Wrap Text
Provisional reviewed condensed financial results
for the year ended 30 June 2018
African Rainbow Capital Investments Limited (ARC Investments)
(Incorporated in the Republic of Mauritius)
(Company number C148430)
JSE Share Code: AIL
ISIN Code: MU0553S00000
PROVISIONAL REVIEWED CONDENSED FINANCIAL RESULTS
for the year ended 30 June 2018
KEY HIGHLIGHTS
AFRICAN RAINBOW CAPITAL
INVESTMENTS LIMITED
(ARC INVESTMENTS)
LISTED ON THE JSE ON
7 SEPTEMBER 2017
296 DAYS OF TRADE SINCE LISTING
IN THE YEAR UNDER REVIEW
INTRINSIC NET ASSET VALUE
(INAV)
UP 9.1%
TO R9 527 MILLION
(7 September 2017: R8 734 million)
INAV PER SHARE
UP R9.23
R9.12 ON A DILUTED BASIS
(7 September 2017: R8.46)
INTRINSIC PORTFOLIO VALUE (IPV)
UP R8 147 million
(7 September 2017: R4 473 million)
DEAL PIPELINE LED TO CONVERSION
OF AVAILABLE CASH INTO
INVESTMENTS
NET INVESTMENTS MADE OF
R2 735 million
INCLUDING AN ADDITIONAL
INVESTMENT IN RAIN OF
R1 122 million
CASH IN THE ARC FUND
AT YEAR-END OF
R1 576 million
COMMENTARY
NATURE OF BUSINESS
African Rainbow Capital Investments Limited (ARC Investments/
Company/ARCI) listed on the Johannesburg Stock Exchange
Limited ( JSE) on 7 September 2017 and reports its maiden
provisional results for the year ended 30 June 2018. It is 51.7%
owned by African Rainbow Capital Proprietary Limited (ARC)
which in turn is 100% owned by Ubuntu-Botho Investments
Proprietary Limited (UBI).
The Company was incorporated in the Republic of Mauritius on
30 June 2017 as a private company limited by shares. The Company
holds a Category One Global Business License under the Mauritian
Financial Services Act, 2007 and is regulated by the Mauritian
Financial Services Commission.
The registered office and principal place of business of the
Company is located at Level 3, Alexander House, 35 Cybercity,
Ebène 72201, Mauritius. The principal activities of the Company
are that of an investment holding company whereby it offers
shareholders long-term capital appreciation by indirectly investing
in a diversified portfolio of listed and unlisted investments.
ARC made various investments since 2015 and sold these
investments to ARC Investments as part of the listing process. ARC
Investments participates in the underlying investments through its
Limited Partnership interest of 99.95% in the ARC Fund Partnership
(the ARC Fund), which is South African based.
Full details of the acquisitions and structure of the group were
disclosed in the Pre-Listing Statement issued on 28 August 2017
and published on the Company's website, www.arci.mu.
STRATEGY
The main purpose for the establishment of ARC Investments and
the Listing was to:
- create a broad-based Black-controlled capital raising and
investment vehicle of significant scale with a diversified indirectly
held portfolio of investments;
- enable public market investors to invest in ARC Investments and
obtain an indirect exposure to a diversified pool of listed and
unlisted Broad-Based Black Economic Empowerment (B-BBEE)
assets though a listed investment vehicle; and
- enable ARC Investments to access capital markets, if required, to
fund future expansion.
The most significant benefit in this regard is access to high quality
listed and unlisted companies which ARC facilitates. This allows
ARC Investments' shareholders access to a diverse portfolio of
investments, some of which would otherwise not be available to
normal investors on the JSE. In addition, investments are acquired
at an appropriate B-BBEE discount where the investment carries
a B-BBEE lock-in for a contractually agreed period of time. These
factors offer a very attractive proposition to investors.
The UBI group endorses B-BBEE as a suitable mechanism for the
redistribution of wealth and resources to the poor and marginalised
communities in South Africa. UBI group seeks to utilise its
empowerment credentials, its financial strength, its strong and
well experienced leadership team and its strong brand to achieve
superior capital appreciation for investors in ARC Investments.
INVESTMENT STRATEGY
ARC Investments does not conduct any material trading activity
as its main objective is to hold the investment in the ARC Fund.
By investing in a broad range of sectors and through a variety of
listed and unlisted entities, the ARC Fund generally seeks to gain
exposure to growth and early-maturity stage businesses in which
management teams are appropriately incentivised. The ARC Fund
generally seeks to acquire significant minority equity interests in
established and start-up businesses that meet one or more of the
following criteria:
- Experienced, qualified and capable management.
- A demonstrable track record.
- Strong cash flow generation.
- Solid growth prospects.
- Established market position.
- The opportunity to consolidate their respective markets and/or
existing businesses within the ARC Fund portfolio.
- Commercial prospects which can be enhanced by having strong
B-BBEE credentials.
Where the ARC Fund holds majority or significant minority
interests in portfolio companies, the ARC Fund, where appropriate,
seeks to provide broad strategic guidance to such companies.
This is generally provided through participation on their Board
of Directors. The ARC Fund has the flexibility to participate in
opportunistic investments as and when they arise and seeks to
focus on transactions in South Africa and other select countries
in Africa but may also invest in Portfolio Companies with interests
and/or operations elsewhere in the world. The ARC Fund does not
have a target size and may be geared, as appropriate, to meet its
investment strategy.
ARC Investments' medium- to long-term objective is to grow its
Intrinsic Net Asset Value (INAV) by at least 16% per annum. Each
investment opportunity is expected to exceed this minimum
risk adjusted return hurdle on a standalone basis (i.e. without
considering potential synergistical benefits that can be derived from
being part of a diversified portfolio). The return threshold applicable
to start-ups may be significantly higher than the 16% per annum
hurdle, reflecting the higher risks attaching to such ventures relative
to established businesses.
Acquisitions made post listing have been concluded in the ARC
Fund and African Rainbow Capital Financial Services Holdings
Proprietary Limited (ARC FinHoldCo) in which the ARC Fund holds
a 49.9% interest.
ARC Investments has a single investment in the ARC Fund in its
capacity as a Limited Partner. The underlying investments of the
ARC Fund are managed in the ARC Fund by the fund manager, UBI
General Partner Proprietary Limited (the General Partner).
INVESTMENT PORTFOLIO
Per the Segment Information on pages 20 - 27, on an Intrinsic Portfolio Value (IPV) basis the initial underlying Investment Portfolio in the
Company through its investment in the ARC Fund comprised of:
- 100% of interests in the non-financial services Portfolio Companies (within the Diversified Investments segment); and
- 49.9% of interests in the financial services Portfolio Companies of ARC FinHoldCo (within the Diversified Financial Services segment).
For investments in non-financial services businesses within the Diversified Investments portfolio, the approach is to invest in good standalone
businesses and to back a strong and effective management team to deliver on the required return on investment for the business.
For investments in the Diversified Financial Services portfolio, the ARC Fund seeks to drive synergies among portfolio companies. This allows
the ARC Fund to build a holistic financial services business.
OPERATING ENVIRONMENT
The spectrum of businesses in the ARC Fund is diverse, which is
strategically important for the overall performance of the ARC
Fund. Since most of the businesses in the ARC Fund are exposed
to the South African economy, the low economic growth in South
Africa, which has been estimated as between less than 1.0% to
about 1.5% across the various industries in the period under review,
has negatively impacted the trading environments of many of our
portfolio businesses with a consequential knock-on effect on our
reported performance. It is expected that the performance of these
investments will improve over the short- to medium-term.
OVERVIEW OF RESULTS
Intrinsic net asset value (INAV)
For the period since listing INAV increased from R8 734 million
to R9 527 million. The ordinary shares in issue remained constant
throughout the period at 1 032 million. The INAV per ordinary
share of R9.23 on 30 June 2018 represents a 9.1% growth in INAV
per share for the period. On an annualised basis the growth in INAV
per share is 11.2%.
The diluted INAV per share after fees for the period increased by
7.8% from R8.46 at listing to R9.12 at 30 June 2018 after performance participation.
This represents an annualised growth of 9.6% in diluted INAV per
share.
There were no reconciling items between earnings per share and headline
earnings per share and both measures thus increased to 81 cents at 30 June 2018
from (11 165 769 cents) at 30 June 2017. NAV per share increased to 931 cents at
30 June 2018 from (11 165 769 cents) at 30 June 2017.
Intrinsic Portfolio Value (IPV)
The IPV amounted to R4 473 million at listing on 7 September 2017.
IPV increased to R8 147 million at 30 June 2018 as a result of
acquisitions, fair value adjustments and income earned. During the
period under review, the ARC Fund made net cash acquisitions of
R2 735 million while Intrinsic Portfolio Value (IPV) increased by R708 million
being, net fair value adjustments and interest on loans to Portfolio Companies.
Cash balances
ARC Investments raised R4 300 million during the listing process
on 7 September 2017. The ARC Fund utilised R2 735 million of the
contributed cash capital by the Company of R4 224 million during
the period under review to fund its acquisitions. Cash balances
increased by a net amount R246 million due to interest and
dividends earned, less expenses and fees paid, resulting in a cash
balance of R1 577 million at 30 June 2018.
Fees
The ARC Fund incurred R94 million in fees charged by the General
Partner since listing comprising of portfolio management fees
(R88 million) and cash management fees (R6 million).
Performance participation
The ARC Fund achieved an annualised IPV growth in excess of
the 10% hurdle rate for the period under review which resulted
in a Performance Participation expense of R115 million in the
Company. The Performance Participation results in the conversion
of 12,6 million C shares into ordinary shares.
PORTFOLIO REVIEW
Below is a summarised review of the portfolio performance. For
detailed commentary on the portfolio, please refer to Annexure I
- Detailed Intrinsic Portfolio Value by Reporting Segment on
pages 20 to 27.
Telecommunications (28.0% of IPV)
The ARC Fund investment in Rain (26.3% of IPV) increased
from R656 million at listing to R2 144 million at 30 June 2018.
The increase is mainly attributable to further investment of
R1 122 million and revaluations of R366 million.
Mining, Construction and Energy (15.8% of IPV)
The IPV of the investments in Mining, Construction and Energy
increased from R1 121 million at listing to R1 285 million at
30 June 2018. The increase is mainly attributable to an investment
in the Last Mile Fund of R132 million.
Business Process Outsourcing (15.2% of IPV)
The IPV of the investments in Business Process Outsourcing
increased from R867 million at listing to R1 245 million at
30 June 2018. The increase is mainly attributable to an investment
in Bluespec of R509 million and a decrease in the fair value of the
investment in EOH of R236 million.
Agriculture (10.8% of IPV)
The IPV of the investments in Agriculture increased from
R432 million at listing to R877 million at 30 June 2018. The increase
is mainly attributable to:
- investments made in Subtropico and RSA totalling R184 million; and
- revaluation of the investment in BKB by R196 million to
the agreed contract sale price to Acorn Agri & Foods of
R416 million.
Property (6.4% of IPV)
The IPV of the investments in Property increased from R314 million
at listing to R523 million at 30 June 2018. The increase is mainly
attributable to the revaluation of ARC Real Estate of R90 million;
Majik of R57 million and Val de Vie of R22 million.
Other (4.6% of IPV)
The Other investments consist mainly of a 51% equity interest in
Fledge Capital acquired for R315 million during the period under
review.
Diversified Financial Services (19.2% of IPV)
The IPV of Diversified Financial Services increased from
R967 million at listing to R1 567 million at 30 June 2018. The
increase is mainly attributable to acquisitions of R533 million of
which the majority consists of an investment in TymeDigital of
R158 million and increases in the shareholding in Alexander Forbes
(R266 million) and Afrocentric (R43 million).
LEADERSHIP AND GOVERNANCE
ARC Investments
The Company is managed and controlled in Mauritius by an experienced, multinational and majority independent Board of Directors
(the Board) that has final oversight and responsibility in respect of ARC Investments' business, strategy and key policies. This includes the
investment in the ARC Fund.
ARC Investments is a Limited Partner in the ARC Fund, an en commandite partnership established in South Africa. It thus plays no role in the
management or investment decisions of the ARC Fund. The Board consists of five non-executive directors, four of whom are independent.
There are no executive directors on the Board of ARC Investments. As an investment holding company, ARC Investments will not appoint
a Chief Executive Officer. Karen Bodenstein is the Chief Financial Officer of ARC Investments but not a director. Bridget Radebe is the Chief
Financial Officer of Ubuntu-Botho Investments Proprietary Limited (UBI) and a member of the Investment Advisory Committee of the
General Partner.
Amount
Name (age) Nationality Function (USD)
Mark Cyril Oliver (49)(1) British Independent non-executive director (Chairperson) 20 000
Deans Tommy Lo Seen Chong (58)(1) Mauritian Independent non-executive director 7 500
Renosi Mokate (60) South African Independent non-executive director 20 000
Clive Msipha (36) Zimbabwean Independent non-executive director
(Chairperson of the Audit and Risk Committee) 20 000
Bridget Ntombenhle Radebe (38) South African Non-executive director -
The amounts above are the directors' fees paid to the directors for
the current financial year.
During the year under review, Sipho Nkosi resigned as a director
and was replaced by Renosi Mokate as an independent non-
executive director on the Board of ARC Investments effective
23 November 2017.
All the investment decisions of the ARC Fund are taken by the
General Partner through its Investment Committee or, subject
to the terms of any delegations in place, its Investment Advisory
Committee. The ARC Fund's relationship with the General Partner
is governed through a partnership agreement. The Company's
Investment Guidelines have been adopted by the General Partner's
Investment Committee in its charter. This ensures conformance
therewith in all investment decisions made in the ARC Fund by
the General Partner. This includes governance oversight to ensure
that the Investment in the ARC Fund adheres to the Company's Investment Guidelines.
The General Partner has, in turn, entered into
the Investment Services Agreement with ARC. In terms of this
agreement, ARC assists the General Partner to source investment
opportunities for the ARC Fund and provides certain administrative
and back office support to the General Partner.
UBI General Partner
The board of directors of the General Partner is responsible for the
general investment decisions and reviews of the ARC Fund and
management of the pipeline and liquidity of the ARC Fund. It will
provide representation on the Boards of Directors of Portfolio
Companies (where appropriate), prepare valuation reports to ARC
Investments and provide general feedback to ARC Investments on
relevant matters relating to the ARC Fund.
