.2)
NAV attributable to
Electra shareholders
as at 30 September		325.5	258.0	67.5
NAV per share (Electra)	835.2p	662.0p	173.2p
NAV per share (Hostmore)	-	204.6p	-

• Reported values adjusted to take out the transaction risk and liquidity discount reflected in 30 September valuation

• Assets expected to be realised prior to transition to Unbound. Includes 1.6% shareholding in Hostmore plc
• An illiquid property investment expected to be retained with annual income of approx. £0.3 million
• Includes accrual for operating costs prior to transition to Unbound

The Hotter equity value reflected in both tables to the left does not reflect any value arising from an ongoing business interruption insurance claim relating to the Covid-19 pandemic lockdowns. A range of recovery outcomes from this claim is possible ranging from nil to in excess of £15 million. Resolution is expected in late 2022 or early 2023.

Management Shareholdings

As has been the case in previous reporting periods, the values attributable to the shareholders of Electra noted in the tables to the left are arrived at after deducting amounts due to management as a result of value creation incentives agreed on their recruitment. On demerger, Hostmore equity reflecting 7.3% of the issued capital was issued to Hostmore management in satisfaction of their management incentive plans. Similarly, it is intended that Unbound management will be issued new Electra/Unbound equity which is currently envisaged to total approximately 7.8% of the issued capital of Electra/Unbound. No formal arrangements have yet been entered into. The structure of these incentives ensures ongoing alignment between the executives of both companies and shareholders and has no direct impact on the value attributable to Electra shareholders immediately before the relevant transaction.

Transition is Subject to Shareholder Approval

As indicated above we will shortly be instigating the formal processes to complete the transition of Electra to Unbound. These will involve the calling of a General Meeting of shareholders to consider certain resolutions in respect of the delisting from the FTSE main market, with the subsequent admission to trading on AIM. It is the intention of the Board to unanimously support these resolutions and to vote in favour of each resolution in respect of shares held by the Directors.

Unbound Group PLC Strategy

Electra acquired the Hotter Business in 2014 based on its long heritage as a direct-to-consumer brand that designed, manufactured and retailed comfort footwear to the 55 plus demographic. At the time of the acquisition, the growth of the Hotter businesses was primarily driven through an extensive store roll out programme. Having been transformed over the last two years into a digital-first proposition with a right-sized store portfolio, the Hotter business has returned to growth and is a profitable and cash generative business. The Hotter business serves almost 1 in 3 of the over the age of 55 female population in the UK - providing them with footwear that allows them to get more from the active lifestyle they love.

Building on the strong brand, customer trust and customer loyalty enjoyed and being strengthened by Hotter, Unbound intends to extend the range of digital partnerships to create a curated platform offering additional products and services that will enhance the enjoyment and wellbeing of customers in the 55 plus demographic. With the Hotter business already selling to over 29% of the UK female population over the age of 55, the Directors believe that this offers an opportunity for significant sustainable growth beyond that already being delivered by Hotter.

Accounts Review Business and Strategic

Governance Corporate

Information Further

Electra Private Equity PLC | Second Interim Report 2021

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