The General Partner board members are:
Name Designation(#)
Patrice Tlhopane Motsepe (Chairman) Non-executive director
BA (Legal), LLB, DCom (Honoris Causa)
Alexander Komape Maditsi Non-executive director
BProc, LLB, LLM, Dip Company Law
Johan van der Merwe Executive director
MCom, MPhil (Cantab), CA(SA), AMP
(Harvard), COL (Insead)
Johan van Zyl Non-executive director
Phd (Economics), DSc. (Agric)
Michael Arnold Non-executive director
BCompt (Hons), BSc Mining Geology,
CA(SA) Appointed 7 June 2018
Abigail Mukhuba Non-executive director
BCom CA(SA) Appointed 19 July 2018
Boipelo Lekubo Non-executive director
BCom CA(SA) Appointed 20 July 2018
(1) These directors are Mauritian residents and thus the composition of the
board meets the Mauritian regulatory requirements.
(#) Other than where indicated, all directors were appointed at the time of
ARC Investments' listing on 7 September 2017.
All investment decisions of the ARC Fund are made by the
Investment Committee of the General Partner which is a
subcommittee of the Board of Directors. Members of the
investment committee are:
Name Designation(#)
Tom Boardman (Chairman) Non-executive director
BCom CA(SA)
Patrice Tlhopane Motsepe Non-executive director
BA (Legal), LLB, DCom (Honoris Causa)
Alexander Komape Maditsi Non-executive director
BProc, LLB, LLM, Dip Company Law
Michael Arnold Non-executive director
BCompt (Hons), BSc Mining Geology,
CA(SA) Appointed 7 June 2018
Abigail Mukhuba Non-executive director
BCom CA(SA) Appointed 19 July 2018
Boipelo Lekubo Non-executive director
BCom CA(SA) Appointed 20 July 2018
(#) Other than where indicated, all directors were appointed at the time of
ARC Investments' listing on 7 September 2017.
Karabo Nondumo resigned as a board member of the General
Partner effective 12 December 2017. On 7 June 2018, she was
replaced by Michael Arnold, Abigail Mukhuba (appointed
19 July 2018) and Boipelo Lekubo (appointed 20 July 2018) who
are also members of the Investment Committee and Audit and Risk
Committee of the General Partner.
The General Partner's Investment Advisory Committee supports
the Investment Committee by sourcing and recommending
investments to the ARC Fund. Members of the Investment Advisory
Committee are:
Name Qualifications
Johan van der Merwe MCom, MPhil (Cantab), CA(SA),
(Chairman) AMP (Harvard), COL (Insead)
Charmaine Padayachy BCom, BCom (Hons), CA(SA)
Bridget Ntombenhle Radebe BCom, BCom (Hons), CA(SA)
BASIS OF PREPARATION
Statement of compliance
The provisional reviewed condensed financial statements are
prepared in accordance with the requirements of the JSE Limited Listings
Requirements for provisional condensed financial statements and the requirements
of the Mauritian Companies Act, 2001 in so far as applicable to
a Category One Global Business Licensed company under the
Mauritian Financial Services Act, 2007 which is regulated by the
Mauritian Financial Services Commission.
The Listings Requirements require provisional reviewed condensed
financial statements to be prepared in accordance with
the framework concepts, the measurement and recognition
requirements of International Financial Reporting Standards
(IFRS), the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee and Financial Pronouncements
as issued by the Financial Reporting Standards Council and to
also, as a minimum, contain the information required by IAS 34
"Interim Financial Reporting". The accounting policies applied in the
preparation of the condensed financial statements are in terms
of IFRS.
STATEMENT OF RESPONSIBILITY
The directors take full responsibility for the preparation of these
provisional reviewed condensed financial statements.
These provisional reviewed condensed financial statements
were compiled under the supervision of the Chief Financial Officer,
Ms Karen Bodenstein, BCompt.
LEVEL OF ASSURANCE
These provisional reviewed condensed financial statements have been
reviewed by the independent external auditors of the Company,
PricewaterhouseCoopers Inc. and their unmodified review report
is available for inspection at the Company's registered office.
The review was performed in accordance with ISRE 2410, Review
of Interim Financial Information Performed by the Independent
Auditor of the Entity.
APPROVAL
The provisional reviewed condensed financial statements for the
year ended 30 June 2018 were approved by the Board of Directors
of the Company on 12 September 2018 in Mauritius.
Mark Cyril Olivier Clive Msipha Karen Bodenstein
Chairman of Chairman of the Chief Financial
the Board Audit and Risk Officer
Committee
CONDENSED STATEMENT OF FINANCIAL POSITION
as at 30 June 2018
Audited at
Reviewed as at incorporation
30 June 30 June
R million Notes 2018 2017
ASSETS
Non-current assets
Investment in the ARC Fund at FVTPL* 4 9 581.7 -
Current assets
Trade and other receivables 0.9 -
Cash and cash equivalents 28.5 -
Total assets 9 611.1 -
EQUITY
Stated capital 6.1 8 831.8 -
Accumulated loss (131.4) (11.2)
Performance Participation reserve 8 115.1 -
Fair value reserve 5.3 794.7 -
LIABILITIES
Current liabilities
Trade and other payables 0.9 11.2
Total equity and liabilities 9 611.1 -
* FVTPL: Fair value through profit or loss.
Per share performance
Number of ordinary shares in issue (million) 6.2.2 1 032.0 -
Net asset value per share (cents) 4.3 931 (11 165 769)(1)
Number of diluted ordinary shares (million) 6.2.2 1 045.0
Diluted net asset value per share 4.3 920 (11 165 769)(1)
(1) The net asset value per share was derived from the (R11,2 million) net asset value divided by 100 shares at incorporation.
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2018
Reviewed
for the year Audited at
ended incorporation
30 June 30 June
R million Notes 2018 2017
Fair value movements on the investment in the ARC Fund at FVTPL* 5.1 794.7 -
Other income 2.1 -
Other expenses (7.2) (11.2)
Performance Participation expense 8 (115.1) -
Profit/(loss) before taxation 674.5 (11.2)
Taxation 9 - -
Profit/(loss) for the period 674.5 (11.2)
Other comprehensive income/(loss) - -
Total comprehensive income/(loss) 674.5 (11.2)
Earnings per share:
Basic earnings per ordinary share (cents) 6.2 81 (11 165 769)
Diluted earnings per ordinary share (cents) 6.2 79 (11 165 769)
* FVTPL: Fair value through profit or loss.
CONDENSED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2018
Performance
Stated Accumulated Participation Fair value
R million Notes Capital loss Reserve Reserve Total Equity
Audited balance at the beginning
of the period - - - - -
Issue of shares(1) 6.1 - - - - -
Total comprehensive loss for
the period - (11.2) - - (11.2)
Audited balance at 30 June 2017 - (11.2) - - (11.2)
Issue of shares:
- Acquisition of portfolio assets settled
with equity 6.1 4 563.3 - - - 4 563.3
- Issue of shares 6.1 4 300.0 - - - 4 300.0
- Share issue costs 6.1 (31.5) - - - (31.5)
Total comprehensive income for
the year - 674.5 - - 674.5
Transfer to fair value reserve 5.3 - (794.7) - 794.7 -
Performance Participation 8 - - 115.1 - 115.1
Reviewed balance at 30 June 2018 8 831.8 (131.4) 115.1 794.7 9 610.2
(1) The amount is less than R1 million and is rounded to Rnil.
CONDENSED STATEMENT OF CASH FLOWS
for the year ended 30 June 2018
Reviewed for Audited at
the year ended incorporation
R million Notes 30 June 2018 30 June 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Cash utilised in operations before investment activities 10 (16.0) -
Cash capital contribution to the investment in FVTPL 4 (4 224.0) -
Net cash outflows from operating activities (4 240.0) -
CASH FLOWS FROM FINANCING ACTIVITIES -
Issue of shares 6.1 4 300.0
Share issue costs 6.1 (31.5) -
Net cash inflows from financing activities 4 268.5 -
Net increase in cash and cash equivalents 28.5 -
Cash and cash equivalents at the beginning of the period - -
Total cash and cash equivalents 28.5 -
ACCOUNTING POLICIES
for the year ended 30 June 2018
1. DEFINITIONS
The following definitions are key to the understanding of the Company's condensed financial statements:
1.1 IFRS Portfolio Value
Investments in the ARC Fund are reported in compliance with IFRS.
1.2 Intrinsic Portfolio Value (IPV)
The Intrinsic Portfolio Value is determined by the directors at every reporting period. The Intrinsic Portfolio Value is the IFRS
Portfolio Value adjusted for non-IFRS measures as set out in note 4.3. The significant non-IFRS measurement differences
comprise:
- valuing underlying listed investments on a 30-day volume weighted average price (VWAP) basis (compared to closing spot
price), net after taxation; and
- valuing underlying listed investments after recognising B-BBEE discounts on a 30-day VWAP basis (compared to closing spot
price), net after taxation.
1.3 Intrinsic Net Asset Value (INAV)
Intrinsic Portfolio Value of ARC Investments plus cash and other net assets.
1.4 NAV
The net asset value of ARC Investments as reported on the statement of financial position.
2. BASIS OF PREPARATION
2.1 Statement of compliance
The provisional reviewed condensed financial statements are prepared in accordance with the requirements of the JSE
Limited Listings Requirements for provisional condensed financial statements and the requirements of the Mauritian Companies Act, 2001 in so far as
applicable to a Category One Global Business Licensed company under the Mauritian Financial Services Act, 2007 which is
regulated by the Mauritian Financial Services Commission.
The Listings Requirements require provisional reviewed condensed financial statements to be prepared in accordance
with the framework concepts, the measurement and recognition requirements of International Financial Reporting Standards
(IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements
as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34
"Interim Financial Reporting". The accounting policies applied in the preparation of the condensed financial statements are in
terms of IFRS.
2.2 Functional currency and presentation currency
The Company's provisional reviewed condensed financial statements are presented in South African Rand (Rand), which
is the Company's functional and presentation currency. All financial information presented in Rand has been rounded to the
nearest million (R million) to one decimal place except for when otherwise indicated.
All other accounting policies are consistent with IFRS, inter alia, financial instruments; deferred taxation; taxation; Performance
Participation and cash and cash equivalents where IFRS offers no accounting policy choice.
2.3 Basis of measurement
The financial results have been prepared on the historical-cost basis, except for the measurement of financial instruments at
fair value.
The going-concern basis has been used in preparing the provisional reviewed condensed financial statements as the
directors have a reasonable expectation that the Company will continue as a going concern for the foreseeable future.
3. KEY AREAS OF JUDGEMENT
3.1 Fair value measurement of the investment in the ARC Fund
The basis of valuation of the Investment in the ARC Fund is dependent on the basis of valuation of all investments in the ARC
Fund Portfolio. The basis of valuation of all investments in the ARC Fund Portfolio and consequently the Investment at fair value
through profit or loss (FVTPL), is fair value. Fair value is determined at the end of each quarter. All investments are valued in
accordance with the valuation policy outlined below.
The sum of the individual instruments plus the cash and net assets in the ARC Fund make up the investment in the ARC
Fund. The valuation of the individual assets is in line with IFRS 13, therefore the sum of these represents the IFRS 13 fair value of
the investment in the ARC Fund.
The General Partner values the investment portfolio in accordance with its valuation policy. The valuation policy considers
the International Private Equity and Venture Capital Valuation Guidelines (IPEV Guidelines) and is consistent with the below
detailed valuation approach, which will be consistent year on year except where there have been changes in circumstances in
relation to an investment, and therefore the impact of such change would be disclosed.
3.1.1 Basis of valuation and approach
The fair value approach of the investments in the ARC Fund was determined as at the measurement date in accordance
with the principles of IFRS 13, Fair value Measurement. Fair value is defined as the price that would be received for an asset
in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that a
hypothetical transaction to sell an asset takes place in the principal market or in its absence, the most advantageous market
for the asset.
For listed investments which are suitably liquid investments, the available market prices (calculated at spot on reporting date)
will be the basis for the measurement of the IFRS Portfolio Value for identical instruments.
For unlisted investments, the primary valuation methodologies applied are the income approach (IA) and discounted cash flow
(DCF), compared against a market approach (MA), where appropriate.
The General Partner uses its judgement to select the valuation technique most appropriate for an investment. The use of
multiple valuation approaches on an investment is encouraged. On a specific investment, a single valuation technique
or approach may be appropriate (e.g. when valuing an asset using quoted prices in an active market for identical assets).
If multiple valuation techniques or approaches are used to measure fair value, the results of the various valuation methods are
evaluated considering the reasonableness of the range of values indicated by those results. A fair value measurement is the
point within that range that is most representative of fair value in the circumstances.
In determining the fair value of an investment, the General Partner uses its judgement. This includes consideration of those
specific terms of the investment which may impact its fair value. In this regard, the General Partner would consider the
economic substance of the investment, which may take precedence over the strict legal form. The General Partner would take
the results of each of the valuation methods applied into account in concluding the final value of an investment.
Foreign investments are those considered to be in jurisdictions outside of South Africa. These are valued in the local currency
of the country of investment and translated to Rand at the spot rate at the valuation date.
Lack of control/minority interest: To the extent that an investment is a minority interest and is not able to be easily realised,
not easily able to be realised, an appropriate minority discount would be considered. However, to the extent that the ARC Fund
has certain rights in respect of an investment (such as minority protections or Board representations) these rights would be
considered in the IFRS Portfolio Value of the investment in arriving at a control premium adjustment.
Restriction on trading: To the extent that the ARC Fund is restricted from disposing of the investment for a period of time, this
restriction would be considered in the IFRS Portfolio Value of the investment in arriving at a marketability discount adjustment.
3.1.2 Income approach methodology
When applying the income approach, the General Partner will consider the appropriateness of any sensitivity and/or scenario
analyses.
3.1.3 Discounted cash flow methodology
The discounted cash flow method is used to derive the enterprise value of the investment using reasonable assumptions on the
estimations of expected future post-taxation cash flows and the terminal value (free cash flows to the firm), and discounting
to the present value by applying the appropriate risk adjusted rate that captures the risk inherent to the projections weighted
average cost of capital (WACC). To arrive at an appropriate equity value, an adjustment for net indebtedness will be made.
Where appropriate, an adjustment to the valuation would be made for surplus non-operating assets and liabilities in the
investment.
In some valuations (for example, insurance and banking valuations), the use of free cash flow to equity might be preferred.
The length of period for which it would remain appropriate to use this valuation technique will depend on the specific
circumstances of the investment and is subject to the judgement of the General Partner.
3.1.4 Market approach methodology
If a multiple approach is used, where appropriate, the General Partner would apply an Enterprise Value (EV)/earnings before
interest, taxation, depreciation and amortisation (EBITDA) or price/earnings (P/E) multiple that is appropriate and reasonable,
based on comparable companies and taking account of the size, risk profile and earnings prospects of the underlying company.
In other cases, where appropriate, EV/EBITDA and price/book value may also be considered.
The General Partner as Fund Manager of the portfolio assets is contractually bound to perform fair valuation of the Portfolio
Companies on a quarterly basis and provide quarterly accounts and valuation reports with respect thereto to the partners of
the ARC Fund after approval by the Board of Directors of the General Partner on recommendation for such approval by the
Audit and Risk Committee of the General Partner with the support, guidance and direction of the Investment Committee.
Whilst the best judgement is used in determining the fair value of these investments, there are inherent limitations in any
valuation technique involving securities of the type in which the ARC Fund invests. Therefore, the fair values presented herein
may not be indicative of the amount which the ARC Fund could realise in a current transaction.
3.2 Control over the ARC Fund
The General Partner directs all the relevant activities of the ARC Fund. The Company does not have a currently exercisable
right to remove the General Partner other than for a reasonable cause. Therefore, the Company does not control the ARC
Fund. ARC Investments do not have the power to participate in the financial and operating policy decisions of the ARC Fund.
Therefore ARC Investments does not have significant influence over the ARC Fund.
SEGMENTAL INFORMATION
for the year ended 30 June 2018
Accounting policies and choices
The Company's operations consist of the investment in the ARC Fund. The Company has only one operating segment in terms of IFRS 8,
Operating Segments. The chief operating decision-makers (CODMs), being the Board of Directors, evaluate the investment in the ARC Fund
based on Intrinsic Portfolio Value and fair value movement in this Intrinsic Portfolio Value. This is disclosed in note 4 herein. Information
of the ARC Fund is also reported to the CODMs for the purpose of assessing segment performance. This is specifically focused on the
reporting to the Board of the Company by the General Partner in the ARC Fund through its Investment Committee under the adopted ARC
Investments Limited Investment Guidelines.
Company context in application of accounting policy choices
Diversified Investments - these are the non-financial services investments acquired by the ARC Fund for purposes of demonstrated growth
potential and the ability to deliver returns above the cost of capital of 16%. These are a combination of growth assets and businesses about
to reach steady state. The key factor around the Diversified Investments' strategy is that the ARC Fund partners with industry leaders in the
sub- segments to ensure the right level of monitoring and oversight is achieved with people with the requisite knowledge and experience of
the relevant industry. As a consequence of this, the Diversified Investments' segment is further sub-segmented as follows:
- Telecommunications - The most significant asset in this cluster is Rain, and the Rain team is the partner on all
telecommunications related investment decisions.
- Mining, Construction and Energy - Afrimat team, an experienced and highly effective team in the industry are the consultants
on industry matters.
- Business Process Outsourcing - With the acquisition of Gemcap, the management team advises on the BPO cluster of
investments for the ARC Fund.
- Agriculture - With the consolidation of Overberg Agri and Acorn Agri, this team will be looked to for Agri Industry insights
leveraging Dr Johan van Zyl's experience.
- Property - Through the ARC Real Estate joint venture with the Buffet Group, property related matters are dealt with through that
joint venture. Some other opportunities which have arisen include the joint venture with Barloworld and Atterbury which saw
the implementation of an additional extension to the cluster.
- Other - Smaller investment opportunities are referred to the Fledge Capital team.
Diversified Financial Services, is the core industry experience of the executive management team within the ARC Fund. As such, the
investment strategy is that of portfolio assets that demonstrate synergistic benefits to delivering on the greater UBI strategy of a Black-owned
and controlled financial services company. To this end, the segment is organised into the following sub-segments:
- Insurance and Asset Management - A mix of small and large clients with diverse and significant client pools.
- Specialised Financial Services - These comprise unique investment opportunities with a disruptive edge in the current
environment.
- Banking - TymeDigital Bank.
IFRS 8 has thus been applied on a look through basis of the ARC Fund in identifying the reportable segments, reporting the relevant segment
information and the associated disclosure. There are no accounting policy choices afforded by IFRS 8 which have been elected by the
Company that require further explanation.
A reconciliation between the IFRS Portfolio Values and the Intrinsic Portfolio Values is presented in notes 4.3 and 5.2.
SEGMENTAL INFORMATION
for the year ended 30 June 2018
Valuation of Investment Portfolio(1)
IFRS Portfolio Value Intrinsic Portfolio Value
Reviewed Reviewed
IFRS Intrinsic
Reviewed Portfolio Reviewed Portfolio
Reviewed net Value Reviewed Reviewed net Value Reviewed
at listing additions fair value as at at listing additions fair value as at
7 Sept (including adjust- 30 June 7 Sept (including adjust- 30 Jun
R million 2017 interest) ments(2) 2018 2017 interest) ments(2) 2018
Diversified Investments
Telecommunications 774.5 1 128.2 377.2 2 279.9 772.6 1 128.3 379.0 2 279.9
Business process
outsourcing 783.9 559.0 (92.5) 1 250.4 866.6 559.0 (180.6) 1 245.0
Mining, construction
and energy 1 203.9 177.6 (35.5) 1 346.0 1 121.4 177.6 (14.3) 1 284.7
Agriculture 432.9 184.2 259.9 877.0 431.8 184.2 261.0 877.0
Property 370.5 71.1 81.5 523.1 313.8 39.8 169.4 523.0
Other - 344.9 28.6 373.5 - 344.6 26.7 371.3
3 565.7 2 465.0 619.2 6 649.9 3 506.2 2 433.5 641.2 6 580.9
Diversified Financial
Services
Insurance and asset
management 780.6 345.6 9.3 1 135.5 755.1 339.2 52.7 1 147.0
Specialist financial
services 212.2 35.3 14.0 261.5 212.0 35.3 14.2 261.5
- 158.0 - 158.0 - 158.0 - 158.0
Banking
992.8 538.9 23.3 1 555.0 967.1 532.5 66.9 1 566.5
Total 4 558.5 3 003.9 642.5 8 204.9 4 473.3 2 966.0 708.1 8 147.4
(1) A reconciliation of IFRS Portfolio value to Intrinsic Portfolio value is disclosed in note 4.3.
(2) The values are stated net of related deferred taxation adjustments for the Portfolio assets held in ARC FinHoldCo.
Return on Investment Portfolio(1)
IFRS Portfolio Intrinsic Portfolio
Value fair value Value fair value
IFRS Portfolio adjustments Intrinsic Portfolio adjustments
Income from Value fair value plus income from Value fair value plus income from
investments(2) adjustments(3) investments(3) adjustment(3) investments(3)
Reviewed for Reviewed for Reviewed for Reviewed for Reviewed for
the year ended the year ended the year ended the year ended the year ended
R million 30 June 2018 30 June 2018 30 June 2018 30 June 2018 30 June 2018
Diversified Investments
Telecommunications - 377.2 377.2 379 379.0
Business process outsourcing 40.3 (92.5) (52.2) (180.6) (140.3)
Mining, construction and energy 16.9 (35.5) (18.6) (14.3) 2.6
Agriculture 10.1 259.9 270.0 261.0 271.1
Property 22.6 81.5 104.1 169.4 192.0
Other 0.0 28.6 28.6 26.7 26.7
89.9 619.2 709.1 641.2 731.1
Diversified Financial Services
Insurance and asset management 20.2 9.3 29.5 52.7 72.9
Specialist financial services 5.0 14.0 19.0 14.2 19.2
Banking - - - - -
25.2 23.3 48.5 66.9 92.1
Interest income: Cash and cash
equivalents 131.3 - 131.3 - 131.3
Expenses directly attributable to the
ARC Fund (94.2) - (94.2) - (94.2)
Total 152.2 642.5 794.7 708.1 860.3
(1) A reconciliation of IFRS Portfolio value to Intrinsic Portfolio value is disclosed in note 5.2.
(2) Income from investments includes dividend income, interest on loans and directors' fees pertaining to portfolio entities in the ARC Fund and ARC FinHoldCo;
and the interest income and cash and cash equivalents in the ARC Fund and ARC FinHoldCo.
(3) The values are stated net of related deferred taxation adjustments for the Portfolio assets held in ARC FinHoldCo.
SEGMENTAL INFORMATION
for the year ended 30 June 2018
Other Valuation of investment portfolio Segment Information(1)
IFRS Portfolio Value Intrinsic Portfolio Value
Reviewed Reviewed
IFRS Intrinsic
Reviewed Portfolio Reviewed Portfolio
Reviewed net Value Reviewed Reviewed net Value Reviewed
at listing additions fair value as at at listing additions fair value as at
7 Sept (including adjust- 30 Jun 7 Sept (including adjust- 30 June
R million 2017 interest) ments(2) 2018 2017 interest) ments(2) 2018
Profile:
Listed 1 357.2 352.4 (244.1) 1 465.5 1 333.8 351.7 (274.8) 1 410.7
- Diversified Investments 1 076.9 42.6 (198.4) 921.1 1 078.4 42.5 (265.5) 855.4
- Diversified Financial
Services 280.3 309.8 (45.7) 544.4 255.4 309.2 (9.3) 555.3
Unlisted 3 201.3 2 651.5 886.6 6 739.4 3 139.5 2 614.3 982.9 6 736.7
- Diversified Investments 2 488.8 2 422.4 817.6 5 728.8 2 427.8 2 391.0 906.7 5 725.5
- Diversified Financial
Services 712.5 229.1 69.0 1 010.6 711.7 223.3 76.2 1 011.2
Total 4 558.5 3 003.9 642.5 8 204.9 4 473.3 2 966.0 708.1 8 147.4
Geographic:
South Africa 4 191.0 2 974.8 604.2 7 826.1 4 162.3 2 956.5 650.2 7 769.0
International 311.4 29.1 38.3 378.8 311.0 9.5 57.9 378.4
Total 4 558.5 3 003.9 642.5 8 204.9 4 473.3 2 966.0 708.1 8 147.4
(1) A reconciliation of IFRS Portfolio value to Intrinsic Portfolio value is disclosed in note 4.3.
(2) The values are stated net of related deferred taxation adjustments for the Portfolio assets held in ARC FinHoldCo.
Other Return on Investment Portfolio Segment Information(1)
IFRS Portfolio Intrinsic Portfolio
Value fair value Value fair value
IFRS Portfolio adjustments plus Intrinsic Portfolio adjustments plus
Income from Value fair value income from Value fair value income from
investments(2) adjustments(3) investments(3) adjustment(3) investments(3)
Reviewed for Reviewed for Reviewed for Reviewed for Reviewed for
the period ended the period ended the period ended the period ended the period ended
R million 30 June 2018 30 June 2018 30 June 2018 30 June 2018 30 June 2018
Profile:
Listed 35.1 (244.1) (209.0) (274.8) (239.7)
- Diversified Investments 24.3 (198.4) (174.1) (265.5) (241.2)
- Diversified Financial Services 10.8 (45.7) (34.9) (9.3) 1.5
Unlisted 80.0 886.6 966.6 982.9 1 062.9
- Diversified Investments 65.6 817.6 883.2 906.7 972.3
- Diversified Financial Services 14.4 69.0 83.4 76.2 90.6
Interest income: Cash and cash
equivalents 131.3 - 131.3 - 131.3
Expenses directly attributable to the
ARC Fund (94.2) - (94.2) - (94.2)
Total 152.2 642.5 794.7 708.1 860.3
Geographic: 115.1 642.5 757.6 708.1 823.2
South Africa 104.5 604.2 708.7 650.2 754.7
International 10.6 38.3 48.9 57.9 68.5
Interest income: Cash and cash
equivalents 131.3 - 131.3 - 131.3
Expenses directly attributable to the
ARC Fund (94.2) - (94.2) - (94.2)
Total 152.2 642.5 794.7 708.1 860.3
(1) A reconciliation of IFRS Portfolio Value to Intrinsic Portfolio Value is disclosed in note 5.2.
(2) Income from investments includes dividend income, interest on loans and directors' fees pertaining to portfolio entities in the ARC Fund and ARC FinHoldCo;
and the interest income and cash and cash equivalents in the ARC Fund and ARC FinHoldCo.
(3) The values are stated net of related deferred taxation adjustments for the Portfolio assets held in ARC FinHoldCo.
DETAILED INTRINSIC PORTFOLIO VALUE BY REPORTING SEGMENT
for the year ended 30 June 2018
Gross
Acquisition/ Investment Deferred % of Fund
Investment (R million) Opening Cost (Disposal) Revaluation Fund Value Value Control Premium Minority Discount Marketability Discount Taxation Fund Value Value
Diversified Investments
Telecommunications 772.6 1 128.3 379.0 2 279.9 2 978.0 - - - (367.9) (330.2) - 2 279.9 28.0
Rain 655.7 1 121.6 366.4 2 143.7 2 799.9 - - (12.5%) (350.0) (12.5%) (306.2) - 2 143.7 26.3
MetroFibre 116.9 6.7 12.6 136.2 178.1 - - (10.0%) (17.9) (15.0%) (24.0) - 136.2 1.7
Mining, Construction and Energy 1 121.4 177.6 (14.3) 1 284.7 1 472.4 - - - (26.3) - (161.4) - 1 284.7 15.8
Afrimat(#) 655.6 - (14.5) 641.1 754.3 - - - - (15.0%) (113.2) - 641.1 7.9
Elandsfontein 421.8 32.5 - 454.3 511.9 - - (12.5%) (18.6) (30.0%) (39.0) - 454.3 5.6
Last Mile Fund - 132.4 - 132.4 132.4 - - - - - - - 132.4 1.6
Global Asset Management 44.0 12.7 0.2 56.9 73.8 - - (10.0%) (7.7) (15.0%) (9.2) - 56.9 0.7
Business Process Outsourcing 866.6 559.0 (180.6) 1 245.0 1 245.0 - - - - - - - 1 245.0 15.3
Bluespec - 509.0 - 509.0 509.0 - - - - - - - 509.0 6.2
Gemcap 323.8 35.0 70.3 429.1 429.1 - - - - - - - 429.1 5.3
Humanstate 138.9 - - 138.9 138.9 - - - - - - - 138.9 1.7
EOH(#) 313.9 - (235.5) 78.4 78.4 - - - - - - - 78.4 1.0
Capital Appreciation(#) 65.0 - (15.4) 49.6 49.6 - - - - - - - 49.6 0.6
Autoboys 25.0 15.0 - 40.0 40.0 - - - - - - - 40.0 0.5
Agriculture 431.8 184.2 261.0 877.0 877.0 - - - - - - - 877.0 10.8
BKB 219.9 - 195.8 415.7 415.7 - - - - - - - 415.7 5.1
Acorn Agri & Food 211.9 - 65.2 277.1 277.1 - - - - - - - 277.1 3.4
RSA - 105.9 - 105.9 105.9 - - - - - - - 105.9 1.3
Subtropico - 78.3 - 78.3 78.3 - - - - - - - 78.3 1.0
Property 313.8 39.8 169.4 523.0 620.0 - - - (42.0) - (55.0) - 523.0 6.4
Majik 171.9 9.0 57.4 238.3 252.9 - - (15.0%) (7.9) (15.0%) (6.7) - 238.3 2.9
Val de Vie 141.9 - 21.9 163.8 227.0 - - (12.5%) (28.4) (17.5%) (34.8) - 163.8 2.0
ARC Real Estate - 7.0 90.1 97.1 116.3 - - (5.0%) (5.7) (12.5%) (13.5) - 97.1 1.2
ARC Properties - 23.8 - 23.8 23.8 - - - - - - - 23.8 0.3
Other - 344.6 26.7 371.3 452.8 - - - (21.2) - (60.3) - 371.3 4.6
Fledge Capital - 314.8 27.0 341.8 423.3 - - (5.0%) (21.2) (15.0%) (60.3) - 341.8 4.2
African Rainbow Capital Investments(#) - 29.8 (0.3) 29.5 29.5 - - - - - - - 29.5 0.4
Total Diversified Investments 3 506.2 2 433.5 641.2 6 580.9 7 645.2 - - - (457.4) - (606.9) - 6 580.9 80.8
(#) Denotes a listed entity.
Diversified Investments Portfolio analysis
Listed companies
Listed companies report as per the regulated reporting cycles and
information on these companies is readily available. As such no
additional information other than the information contained in the
table on the previous page is disclosed.
Telecommunications
Rain
Rain is aiming to become a full-service Mobile Network Operator,
focusing on data as a primary offering. The major assets constitute
spectrum licenses, including an allocation in the 1 800 MHz band,
along with the other major operators, as well as an allocation
in the sought after 2 600 MHz band. Rain intends to build a
dedicated national LTE Advanced network and infrastructure that
will eventually facilitate an environment where open access to the
internet becomes a reality in South Africa, with the best possible
quality and internet speed, at affordable rates.
The Rain group consists of three main operating business units,
namely Networks, Business-to-Business and Mobile.
The Network business unit builds and manages the Rain LTE
Advanced network. The business unit is responsible for the capital
expenditure to build a network of LTE sites and expand the network
to enable nationwide connectivity for the Business to Business
and Direct business units. It has a target of reaching 3 000 sites by
28 February 2019. By the end of July 2018, 2 100 sites were already
in operation. In addition to the infrastructure, the network business
unit is responsible for roaming agreements with other major
telecommunication companies.
The Business-to-Business unit provides fixed wireless connectivity
to end users. The main driver of this business is the number of
subscribers, which has increased significantly. Rain; however,
currently does not sell directly to users, and the business
relationship is with intermediary Internet Service Providers (ISPs).
Rain Mobile represents Rain's mobile strategy which has been
offered directly to the public since 6 June 2018. By 30 June some
4 860 Rain sim cards were activated without any marketing
campaigns being undertaken. Media coverage and social media
posts are the major drivers in expanding the Mobile customer base.
Overall, the growth prospects for Rain remain optimistic. Revenue
growth has been encouraging and significant progress has been
made to further improve on network performance and stability.
The appointment of Willem Roos, former CEO of Outsurance, as
CEO of Rain, is encouraging and strengthens confidence in the
business going forward.
MetroFibre
MetroFibre is an internet infrastructure company that provides
managed fibre optic broadband connectivity in South Africa.
MetroFibre customers consist of service providers, resellers,
residential and business properties. Consumers can take advantage
of an array of services that are tailored to meet their business needs.
The business is performing slightly ahead of targets. The main
objective remains to expand its infrastructure roll-out.
Business Process Outsourcing
Bluespec
Bluespec is a holding company comprised of several specialist
businesses which collectively aim to transform the motor repair
and recovery industry to enable its customers to deliver more
effective and efficient propositions to their clients in the most
cost-effective manner. Business units include Incident Logistics
(FirstGroup), Autobody Repair (Renew-it Group), Salvage (Auction
Nation), Motor Retail (Daytona Group), Technology (DreamTec)
and StraightThrough. Bluespec is 51% Black-owned with WIPHOLD
Investment Trust and The ARC Fund as the B-BBEE partners.
Gemcap
Gemcap consists of Payprop SA, CSG Holdings Limited, Consumer
Friend and Infoslips.
Payprop SA (Payprop) is a well-established, market leading residential
letting outsourcing business that offers a unique end-to-end rental
property management and compliance software platform. Payprop
is an automated payment platform system that offers settlement
functionality within the real-time banking environment, enabling
automation of the entire letting transaction life cycle according to
property-specific payment rules set up by clients. Payprop continues
to gain market share and its customers range from small independent
letting agencies to large rental agencies.
CSG Holdings Limited is a listed company and is a leading
strategic outsource partner of choice for staffing solutions, facility
management, security and related services in Southern Africa.
Consumer Friend operates a leading debt review technology
platform with all major debt counsellors using it. Infoslips is a
document outsourcing service.
Humanstate
Humanstate is a private technology services group based in
the United Kingdom. It provides businesses and non-profit
organisations with state-of the-art web-based software applications,
integrated with on-demand payment processing based on their
global transactional platform.
Humanstate is invested in Payprop UK and Payprop Canada.
Payprop UK is in early development stage while the Canadian
initiative is still in a start-up phase.
The results for the group's first three months are promising with
continued income growth being reported.
Other
The other portfolio investments include:
Autoboys
Autoboys was established in 2011 as part of the Retail Division of
Grandmark International. In 2017, the Parts and Glass Divisions
were transferred into Autoboys Holdings, and the ARC Fund
subscribed for a 51% interest. The company is a provider of
aftermarket automotive parts and has a large market share of
glass replacements for the insurance industry. The glass business is
showing progress in line with expectations.
EOH
The business, including its subsidiaries, is the largest technology
services company in Africa and has a wide range of solutions
in Industry Consulting, IT Services, Software, IT Infrastructure,
Industrial Technologies and Business Process Outsourcing. The
business is listed on the JSE. The investment in EOH is held for sale
and will be disposed of at an appropriate time.
Capital Appreciation
The business started as a Special Purpose Acquisition Company
(SPAC) with the intention of acquiring viable assets and funds for
acquisitions held in escrow until ready for investment. The business
is listed on the JSE.
Mining, Construction and Energy
Afrimat
Afrimat is a leading Black-empowered supplier to the resources,
industrial minerals, mining, road, rail and construction sectors,
with a national footprint across Southern Africa. The company
specialises in open cast mining, industrial minerals and beneficiates
mined products.
While some challenges were experienced in the financial year
which negatively impacted the share price, we remain confident in
the management of the entity and specifically the CEO.
Elandsfontein
Elandsfontein is a phosphate mine and processing plant on the
West Coast. The initial project has been completed within budget
and scheduled time frames but faces a number of challenges.
During the pre-commissioning testing phase, the reverse flotation
process was unable to consistently yield the required phosphate
concentration of 32%. Consequently, commissioning was
postponed, and additional ore body sampling and laboratory
testing were conducted.
Designs have been completed to augment and reconfigure the
processing plant. Construction will commence once the necessary
funding for the capital expenditure has been procured. Due to
the delayed commissioning the project has technically defaulted
in terms of certain funding facilities amounting to US$30 million.
The provider of such facilities has agreed to waive the default and
amend the facility on the basis that the additional capital is raised
through the initial public offering planned for September 2018, as
described below.
A listing on the Alternative Investment Market of the London Stock
Exchange is scheduled for completion by end of September 2018.
The ARC Fund will participate in the listing as an anchor investor
taking up at least US$10 million at IPO. It is expected that US$32 to
US$40 million will be raised.
Recently the market phosphate price has increased significantly
after a prolonged period of decline. This, in conjunction with the
weaker Rand, augers well for the project once it starts commercial
production which is scheduled for September 2019.
Last Mile Fund
The Last Mile Fund is a Black-owned fund incorporated to take
advantage of the opportunities that exist in the broader resource
space created and accelerated by B-BBEE legislation. To date two
investments have been made. They include a coal mine and an
investment in a crane business, the latter which is a supplier to the
mining industry.
Other
The other portfolio investments include:
Global Asset Management
A JSE AltX listed holding company focused on asset-based financing
and development of alternative energy businesses.
Agriculture
BKB
BKB is a leading agri-business in South Africa and is a mature,
sound and diversified business.
The ARC Fund is in the process of disposing of its investment in BKB
after expiry of the B-BBEE lock-in period in June 2018.
Acorn Agri & Food
Acorn Agri & Food is a long-term investor focusing on food and
food processing, agricultural processing and the agricultural value
chain. Acorn Agri & Food has the following investments: Lesotho
Milling, Montagu Dried Fruits and Nuts, BKB, Grassroots and
ACG Fruit, Overberg Agri Grain Division, Overberg Agri Retail,
Overberg Mechanisation, Overberg Financial Services, Overberg
Insurance, Overberg Irrigation, Loxton Irrigation, Agpack (supplier
of packaging), Boltfast, Bontebok Limeworks and Bredasdorp
Abbatoir.
Acorn Agri and Overberg Agri entered into an Amalgamation
Agreement whereby the two entities amalgamated their respective
businesses into one combined entity. This has created a leading
national agriculture and food investment company, with a shared
culture and values, a focused and complementary investment
portfolio, proven management and track record. It is aiming for
a listing in the medium term. The ARC Fund's shareholding has
diluted to 7.78% but the amalgamation has created significant value
for the ARC Fund.
Other
The other portfolio investments include:
The RSA Group
RSA is a horizontally integrated sales organisation which offers a
unique value proposition to the suppliers of fresh produce in the
agricultural sector across all channels.
Subtropico
Subtropico operates in the food and agricultural sector, focusing
mainly on the services segment in these industries. The Group
consists of a fresh produce market agent, livestock agents, a packing
facility, an equity interest in Farmwise, shareholding in Natsure, and
a shareholding in KLK Landbou (an agri-business operating in the
Northern Cape).
Property
Majik
Majik is a private equity structure which invests in commercial
real estate in the United Kingdom. The investment is held through
Majik Property Holdings Limited, which is a Limited Partner in the
Squarestone Growth Limited Liability Partnership (Squarestone).
The business of Squarestone involves the acquisition, active
management, holding, marketing and sale of secondary
commercial real estate in the United Kingdom, with a predominant
focus in Scotland and the North of England. The underlying
property portfolio is performing well.
Val de Vie
Val de Vie is an established luxury residential estate located in Paarl.
After a recent acquisition of Pearl Valley Golf Estate, Val de Vie has
grown to become a mega estate. Paarl is fast becoming a new node
separate from the Cape Town northern suburbs. The development
is progressing as planned.
Other
The other portfolio investments include:
ARC Real Estate
Setso is a majority Black-owned unlisted real estate fund with
a diversified portfolio comprising commercial and retail assets.
The portfolio is spread across Gauteng and the Western Cape and
covers 89 000 square metres of lettable space. The portfolio of
properties is performing very well. During the year certain properties
in the portfolio were disposed of at a significant profit.
Other
Fledge Capital
ARC partnered with Fledge Capital to execute smaller investments
as there are significant investment opportunities which the ARC
Fund is not able to execute due their size. Fledge provides funding
solutions to private companies within a wide range of industries.
Investments include Safari and Outdoor, WeBuyCars and Better Life.
ARC advanced R200 million to Fledge during the period under
review in the form of a loan, which converted to equity when
Competition Commission approval for the equity transaction was
obtained. The Fund owns a 51% interest in Fledge Capital. The
business had a satisfactory 2018 financial year with the net asset
value increasing 24%.
Gross
Acquisition/ Investment Deferred % of Fund
Investment (R million) Opening Cost (Disposal) Revaluation Fund Value Value Control Premium Minority Discount Marketability Discount Taxation Fund Value Value
Diversified Financial Services
Insurance and Asset Management 755.1 339.2 52.7 1 147.0 1 267.4 - 92.5 - (84.3) - (115.0) (13.6) 1 147.0 14.1
Alexander Forbes Group Holdings(#) 126.7 265.8 (21.3) 371.2 365.0 - - - - - - 6.2 371.2 4.6
Alexander Forbes Limited 288.3 - 32.8 321.1 405.0 20.0% 81.0 (15.0%) (72.9) (20.0%) (82.6) (9.4) 321.1 3.9
Afrocentric(#) 83.3 43.4 4.4 131.1 132.4 - - - - - - (1.3) 131.1 1.6
ARC Health 89.8 - 5.8 95.6 95.6 - - - - - - - 95.6 1.2
Colourfield 65.8 4.4 9.7 79.9 110.3 - - (7.5%) (7.9) (20.0%) (19.6) (2.9) 79.9 1.0
Indwe 41.3 - 13.7 55.0 57.6 20.0% 11.5 (5.0%) (3.5) (10.0%) (6.7) (3.9) 55.0 0.7
Santam# 45.4 - 7.6 53.0 61.4 - - - - (10.0%) (6.1) (2.3) 53.0 0.7
EBS International 14.5 1.4 - 15.9 15.9 - - - - - - - 15.9 0.2
LifeCheq - 11.2 - 11.2 11.2 - - - - - - - 11.2 0.1
Lima Mbeu - 7.5 - 7.5 7.5 - - - - - - - 7.5 0.1
Infund Solutions - 5.5 - 5.5 5.5 - - - - - - - 5.5 0.1
Specialist Financial Services 212.0 35.3 14.2 261.5 295.3 - - - (13.1) - (16.9) (3.8) 261.5 3.2
Ooba 97.3 - 12.3 109.6 135.9 - - (7.5%) (10.2) (10.0%) (12.6) (3.5) 109.6 1.3
Bravura 36.3 - 1.6 37.9 38.4 - - - - - - (0.5) 37.9 0.5
Sinayo 14.0 23.1 0.8 37.9 42.9 - - (7.5%) (1.8) (15.0%) (3.3) 0.1 37.9 0.5
Anglo African Finance - 33.2 - 33.2 33.2 - - - - - - - 33.2 0.4
A2X 11.0 5.1 - 16.1 16.1 - - - - - - - 16.1 0.2
Constellation Capital 40.4 (26.1) (0.9) 13.4 13.2 - - - - - - 0.2 13.4 0.2
Edge Growth 7.5 - - 7.5 7.5 - - - - - - - 7.5 0.1
Alternative Prosperity 5.5 - 0.4 5.9 8.1 - - (15.0%) (1.1) (15.0%) (1.0) (0.1) 5 .9 0.1
Banking - 158.0 - 158.0 158.0 - - - - - - - 158.0 1.9
TymeDigital - 158.0 - 158.0 158.0 - - - - - - - 158.0 1.9
Total Diversified Financial Services 967.1 532.5 66.9 1 566.5 1 720.7 - 92.5 - (97.4) - (131.9) (17.4) 1 566.5 19.2
Total Fund Invested Portfolio value 4 473.3 2 966.0 708.1 8 147.4 9 365.9 - 92.5 - (554.8) - (738.8) (17.4) 8 147.4 100.0
(#) Denotes a listed entity.
Diversified Financial Services portfolio analysis
Listed companies
Listed companies report as per the regulated reporting cycles and
information on these companies is readily available. As such no
additional information other than the information contained in the
table on the previous page is disclosed.
Diversified Financial Services
Insurance and Asset Management
Alexander Forbes
ARC FinHoldCo owns 10% of the operating company Alexander
Forbes Limited and owns 8.9% in the listed company Alexander
Forbes Group Holdings Limited. ARC FinHoldCo has the right to
convert its shareholding in Alexander Forbes Limited for shares
in Alexander Forbes Group Holdings Limited in two years' time.
The conversion ratio per the agreement currently translate to
shareholding of 8.8%. The effective combined shareholding in
Alexander Forbes Group Limited on conversion is currently 16.9%
(after considering the dilution impact of the flip up on current
shareholding in the listed entity). The ARC Fund (through its 49.9%
in ARC FinHoldCo) thus has an effective shareholding of 8.4%.
The share price has recently reacted adversely due to weaker
business performance and the high level of attrition evidenced at
the senior experienced management level.
ARC will continue to play an appropriate role in the investment in
terms of strategy, acquisitions and people.
Afrocentric
Afrocentric is a Black-empowered investment holding company
with an investment portfolio focused on providing services to the
healthcare sector. Through its operating subsidiaries, the businesses
provide health administration and health risk management
solutions.
The business has delivered a solid operating result in a very
challenging operating environment. It is maintaining its expansion
programme and has a sound financial position.
ARC Health Group
ARC Health is a private investment company and wholly owned
subsidiary of ARC FinHoldCo.
This business primarily consists of three key underlying businesses
operating in various parts of the value chain servicing mainly the
entry-level market.
Colourfield
Colourfield Liability Solutions is an asset management firm which
specialises in Liability Driven Investment (LDI), goals-based
investing, the management of inflation linked bonds and "smart
beta" equity management solutions.
The core LDI business is stable and continues to perform well.
Agreement has been reached with Alexander Forbes Investments to
launch new products.
Other
The other portfolio investments include:
Santam Limited
ARC has direct ownership of 0.4% in Santam, which is listed.
Indwe Broker Services
Indwe is an independent South African general insurance broker
that provides personal insurance, business insurance and specialist
risk consulting services to private, commercial and corporate clients.
EBS International
EBS International provides hosted member administration and asset
management solution platforms as well as providing technology,
consulting, disaster recovery and business continuity services.
LifeCheq
The business is an independent financial advisory company (IFA)
that targets the middle market in SA, being individuals with a
monthly income between R15 000 and R60 000. This segment comprises
approximately 3.2 million individuals that, whilst they may have
high income, are not asset rich. The LifeCheq model aims to disrupt
the traditional IFA model as it effectively combines robo-advice
with human interaction to reduce service costs.
Lima Mbeu
The business is a start-up investment management group focusing
on asset management for institutional clients and it targets
retirement funds in both the private and public-sector market
segments.
InFund Solutions
The business is a start-up positioning itself for legislative changes
in the employee benefits sector that will be introduced in March
2019. It will focus on providing pension funds with a retirement
benefits counsellor (in terms of new regulations). It also focusses
on comprehensive member communication and has a business
offering including off-balance sheet solutions with regards to living
annuity products.
Specialist financial services
Ooba
Ooba is primarily a mortgage originator with a strong life and
general insurance business flowing from the origination. Ooba
is one of the leading players that dominates the South African
origination landscape.
The company is generally performing well despite subdued
economic conditions. The value increase is attributable to both the
origination and insurance businesses.
Other
The other portfolio investments include:
A2X
An alternative stock exchange for the secondary listing of
companies. The business plan largely remains on track. Various
initiatives are underway to develop revenue.
Constellation Capital
A research and brokering business in the South African equity and
currency derivative market. Despite of recent market conditions,
the business is performing well.
Edge Growth
A leading enterprise and supplier development firm that focuses
on strategic partnerships between business and Small to Medium
Enterprise (SME) development, commercial leadership and
enterprise development strategy.
Alternative Prosperity
A majority Black-owned company that offers products and services
in responsible investment, transformation and sustainability.
Bravura
Bravura offers astute and sound financial solutions underpinned
by an independent and flexible approach as well as rigorous risk
management practices.
Sinayo Securities
Sinayo Securities specialises in equity sales and trading of listed
South African companies. It provides quality services to institutional
investors. Sinayo Securities is majority owned by Black women and
is a Level 1 B-BBEE company. The core business is performing well.
Anglo African Finance
The business provides structured rental solutions to a variety of
businesses, with the core business being in the commercial asset
finance product space.
Banking
TymeDigital
Following a decision by Commonwealth Bank of Australia to exit
all of its emerging market operations (including SA) in June 2018,
ARC FinHoldCo was approached to acquire the bank's 90%
shareholding in TymeDigital. The transaction was announced on the
JSE SENS on 8 August 2018 and is subject to regulatory approvals.
The investment is currently held at a net cost of R56 million in ARC
FinHoldCo.
NOTES TO THE PROVISIONAL REVIEWED CONDENSED
FINANCIAL RESULTS
for the year ended 30 June 2018
4. INVESTMENT IN THE ARC FUND AT FVTPL
Accounting policies and choices
The investment in the ARC Fund is a financial instrument at fair value through profit or loss and has been recognised and measured in
accordance with the principles in IAS 39, Financial Instruments: Recognition and Measurement, with associated disclosures presented
in accordance with IFRS 7, Financial Instruments Disclosure and IFRS 13, Fair Value Measurements. There were no accounting policy
choices afforded by the aforementioned standards which need to be explained further.
Key judgements relate to the fair value measurement as well as control over the ARC Fund. These are discussed in more detail under
Accounting Policies in note 3 above.
The investment in the ARC Fund at FVTPL and the underlying portfolio (which is compiled on a look-through basis in the ARC Fund),
need to be classified within the appropriate level of hierarchy on which their fair values are based. Fair value classification within these
provisional reviewed condensed financial statements is as follows:
Level 1 fair value hierarchy - Investments trading in active markets and deriving their fair value from quoted market prices of
identical assets are classified within level 1. These prices provide the most reliable fair value classification and the Company does not
need to adjust the quoted prices to measure the fair value of investments. The quoted market price used for investments held by the
Company is the current bid price.
Level 2 fair value hierarchy - pertain to Investments trading in markets not considered to be active and deriving their fair value from
observable inputs other than quoted prices included within level 1 above. These inputs need to be directly or indirectly observable for
the investment and can include: quoted market prices for similar assets in active or non-active markets; observable inputs other than
quoted prices; and inputs derived or corroborated by observable market data.
Level 3 fair value hierarchy - this classification applies to investments where observable inputs are not available for the asset to
determine its fair value. Unobservable inputs are used to measure fair value where relevant observable inputs are not available.
The unlisted investments, shareholder loans and derivatives in the ARC Fund are typically classified as level 3.
Company context in application of accounting policy choices
The Company obtains exposure and has indirect interests in a diversified pool of listed and unlisted investments (Portfolio
Companies) by investing as a Limited Partner into an en commandite partnership established in South Africa known as the ARC Fund.
The Fund is managed by a Black-owned and controlled Fund Manager, UBI General Partner Proprietary Limited (UBI GP Co.) as the
General Partner.
Investment objective
The Company's medium- to long-term objective is to grow its NAV by at least 16% per annum, risk-adjusted, gross of dividend
distributions and any management fees paid to the General Partner of the ARC Fund and any performance participation. Each
investment opportunity will be expected to exceed this minimum risk-adjusted return hurdle on a standalone basis (i.e. without
considering potential synergy benefits that can be derived from being part of a diversified portfolio).
The Company has a detailed Investment Policy, which has been formulated in compliance with section 15 of the JSE Limited Listings
Requirements as well as certain other ancillary matters, which sets out its investment strategy, investment objective, investment focus
and investment parameters. The ARC Fund Investment Committee has adopted these Investment Guidelines in its charter to ensure
conformance therewith in its investment decision-making in the ARC Fund. The details of the investment policy and guidelines of the
Company are available on its website www.arci.mu.
Any material changes to the Investment Policy of the Company must be approved by Shareholders of the Company by way of
ordinary resolution. Any future changes to the Investment Guidelines reciprocally adopted in the ARC Fund must be approved by the
Company, as an amendment or variation to the Partnership Agreement.
Categorisation of investments
The investment in the ARC Fund is a financial asset that is designated as fair value through profit or loss at initial recognition. The
investment is managed and its performance evaluated on a fair value basis, in accordance with the Company's documented risk
management and investment strategy, consequently information about the investment is provided internally on that basis. It is stated
at fair value, with any gains or losses arising on remeasurement recognised in profit or loss.
Investments made by the fund are broadly categorised as:
Equity interests in Portfolio Companies which are a group of financial assets that are designated as fair value through profit or
loss upon initial recognition and is managed and its performance evaluated on a fair value basis, and the basis of accounting is the
same as the investment in the ARC Fund described above. The investments are initially recognised at fair value. Day one gains, which
typically arise in B-BBEE transactions which result in an investment at a discount to the fair value at acquisition date are recognised in
profit or loss.
Loans and other receivables that have fixed or determinable payments that are not quoted in an active market. These are
measured at amortised cost using the effective interest method less any impairment. Interest income is recognised by applying the
effective interest rate, except for short-term receivables where the recognition of interest would be immaterial. Loans and receivables
at amortised cost within the ARC fund approximates fair value per IFRS 13.
Reviewed
Reviewed at listing Audited
as at 30 June 7 September as at 30 June
R million 2018 2017 2017
The movement of the investment in the ARC Fund at FVTPL
are as follows:
Opening balance - - -
Contribution of Portfolio Assets 4 563.0 4 563.0 -
Cash capital contribution 4 224.0 4 224.0 -
Fair value movements on the investment in the ARC Fund at FVTPL 794.7 - -
Total 9 581.7 8 787.0 -
The segmental analysis of the investment is as follows:
Diversified Investments 6 649.9 3 565.7 -
Diversified Financial Services 1 555.0 992.8 -
IFRS Portfolio Value 8 204.9 4 558.5 -
Cash and cash equivalents in the ARC Fund 1 576.3 4 221.9 -
Other net assets in the ARC Fund (199.5) 6.6 -
Total Investment in the ARC Fund at FVTPL 9 581.7 8 787.0 -
Valuation information:
IFRS 13 fair value hierarchy Level 3 Level 3 n/a
Valuation methodology Sum of the parts Sum of the parts n/a
4.1 Movement and valuation discounts on investment in the ARC Fund (intrinsic)
Reviewed movement in the Portfolio Values Reviewed valuation discounts applied
period to 30 June 2018 at 30 June 2018
Gross
Portfolio
Reviewed Value
Reviewed Fair value as at Market- as at
7 Sept adjust- Deferred 30 June Control Minority ability Deferred 30 June
R million 2017 Acquisitions ment taxation 2018 Premium Discount Discount Taxation 2018
Diversified
investments 3 506.2 2 433.5 641.2 - 6 580.9 - 457.4 606.9 - 7 645.2
Diversified
financial
services 967.1 532.5 84.3 (17.4) 1 566.5 (92.5) 97.4 131.9 17.4 1 720.7
Intrinsic
Portfolio
Value 4 473.3 2 966.0 725.5 (17.4) 8 147.4 (92.5) 554.8 738.8 17.4 9 365.9
4.2 Significant Portfolio Assets in the ARC Fund Investment
The following Portfolio Assets in the ARC Fund are individually greater than 5% of the portfolio based on Intrinsic Portfolio Value:
IFRS Portfolio Value Intrinsic Portfolio Value
Reviewed Reviewed Audited Reviewed Reviewed Audited
as at at listing as at as at at listing as at
Valuation Portfolio 30 Jun 7 Sept 30 June 30 Jun 7 Sept 30 Jun
R million methodology % 2018 2017 2017 2018 2017 2017
Portfolio Asset
Rain Discounted cash flow 26.3% 2 143.7 657.0 - 2 143.7 655.7 -
Alexander Forbes
Group Holdings
Limited(1) Listed share price 4.6% 345.2 130.0 - 371.2 126.7 -
Alexander Forbes Proxy valuation to
Limited1 listed share price 3.9% 321.1 288.1 - 321.1 288.3 -
Afrimat Listed share price 7.9% 725.5 734.7 - 641.1 655.6 -
Bluespec PE multiple 6.2% 509.0 - - 509.0 - -
Elandsfontein group Discounted cash flow
and loan values 5.6% 454.3 422.6 - 454.3 421.8 -
Gemcap Sum of the parts 5.3% 432.0 324.0 - 429.1 323.8 -
BKB Sale contract price 5.1% 415.7 220.5 - 415.7 219.9 -
5 346.5 2 776.9 - 5 285.2 2 691.8 -
Balance of portfolio 35.1% 2 858.4 1 725.5 - 2 862.2 1 781.5 -
Total portfolio 100.0% 8 204.9 4 502.4 - 8 147.4 4 473.3 -
(1) Exposure to Alexander Forbes is computed as the combined value of the Investment in Alexander Forbes Group Holdings Limited and
Alexander Forbes Limited and amounts to 8.5%.
The valuations, which have been performed in accordance with the Company's valuation policy as disclosed under Key Areas of
Judgement in Accounting Policies note 3, have given rise to the above Intrinsic Portfolio Value. The key valuation inputs are disclosed
in note 4.4 below.
4.3 Intrinsic Net Asset Value (INAV(1))
The Directors monitor the performance of the investment in the ARC Fund based on the INAV. A reconciliation between IFRS
Portfolio Value and Intrinsic Portfolio Value is presented below:
Reviewed
Reviewed at listing Audited
as at 30 June 7 September as at 30 June
R million Notes 2018 2017 2017 Change
Reported IFRS Portfolio Value 8 204.9 4 502.4 - 3 702.5
Adjust for non-IFRS measures included in
Intrinsic Portfolio Value(2): (57.6) (29.1) - (28.5)
30-day VWAP difference to spot price on
listed portfolio assets 67.3 88.5 - (21.3)
Deferred taxation (5.5) 7.1 - (12.6)
B-BBEE lock-in discount on listed assets (119.3) (115.7) - (3.6)
Other - (9.0) - 9.0
Segment reported Intrinsic
Portfolio Value 8 147.4 4 473.3 - 3 674.1
Liabilities in the ARC Fund(3) (261.6) - - (261.6)
Cash and other net assets in the ARC Fund 1 613.5 4 228.5 - (2 615.0)
Cash and other net assets in the ARC
Investments 28.5 32.4 - (3.9)
INAV 9 527.8 8 734.2 - 793.4
NAV 9 610.2 8 763.3 - 846.0
Number of shares (million) 6.2.2 1 032.0 1 032.0 - -
Diluted number of shares (million) 6.2.2 1 045.0 - - 1 045.0
INAV per share (cents) 923 846 - 80
Diluted INAV per share (cents) 912 846 - 66
NAV per share (cents) 931 849 - 82
Diluted NAV per share (cents) 920 849 - 71
Gross Intrinsic Portfolio Value(4) 9 365.9 4 991.1 - 4 374.8
The following adjustments have been effected
to the Gross Intrinsic Portfolio Value in arriving
at the reported Intrinsic Portfolio Value.
Total discounts recognised (1 218.5) (517.8) - (700.7)
Minority discounts(5) (554.8) (189.9) - (364.9)
Marketability discounts(6) (738.8) (401.4) - (337.4)
Control premium(7) 92.5 75.3 - 17.2
Deferred taxation on Diversified Financial
Services Portfolio assets and other
adjustments (17.4) (1.8) - (15.6)
Segment reported Intrinsic Portfolio Value 8 147.4 4 473.3 - 3 674.1
(1) Intrinsic Portfolio Value is defined under the definitions in Accounting Policies.
(2) The adjustments for Non-IFRS measures include:
- listed investments valued on a 30-day VWAP basis (compared to closing spot price), net of deferred taxation; and
- listed investments valued after recognising B-BBEE discounts (compared to closing spot price), net of deferred taxation.
(3) Liabilities in the ARC Fund include the R134 million loan facility drawn down in ARC FinHoldCo pertaining to the TymeDigital equity
investment and R84 million for deferred consideration payable mainly to RSA (R45 million) and Subtropico (R24 million).
(4) Gross Intrinsic Portfolio Value is defined as the Intrinsic Portfolio Value before taking into account the control premium, marketability discount,
minority discount and consequential deferred taxation.
(5) These are adjustments for lack of control which are applied in the case of a minority interest valuation. In applying the minority discounts,
the specific nature and characteristics of the interest being valued in relation to the facts and circumstances surrounding the valuation were
considered. This analysis focused on the specific contractual rights arising from subscription and shareholders' agreements granted to the
controlling shareholder(s) in the business including, inter alia:
- election of directors;
- ability to select management;
- control over dividend policy;
- ability to set corporate strategies;
- ability to acquire or liquidate assets;
- ability to affect future earnings; and
- ability to acquire or liquidate the assets.
(6) Marketability discounts, which include B-BBEE lock-in discounts, pertain to the lack of marketability associated with an interest in a privately
held company where there is no established market for the active trade of the portfolio entity shares and listed portfolio interests where B-BBEE
lock-ins are contractually agreed, and reflect the inability of the ARC Fund to sell its interest.
(7) Control premium for purposes of Intrinsic Portfolio Value valuation is the inverse of minority discount and is applied up to 40%.
4.4 Valuation input disclosures for the ARC Fund at FVTPL
The details of the valuation inputs and methodology applied for the Portfolio assets which are greater than 5% of the ARC Fund
Value by Intrinsic Portfolio Value are as follows:
Alexander Forbes Group
Details of valuation inputs Rain Holdings Limited Alexander Forbes Limited Afrimat Limited
Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed
30 June 7 September 30 June 7 September 30 June 7 September 30 June 7 September
R million 2018 2017 2018 2017 2018 2017 2018 2017
Gross Intrinsic Portfolio Value 2 799.9 655.7 365.0 126.7 405.0 376.6 754.3 771.5
Adjustment for: (656.2) - 6.2 - (83.9) (88.3) (113.2) (115.9)
Minority discounts (350.0) - - - (72.9) (62.8) - -
% minority discounts (13%) - - (15%) (15%) - -
Marketability discounts (306.2) - - - (82.6) (81.0) (113.2) (115.7)
% marketability discounts (13%) - - (20%) (25%) (15%) (15%)
Control premium - - - - 81.0 75.3 - -
% control premium - - 20% 20% - -
Deferred taxation - - 6.2 - (9.4) (19.8) - -
Segment reported Intrinsic Portfolio Value 2 143.7 655.7 371.2 126.7 321.1 288.3 641.1 655.6
% of Intrinsic Portfolio 26.3% 14.7% 4.6% 2.8% 3.9% 6.4% 7.9% 14.7%
% of Business Segment 94.0% 84.9% 32.4% 16.8% 28.0% 38.2% 49.9% 58.5%
Valuation information:
IFRS 13 fair value hierarchy Level 3 Level 1 Level 2 Level 1
Valuation methodology Discounted cash flow 30-day VWAP Proxy to listed share price 30-day VWAP
30-day VWAP
Other details For Rain, there was an additional During the year, the Alexander Forbes
acquisition of R1 052.0 million in Group Holdings investment was
October 2017 and a further amount increased by a further R265.8 million.
of R69.6 million during April 2018.
Alexander Forbes Group
Details of valuation inputs Rain Holdings Limited Alexander Forbes Limited Afrimat Limited
Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed
R million 30 June 2018 7 September 2017 30 June 2018 7 September 2017 30 June 2018 7 September 2017 30 June 2018 7 September 2017
Key inputs
Input 1 WACC At the time of listing the Not applicable due to portfolio asset being a Not applicable due to portfolio asset being a Not applicable due to portfolio asset being a
Input variable 18.7% agreement for the purchase level 1 fair value hierarchy. level 2 fair value hierarchy. level 1 fair value hierarchy.
of Rain had recently been
Input 2 Terminal growth rate concluded at a 20% equity
Input 2 variable 3.0% interest for a consideration
Sensitivity of key inputs of R1 708,0 million. Due to it
being so recent, the agreed price
Input 1 WACC was indicative of the fair value Not applicable due to portfolio asset being a Not applicable due to portfolio asset being a Not applicable due to portfolio asset being a
Input variable R204.0 million of the investment and thus was level 1 fair value hierarchy. level 2 fair value hierarchy. level 1 fair value hierarchy.
per 1% change not revalued upon listing.
Input 2 Terminal growth rate
Input 2 variable R103.0 million
per 1% change
Portfolio entity disclosures
B-BBEE lock-in Transfer restrictions and pre-emptives apply None Three years from February 2017. Nine months Four years from September 2016. Two years
to the ARC Fund's interest. remaining at 30 June 2019. and three months remaining at 30 June 2018.
Listed/unlisted Unlisted Listed Unlisted Listed
Summarised financial information
ARC Fund effective interest 20.6% 4.4% 5.0% 18.5%
Reported period 31 March 2018 31 March 2017 31 March 2018 31 March 2017 28 February 2018 28 February 2017
Share of comprehensive income The entity is in its early stage of its growth trajectory and thus the 12.5 15.6 31.4 34.8 45.3 51.6
financial information will be disclosed after a year or two of trade
for meaningful comparison.
Dividends received - - 10.7 - - - 16.3 -
Details of valuation inputs Bluespec Gemcap Elandsfontein BKB
Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed
30 June 7 September 30 June 7 September 30 June 7 September 30 June 7 September
R million 2018 2017 2018 2017 2018 2017 2018 2017
Gross Intrinsic Portfolio Value 509.0 - 429.1 323.8 511.9 489.2 415.7 313.8
Adjustment for: - - - - (57.6) (67.4) - (93.9)
Minority discounts - - - - (18.6) (21.8) - (47.2)
% minority discounts - - - - (12.5%) (12.5%) - -
Marketability discounts - - - - (39.0) (45.6) - (46.7)
% marketability discounts - - - - (30%) (30%) - -
Control premium - - - - - - - -
% control premium - - - - - - - -
Deferred taxation - - - - - - - -
Segment reported Intrinsic Portfolio Value 509.0 - 429.1 323.8 454.3 421.8 415.7 219.9
% of Intrinsic Portfolio 6.2% - 5.3% 7.2% 5.6% 9.4% 5.1% 4.9%
% of Business Segment 40.9% - 34.5% 37.4% 35.4% 37.6% 47.4% 50.9%
Valuation information:
IFRS 13 fair value hierarchy Level 3 Level 3 Level 3 Level 3 Level 3 Level 3 Level 3
Valuation methodology Acquisition cost Sum of the parts. Sum of the parts. 14-year life of 10-year life of Contract sale price Five-year
mine discounted mine discounted to Acorn Agri & discounted cash
cash flow. cash flow. Foods. flow.
Other details Bluespec was acquired in the current The increase in the
financial year in October 2017 life of the mine
is because of
increased proven
ore body.
Details of valuation inputs Bluespec Gemcap Elandsfontein BKB
Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed Reviewed
R million 30 June 2018 7 September 2017 30 June 2018 7 September 2017 30 June 2018 7 September 2017 30 June 2018 7 September 2017
Key inputs:
Input 1 Not applicable - EBITDA multiple EBITDA multiple Commodity price Commodity price Acorn Agri WACC
(average) (average) Share Price
Input variable - 6.9 x 6.5 x USD/t FOB 107 USD/t FOB 84 R26.0 0.1
Input 2 - Growth rate Growth rate USD:ZAR rate ZAR:USD rate Terminal growth rate
Input 2 variable - 6.0% 6.0% spot 13.7 and 5.4%
forward rate based
on 2.6% inflation
differential
Input 3 WACC WACC
Input 3 variable 17.5% 18.0%
Sensitivity of key inputs:
Input 1 - EBITDA multiple EBITDA multiple Commodity price Commodity price Acorn Agri WACC
Share Price
Input variable Not applicable - R4 million per R3.2 million per R8 million per R14.5 million per R4.2 million per R25 million per
1% change 1% change 1% change 1% change 1% change 1% change
Input 2 - Growth rate Growth rate USD:ZAR rate USD:ZAR rate rminal growth rate
Input 2 variable - R17.5 million R13.2 million R8 million R6 million R12 million
per 1% change per 1% change per 1% change per 1% change per 1% change
WACC WACC
R21 million R4.4 million
per 1% change per 1% change
Portfolio entity disclosures:
B-BBEE lock-in Five years from September Not applicable Transfer restrictions apply for Consumer Ten years from April 2016. Seven years and The 18 month lock-in period expired
2017. Four years and Friend for five years from April 2017. ten months remaining at 30 June 2018. at 30 June 2018.
three months remaining at Three years and ten months remaining
30 June 2018. at 30 June 2018.
Listed/unlisted Unlisted Unlisted Unlisted Unlisted
Summarised financial information
ARC Fund effective interest 25.0% 51.0% 25.0% 20.0%
Reported period 31 August 2017 31 August 2016
Share of comprehensive income The entity has yet to become operational
and to commission its plant, and thus the
financial information will be disclosed
after a year or two of trade for meaningful
54.6 24.0 comparison.
Dividends received 17.0 - - - - - 7.0 -
5. REALISATION AND DERECOGNITION
Accounting Policies and Choices
The Company applies the derecognition principle in IAS 39, Financial Instruments: Recognition and Measurement and derecognises
a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains
substantially all the risks and rewards of ownership and continues to control the transferred asset, it recognises its retained interest in
the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of
ownership of a transferred financial asset, it continues to recognise the financial asset and also recognises a secured borrowing for the
proceeds received.
Consistent with the Accounting Policy indicated in note 3, the Investment in the ARC Fund is a financial asset at fair value through
profit or loss, all the fair value movements are recognised and included in profit or loss.
Company Context in Application of Accounting Policy Choices
Per the Dividend and Dividend Policy in note 7, the strategic objective and policy of the Company as it relates to dividend, is not to
declare any dividends in the short- to medium-term as it is dependent on return of capital from the ARC Fund.
As such, the Company's partnership profit share in the reporting period is not as a result of a return of capital but rather the fair value
movements of the Portfolio Companies in the ARC Fund and are therefore unrealised. The Company has thus adopted a policy
whereby unrealised profits of this nature are transferred to the fair value reserve. In the event of a return of capital by the ARC Fund,
these would be realised and accordingly transferred from the fair value reserve to retained earnings.
5.1 Fair value movements on the Investment in the ARC Fund at FVTPL
Reviewed for Audited at
the year ended incorporation
R million 30 June 2018 30 June 2017
Income: 888.9 -
Fair value movements on Diversified Investments 619.2 -
Fair value movements on Diversified Financial Services 23.3 -
Income from Diversified Investments 89.9 -
Income from Diversified Financial Services 25.2 -
Interest income on cash and cash equivalents 131.3 -
Expenses: (94.2)
Fees paid to the Fund Manager (94.2) -
Net foreign exchange gains/(losses) on mark-to-market of foreign denominated
loans and receivables in the portfolio 12.9 -
Other expenses (12.9) -
Total 794.7 -
5.2 Reconciliation of reported IFRS Portfolio fair value adjustment to Intrinsic Portfolio
fair value adjustment
Reviewed for Audited at
the year ended incorporation
R million Notes 30 June 2018 30 June 2017
Fair value adjustments in the reporting period amounted to R642.5 million
compared to the intrinsic reported fair value adjustments per the segment
report of R708.1 million. A reconciliation to the reported intrinsic value is
as follows:
Segment reported IFRS Portfolio fair value adjustment 642.5
Adjust for non-IFRS measures included in Intrinsic Portfolio fair value
adjustment 65.6
30-day VWAP difference to spot price on listed portfolio assets (21.3) -
B-BBEE lock-in discount on listed portfolio assets (3.6) -
Deferred taxation on B-BBEE lock-in discounts (12.6) -
Equity day one gains(1) 103 -
Segment reported Intrinsic Portfolio fair value adjustment 708.1 -
(1) Gains on transfer of the portfolio assets from ARC where the transfer value was lower than the fair value to date of transfer have
been recognised as a capital contribution in equity for IFRS Portfolio Value. These have not been adjusted for in the Intrinsic Portfolio Value.
5.3 Fair value reserve
Reviewed for Audited at
the year ended incorporation
R million Notes 30 June 2018 30 June 2017
Opening balance - -
Fair value movements on the Investment in the ARC Fund at FVTPL 5.1 794.7 -
Segment reported Intrinsic Portfolio fair value adjustment 794.7 -
6. CAPITAL AND RETURN ON CAPITAL
6.1 Stated capital
Reviewed for Audited at
the year ended incorporation
R million 30 June 2018 30 June 2017
ARC Investments has the following categories of share capital:
Category Rights
Ordinary shares Participating share with voting rights.
B shares Non-participating non-voting share except if as at any
ordinary shareholder record date an appointed B-BBEE
Rating Agent determines that ownership of ordinary shares by
Black People as defined in the B-BBEE Codes, as determined
using the flow-through principle in accordance with the
B-BBEE Codes is less than 51%; and that ARC as the holder
of the B share, holds at least 26.1% of the ordinary shares of
the Company and since issue of these shares, the holding
percentage has never dropped below 26.1%.
C shares Non-participating, non-voting shares with automatic
conversion based on the terms of the performance
participation (refer below).
In terms of the Mauritius Companies Act 2001, as amended, the Company is
not required to have an authorised share capital. All the Company's classes of
shares are of no par value and, accordingly, the Company does not have a share
premium account.
Issued share capital
Ordinary shares
- 1 00 Ordinary shares of no par value issued at incorporation at USD1 per share
(translated at R12.91)(1). - -
- 5 26 588 235 shares issued to ARC Proprietary Limited under an asset-for-share
sale transaction. 4 563.3 -
- 505 882 353 shares issued at listing date at R8.50 per share. 4 300.0 -
(31.5) -
- Share issue costs.
8 831.8 -
Total issued share capital at the end of the period
B share
1 share issued to ARC Proprietary Limited at a nominal value of R1. - -
C shares
5 billion shares issued to UBI Proprietary Limited at a nominal value of R1 for the
Performance Participation. - -
(1) The amount is less than R1 million and is rounded to Rnil.
6.2 Earnings per share
Reviewed for Audited at
the year ended incorporation
R million Notes 30 June 2018 30 June 2017
Basic earnings per ordinary share (cents) 81 (11 165 769)
Diluted earnings per ordinary share (cents) 79 (11 165 769)
Headline earnings per ordinary share (cents) 81 (11 165 769)
Diluted headline earnings per ordinary share (cents) 79 (11 165 769)
6.2.1 Reconciliation of reported earnings to headline earnings:
Earnings/Headline earnings of the Company 674.5 (11.2)
There were no items that require adjustment from the reported earnings
in terms of SAICA Circular 2/2015, Headline Earnings.
6.2.2 Number of ordinary shares (million):
Number of shares in issue at the end of the period 6.2.3 1 032.0 -
Weighted average number of shares (million) 6.2.3 836.9 -
Diluted weighted average number of shares (million) 6.2.3 849.4 -
Diluted number of shares (million) 6.2.3 1 045.0 -
6.2.3 On 7 September 2017, the Company issued 1 032 470 588 shares upon
listing on the JSE initially through an asset-for-share transfer transaction
with ARC Proprietary Limited (as discussed above in note 6.1) and
thereafter a private placement including cornerstone investors Public
Investment Corporation Limited (PIC), GIC Private Limited and Sanlam
Private Wealth Proprietary Limited. As the issued number of shares at
the beginning of the period was 100, the impact of the new issue has
been weighted for the 296 days they were in issue at 30 June 2018 over
the 365-day reporting period resulting in a weighted average number of
shares of 836.9 million for the year. -
Diluted weighted average number of shares (million) 8 849.4 -
Diluted number of shares (million) 8 1 045.0 -
7. DIVIDENDS AND DIVIDEND POLICY
Company Context in Application of Accounting Policy Choices
Company strategic objective
The Company is a capital-raising and investment entity structured to offer its shareholders long-term capital appreciation through the
growth in the NAV of its underlying investment in the ARC Fund. As such, ARC Investments does not currently intend to pay dividends
on the ordinary shares but may choose to pay dividends, including special dividends, at some time in the future when it is appropriate
to do so.
Dividends
The Company's ability to pay dividends is a function of the return of capital by the ARC Fund, which is not anticipated in the short-
term and over which the Company has no direct control. Furthermore, the current intention of the General Partner is that cash raised
by the ARC Fund through realisations and distributions received from Portfolio Companies will generally be utilised for new investment
opportunities.
If the Company receives the proceeds of realisations or distributions by underlying Portfolio Companies from the ARC Fund and
chooses to pay dividends, the Board anticipates declaring and paying a final dividend only. The Board may however, resolve to
declare and pay interim dividends on the ordinary shares. The payment of a dividend will be subject to the Company's constitutional
documents and applicable laws and regulations and the reasonably foreseeable obligations of the Company and will require the
approval of the Board. The dividends that are envisaged would primarily be paid from distributions received by the ARC Fund from
the Portfolio Companies and proceeds arising from the disposal of underlying investments by the ARC Fund, that are distributed to the
Company as returns of capital by the ARC Fund.
Unclaimed dividend
All unclaimed dividends may be invested or otherwise made use of by the Directors for the benefit of the Company until claimed,
provided that dividends unclaimed for a period of three years from the date they were declared may be forfeited for the benefit of the
Company. There is no fixed date on which entitlement to dividends arises and the date of payment will be determined by the Board at
the time of declaration, subject to the JSE Listings Requirements. There are no current arrangements under which future dividends are
waived or agreed to be waived.
8. PERFORMANCE PARTICIPATION
Accounting Policies and Choices
The Performance Participation is an equity-settled share-based payment accounted for in accordance with the provisions of IFRS 2,
Share-based Payments. The share-based payment expense is recognised in profit or loss and the reserve in the statement of changes
in equity as a separate reserve.
Company Context in Application of Accounting Policy Choices
As detailed in note 6.1, the Company has issued 5 billion C shares to UBI through a subscription agreement signed on 14 August 2017
for purposes of the Performance Participation, which in accordance with their rights and terms, are convertible into ordinary shares at
no consideration.
Grant date: 14 August 2017
Grant price: R1 for the full 5 billion shares.
Performance hurdle: 10%
Participation percentage: 16%, provided the IPV NAV at the beginning of the measurement period not being less than the previous
highest IPV NAV.
Performance period: Each annual financial year of the company commencing 1 July and ending 30 June.(1)
Conversion date: No more than 10 business days (excluding weekends) from the date the Board approves the calculation
of the Performance Participation which will normally be the date of approval of the annual financial
statements of the Company.
C shares conversion The number of C shares that will automatically convert into ordinary shares is determined by dividing the
formula: Performance Participation for the relevant annual measurement period by the INAV per ordinary share
at the end of that measurement period. The conversion is calculated based on the growth in the IPV plus
cash returns (of interest and dividends) on the IPV for the performance period percentage exceeding the
performance hurdle rate of 10% per annum compounded annually at each financial year-end during
each performance period.
(1) The performance period in the year of listing commenced at listing date of 7 September 2017 and ended 30 June 2018.
Reviewed for Audited at
the year ended incorporation
R million 30 June 2018 30 June 2017
The annualised growth in Intrinsic Portfolio Value for the reporting period amounted to
12.4%, a Performance Participation amounting to R115.1 million has been recognised as a
share-based payment expense with a corresponding recognition of a share-based payment
reserve in equity. The consequential conversion of C shares into ordinary shares was
estimated at 12 577 126 ordinary shares as at 30 June 2018, with a full dilutive impact on
the weighted average number of shares for the period. The total diluted number of shares
at year end is 1 045 047 713
Performance Participation expense for the performance period (115.1) -
9. TAXATION
Accounting Policies and Choices
Normal income taxation and deferred taxation are recognised using the taxation rates and taxation laws that have been enacted or
substantively enacted by the end of the reporting period in accordance with the recognition and measurement principles in IAS 12, Taxes.
Company Context in Application of Accounting Policy Choices
The company holds a Category one Global Business License, for the purpose of the Mauritian Financial Services Act 2007. It was
registered in Mauritius as a private company limited by shares on 30 June 2017 and converted to a public Company on 2 August 2017.
It is liable for income taxation at a rate of 15%. However, the company is entitled to a taxation credit equivalent to the higher of the actual
foreign taxation incurred and 80% of the Mauritian taxation on its foreign source income, thus having a standard taxation rate of 3%.
The foregoing is based on current interpretation and practice and is subject to any future changes in Mauritian taxation laws.
Reviewed for Audited at
the year ended incorporation
R million 30 June 2018 30 June 2017
No provision has been made for taxation as the Company has an estimated taxation loss
carried forward amounting to R17.4 million (at 30 June 2017: R11.2 million). Mauritian
taxation regulations permit the carry forward of unused taxation losses for a maximum
period of five years from the date they arose. The accumulated taxation losses are available
for set-off against future taxable income as follows:
Arising in FY 2018, carry forward up to 2023 financial year (6.2)
Arising in FY 2017, carry forward up to 2022 financial year (11.2)
Reconciliation of loss before income taxation:
Profit before taxation 674.5 (11.2)
Taxation at a statutory effective rate of 3% for Category One Global Business License
after foreign taxation credit 20.2 (0.3)
Taxation consequences in the year:
Non-deductible expenditure 3.5 -
Performance Participation expense 3.5 -
Other (incorporation fees and realised foreign exchange losses)(1) - -
Non-taxable income (23.9) -
Fair value movements on the investment in the ARC Fund at FVTPL (23.8) -
Interest earned on local bank account (0.1) -
Deferred taxation asset not raised 0.2 0.3
Taxation expense for the year - -
(1) The amount is less than R1 million and is rounded to Rnil.
Reviewed for Audited at
the year ended incorporation
R million 30 June 2018 30 June 2017
A deferred taxation asset amounting to R0.5 million has not been raised as the ARC Fund
is not expected to declare partner profit distributions in the foreseeable future, thus the
Company will not have taxable income against which the deferred taxation asset can be
utilised.
Reconciliation of taxation rate: % %
Mauritian standard income taxation rate for a company with a Category one Global
Business License 15.0 15.0
Foreign taxation credit (12.0) (12.0)
Non-deductible expenditure 0.5 -
Non-taxable income (3.5)
Deferred taxation asset not raised - (3.0)
Effective taxation rate - -
10. RECONCILIATION OF CASH UTILISED IN OPERATIONS BEFORE
INVESTMENT ACTIVITIES
Reviewed for Audited at
the year ended incorporation
R million Notes 30 June 2018 30 June 2017
Profit/(loss) before taxation 674.5 (11.2)
Adjustment for non-cash items (679.3) -
Fair value movements on the investment in the ARC Fund at FVTPL 5.1 (794.7) -
Performance Participation expense 8 115.1 -
Unrealised foreign exchange gains/(losses) 0.3 -
Working capital movements (11.2) 11.2
Increase in trade and other receivables (0.9) -
Decrease in trade and other payables (10.3) 11.2
Cash utilised in operations before investment activities (16.0) -
11. FINANCIAL INSTRUMENTS
11.1 Risk management
The Company's exposure to market risks is predominantly through its investment in the ARC Fund. To this end, the Board
of the General Partner, through its Investment Committee agrees and reviews the ARC Fund policies for managing all
market risks that the financial instruments within the ARC Fund are exposed to. The Directors of the Company manage the
Company's exposure to market risks as indicated below.
11.1.1 Equity price risk
Most of the Company's interest in the ARC Fund is deployed in equity instruments (91% at 30 June 2018; 88% as at
7 September 2017), the Company is thus exposed to equity price risk through the valuation of the underlying Portfolio
Investments held by the ARC Fund. The fair value of these investments is derived through the valuations disclosed in note 4.4.
The underlying Portfolio Companies are valued quarterly and the Board has access to the valuation information to monitor
and review the fair value of the investments and, where impairment indicators have been identified, consider any possible
impairment adjustments.
Reviewed
for the Unaudited
year ended at listing
30 June 7 September
R million 2018 2017
Change in portfolio equity prices
+5% 7 855.8 4 160.2
Equity component being 91% (7 Sept 2017: 88%) of Reported IFRS Portfolio Value 7 418.7 3 962.1
- 5% 7 107.7 3 764.0
11.1.2 Interest rate risk
The Company is mainly exposed to interest rate risk through its investment in the
ARC Fund which has interest bearing loan assets and cash of R2 200 million (as at
7 September 2017: R4 745 million) in its portfolio.
Change in portfolio loan receivable interest rates - annualised
+ 100 basis points 22 48
11.1.3 Credit risk
The cash and cash equivalents of the Company and the ARC Fund balance are held with the four largest banks in South Africa.
The Company is exposed to credit risk through the ARC Fund Portfolio and the counter parties of the financial instruments
in the portfolio. The diversity of the portfolio mitigates concentration of credit risk. Rigorous assessments, adherence by the
Fund Manager to the Investment Guidelines and reviews and due diligence with each investment decision made by the
General Partner Investment Committee, which consists of strong and well experienced members, ensure that the Company
effectively manages exposure to credit risk. On a quarterly basis, the Board receives detailed reports and updates from the
Fund Manager to enable it to monitor the performance of the underlying investments.
11.1.4 Currency risk
The Company's exposure to currency risk is primarily through its Investment in the ARC Fund. The portfolio interests of the
ARC Fund are predominantly denominated in ZAR with 4.6% denominated in GBP. The exposure to currency risk is thus
low; however, the Board continuously monitors the exposure to currency risk through the Investment Committee of the
Fund Manager.
11.1.5 Liquidity risk
The Company is exposed to the risk relating to the payment of trade and other payables which at the reporting date were
not significant. At listing the company retained sufficient funds from the listing proceeds for working capital requirements.
The adequacy of the working capital of the Company is reviewed by the Board bi-annually.
12. COMMITMENTS
As at the year ended 30 June 2018, the Company did not have any commitments. The commitments in the ARC Fund were as follows:
Contracted R million
Contingent consideration on existing portfolio investments(1) 140.3
Other contractual commitments arising from signed investment agreements(2) 850.2
Total contracted 990.5
(1) R94.0 million of the R140.3 million contingent consideration has been recognised as a liability in the year end results as the portfolio entities
concerned had met the required hurdles.
(2) The Investment Committee of the ARC Fund has approved, and management have concluded contractual commitments to investments of
R400.0 million where the funds relating thereto are yet to be paid. The most significant relate to investments in the Barloworld project and into Rand
Mutual Assurance which were announced on SENS during the financial year.
Approved not yet contracted R million
Other contractual commitments arising from signed memoranda of understanding (MOU)(3) 1 153.8
Total approved not yet contracted 1 153.8
Total commitments 2 109.3
(3) A number of prospective investments approved by the Investment Committee of the ARC Fund are currently under negotiation and still subject to
signed contracts.
The aging profile of commitments in accordance with the financial year-ends of the Company are as follows:
Total Total Total
Year 2019 2020 2021 contracted approved commitments
Contracted 260.3 140.0 115.0 515.3 - 515.3
Approved 1 026.0 568.0 - - 1 594.0 1 594.0
Total 1 286.3 707.9 115.0 515.3 1 594.0 2 109.3
The cash and cash equivalents of the ARC Fund at 30 June 2018 amounted to R1.6 billion and would be utilised to fund the
commitments in the 2019 financial year.
13. RELATED PARTY DISCLOSURES
Accounting Policies and Choices
Related party transactions are transfers of resources, services or obligations between the Company and a related party (as identified
below), regardless of whether a price is charged or not. They include commitments to do something if a particular event occurs (or
does not occur) in the future and executory contracts (recognised or unrecognised). The Company has complied with the provisions
of IAS 24, Related Party Transactions, in identifying, quantifying and disclosing the information below.
Company Context in Application of Accounting Policy Choices
The Company has identified the following related party relationships and related transactional terms which are relevant to the current
year financial results:
Name Relationship Nature of transaction/terms
Companies:
- UBI - Ultimate parent - None.
- Holder of the C shares for the - Issue of the C shares (note 6.1).
Performance Participation - The Performance Participation (note 8).
- ARC - Controlling shareholder - Asset-for-share transaction prior to listing (note 6.1).
- Holder of the B share - Issue of the B share (note 6.1).
- Incorporation loan - Loan advanced per the loan agreement signed on
14 August 2017 for the payment of incorporation and
listing related expenses incurred prior to the listing
date and effective 18 August 2017 for an amount of
up to R60.0 million. The loan is unsecured, bore no
interest and repayments were to be financed from the
listing proceeds.
- The ARC Fund - South African en-commandite - Contribution of Portfolio Assets (note 4).
Partnership at a partnership interest - Cash capital contribution (note 4).
of 99.95%.
- General Partner - General Partner in the ARC Fund - 0.05% in the ARC Fund Capital and partnership profit
share.
- Fund management fees.
Key management personnel:
- MC Olivier - Non-executive director and Chairman - Directors fees.
- T Lo Seen Chong - Non-executive director - Directors fees.
- C Msipha - Non-executive director - Directors fees.
- R Mokate - Non-executive director - Directors fees.
- NB Radebe - Non-executive director - Rnil.
- K Bodenstein - Chief Financial Officer - Executive salary.
Transactions with related parties in the year under review are as follows:
Reviewed
balance due Reviewed Audited balance
from/(to) as at transactions due from/(to) as
R million 30 June 2018 during the year at 30 June 2017
UBI - 115.1 -
Issue of C shares (note 6.1)(1) - - -
Performance Participation (note 8) - 115.1 -
ARC - 4 574.2 (11.2)
Issue of B-share (note 6.1)(1) - - -
Accrual of listing expenses - - (11.2)
Recovery of expenses payable by ARC - 3.2 -
Settlement of incorporation loan - 8.0 -
Asset-for-share transaction prior to listing (note 6.1) - 4 563.0 -
The ARC Fund 9 581.7 9 581.7 -
Contribution of Portfolio Assets (note 4) 4 563.3 4 563.3 -
Cash capital contribution (note 4) 4 224.0 4 224.0 -
Partnership profit share for the year (note 4) 794.7 794.7 -
General Partner (30.7) 30.7 -
Fund management fees accrued for the year (94.2) (94.2) -
Fund management fees paid for the year 63.5 63.5 -
Directors' interest
MC Olivier - 305 882 share in
the Company at a 0.005% interest. n/a n/a n/a
Key management personnel (0.3) (0.3)
MC Olivier fees accrued (0.3) (0.3) -
- fees paid to MC Olivier 0.2 0.2 -
T Lo Seen Chong fees accrued (0.1) (0.1) -
- fees paid to T Lo Seen Chong 0.1 0.1 -
C Msipha fees accrued (0.3) (0.3) -
- fees paid to C Msipha 0.2 0.2 -
R Mokate fees accrued (0.3) (0.3) -
- fees paid to R Mokate 0.2 0.2 -
NB Radebe - - -
K Bodenstein executive salary accrued (0.1) (0.1) -
- salary paid to K Bodenstein 0.1 0.1 -
(1) Amount is less than R1 million and is rounded to Rnil.
14. SUBSEQUENT EVENTS
Other than the investment activities post the reporting period detailed below, the Company had no other subsequent events that
required adjustment to or disclosure in the reported results.
The following investments were concluded in the ARC Fund post the reporting period:
Acquisition of TymeDigital
On 8 August 2018, the company announced that its controlling shareholder, ARC has reached an agreement to acquire, through
ARC's 50.1% held subsidiary, ARC FinHoldCo, 90% of TymeDigital by Commonwealth Bank SA, after which FinHoldCo will become
the 100% owner. The acquisition is subject to approval by the regulatory authorities, including that of the Prudential Authority of the
South African Reserve Bank. The ARC Fund holds 49.9% of FinHoldCo.
15. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS)
New standards adopted in the current reporting period:
The following new standards became effective for the company in the current reporting period and have been adopted:
Effective for
financial periods
Standard, amendment beginning on
or interpretation Summary of expected impact or after
Amendment to IAS 12 Summary of amendment 1 January 2017
- Income taxes The amendments were issued to clarify the existing guidance under IAS 12 around
requirements for recognising deferred taxation assets on unrealised losses. The
amendments clarify the accounting for deferred taxation where an asset is measured
at fair value and that fair value is below the asset's taxation base. They also clarify
certain other aspects of accounting for deferred taxation assets. These amendments
thus do not change the underlying principles for the recognition of deferred taxation
assets.
Summary impact on the Company
The Company has applied the existing guidance, the adoption thereof has not had
an adjusting impact on the financial results of the Company.
Amendment to IAS 7 -
Cash Flow Statements Summary of amendment
In January 2016, the IASB issued an amendment to IAS 7 introducing an additional 1 January 2017
disclosure that will enable users of the financial statements to evaluate changes in
liabilities arising from financing activities. The amendment responds to requests from
investors for information that helps them better understand changes in an entity's
debt.
New standards in issue but not yet effective or early adopted:
The following standard has been published and is deemed relevant to the Company but is not yet effective and has also not been
early adopted:
Effective for
financial periods
Standard, amendment beginning on
or interpretation Summary of expected impact or after
IFRS 9 - Financial Summary of amendment 1 January 2018
Instruments This standard replaces the guidance in IAS 39. It includes requirements on the
classification and measurement of financial assets and liabilities; it also includes an
expected credit losses model that replaces the current incurred loss impairment
model.
Summary impact on the Company
The Directors anticipate that these amendments will be applied in the financial
statements for the annual period beginning 1 July 2018. The Directors have
evaluated the business model of the company under the provisions and guiding
principles of IFRS 9, specifically, to its main financial instrument - the investment
in the ARC Fund. Since the investment in the fund is a fair value through profit
and loss investment which is managed on its intrinsic fair value performance, the
adoption of the new standard will present no change in the basis of recognition
and measurement of the financial instruments of the company. It is thus expected
to have minimal impact.
I - VALUATION INPUTS BY PORTFOLIO ENTITY
for the year ended 30 June 2018
In the tables that follow we summarise the disclosure of the valuation inputs of the unlisted portfolio entities that evidenced a fair value
adjustment at 30 June 2018.
Details of valuation inputs Metrofibre Acorn Agri & Food Majk Property Holdings Val de Vie
30 Jun 7 Sept 30 Jun 7 Sept 30 Jun 7 Sept 30 Jun 7 Sept
R million 2018 2017 2018 2017 2018 2017 2018 2017
Gross Intrinsic Portfolio Value 178.1 117.0 277.1 212.0 252.9 172.0 227.0 196.0
Adjustment for: (41.9) - - - (14.6) - (63.2) (54.5)
Minority discounts (17.9) - - - (7.9) - (28.4) (24.5)
% minority discounts (10%) - - - (15%) - (10%) (12.5%)
Marketability discounts (24.0) - - - (6.7) - (34.8) (30.0)
Control premium (15%) - - - (15%) - (18%) (17.5%)
% control premium - - - - - - - -
Deferred taxation - - - - - - - -
Segment reported Intrinsic
Portfolio Value 136.20 117.0 277.1 212.0 238.3 172.0 163.8 141.5
% of Intrinsic Portfolio 1.7% 2.6% 3.4% 4.7% 2.9% 3.8% 2.0% 3.2%
% of Business Segment 6.0% 15.1% 31.6% 49.1% 45.6% 54.8% 31.3% 45.2%
Valuation information:
IFRS 13 fair value hierarchy Level 3 Level 3 Level 1 Level 1 Level 3 Level 3 Level 3 Level 3
Valuation methodology EBITDA Consistent with Over the Consistent with Net asset Consistent with 10-year 10-year
multiple the Pre-listing counter the Pre-listing value the Pre-listing discounted discounted
Statement, the share price Statement, the Statement, the cash flow cash flow
entity was valued entity was valued entity was valued
at the cost to at the cost to at the cost to
ARC plus a rolled ARC plus a rolled ARC plus a rolled
forward cost of forward cost of forward cost of
capital of 16%. capital of 16%. capital of 16%.
Other details
Details of valuation inputs Metrofibre Acorn Agri & Food Majk Property Holdings Val de Vie
30 Jun 7 Sept 30 Jun 7 Sept 30 Jun 7 Sept 30 Jun 7 Sept
R million 2018 2017 2018 2017 2018 2017 2018 2017
Key inputs:
Input 1 EBITDA Not Not applicable due to GBP : ZAR Not WACC WACC
multiple applicable. portfolio asset being applicable
a level 1 fair value
Input variable 7.3 hierarchy. 7.8% 8.4%
Input 2
Input 2 variable
Sensitivity of key inputs:
Input 1 EBITDA Not Not applicable due to GBP : ZAR Not WACC WACC
multiple applicable. portfolio asset being applicable.
Input variable R1.5 million a level 1 fair value R2.4 million R5.8 million R21.4 million
per 1% hierarchy. per 1% per 1% for every 1%
change. change. change change.
Input 2
Input 2 variable
Details of valuation inputs ARC Real Estate Fledge Capital Colourfield Indwe
30 Jun 7 Sept 30 Jun 7 Sept 30 Jun 7 Sept 30 Jun 7 Sept
R million 2018 2017 2018 2017 2018 2017 2018 2017
Gross Intrinsic Portfolio Value 116.3 - 423.3 - 110.3 95 57.6 46.0
Adjustment for: (19.2) - (81.5) - (30.4) (24.7) (2.6) (5.0)
Minority discounts (5.7) - (21.2) - (7.9) (7.1) (3.5) -
% minority discounts (5%) - (10%) - (8%) (7.5%) (10%) -
Marketability discounts (13.5) - (60.3) - (19.6) (17.6) (6.7) (5.6)
% marketability discounts (13%) - (20%) - (20%) (20.0%) (10%) (10.0%)
Control premium - - - - - - 11.5 -
% control premium - - - - - - 20% -
Deferred taxation - - - - (2.9) - (3.9) -
Segment reported Intrinsic
Portfolio Value 97.1 - 341.8 - 79.9 - 55.0 -
% of Intrinsic Portfolio 1.2% - 4.2% - 1.0% 1.5% 0.7% -
% of Business Segment 18.0% - 92.1% - 7.0% 8.7% 4.8% 4.5%
Valuation information:
IFRS 13 fair value hierarchy Level 3 Level 3 Level 3 Not Level 3 Level 3 Level 3 Level 3
applicable
Valuation methodology Net asset Not Sum of the Not 10-year 10-year PE multiple 10-year
value applicable as parts applicable discounted discounted discounted
the entity was cash flow cash flow cash flow
valued at Rnil
on transfer
to the ARC
Fund.
Other details The investment in Fledge
Capital occurred in the
current financial year after
listing of the Company on
the JSE.
Details of valuation inputs ARC Real Estate Fledge Capital Colourfield Indwe
30 Jun 7 Sept 30 Jun 7 Sept 30 Jun 7 Sept 30 Jun 7 Sept
R million 2018 2017 2018 2017 2018 2017 2018 2017
Key inputs:
Input 1 None Not Weighted Not WACC WACC PE multiple WACC
noted. applicable average PE applicable.
Input variable as the entity 18.2% 19.6% 9.0 15.5%
was valued
Input 2 at Rnil on Terminal Terminal Terminal
transfer to growth rate growth rate growth rate
Input 2 variable the ARC 5.5% 5.3% 5.3%
Fund.
Sensitivity of key inputs:
Input 1 None Not Weighted Not WACC WACC PE multiple WACC
noted. applicable average PE applicable.
Input variable as the entity R3.4 million R4.2 million R3.5 million R1.0 million R0.8 million
was valued per 1% per 1% per 15% per 1% per 1%
at Rnil on change change change. change. change.
transfer to
Input 2 the ARC Terminal Terminal Terminal
Fund. growth rate growth rate growth rate
Input 2 variable R0.7 million R0.5 million R0.6 million
per 1% per 1% per 1%
change change. change.
Details of valuation inputs Ooba Bravura Alternative Prosperity
30 Jun 7 Sept 30 Jun 7 Sept 30 Jun 7 Sept
R million 2018 2017 2018 2017 2018 2017
Gross Intrinsic Portfolio Value 135.9 117.0 38.4 36.4 8.1 5.5
Adjustment for: (26.3) (19.6) (0.5) - (2.2) -
Minority discounts (10.2) (8.8) - - (1.1) -
% minority discounts (8%) (7.5%) - (15%) -
Marketability discounts (12.6) (10.8) - - (1.0) -
% marketability discounts (10%) (10.0%) - (15%) -
Control premium - - - - - -
% control premium - - -
Deferred taxation (3.5) - (0.5) - (0.1) -
Segment reported Intrinsic
Portfolio Value 109.6 97.4 37.9 36.4 5.9 5.5
% of Intrinsic Portfolio 1.3% 2.2% 0.5% 0.8% 0.1% 0.1%
% of Business Segment 41.9% 45.9% 14.5% 17.1% 2.3% 2.6%
Valuation information:
IFRS 13 fair value hierarchy Level 3 Level 3 Level 3 Level 3 Level 3 Level 3
Valuation methodology Five-year Five-year Discounted Consistent with Five years Consistent with
discounted discounted cash put-option the Pre-listing discounted the Pre-listing
cash flow flow price Statement, cash flow. Statement,
the entity was the entity was
valued at the valued at the
cost to ARC plus cost to ARC plus
a rolled forward a rolled forward
cost of capital cost of capital
of 16%. of 16%.
Other details
Details of valuation inputs Ooba Bravura Alternative Prosperity
30 Jun 7 Sept 30 Jun 7 Sept 30 Jun 7 Sept
R million 2018 2017 2018 2017 2018 2017
Key inputs:
Input 1 WACC WACC WACC Not applicable. WACC Not applicable.
Input variable 14.0% 14.9% 16.1% 24.4%
Input 2 Growth Terminal Terminal
growth rate growth rate
Input 2 variable 5.5% 5.4% 6.0%
Sensitivity of key inputs:
Input 1 WACC WACC WACC Not applicable. WACC Not applicable.
Input variable R5.3 million R3.4 million R0.4 million R0.2 million
per 1% change per 1% change. per 1% change per 1% change
Input 2 Terminal Terminal Terminal
growth rate growth rate growth rate
Input 2 variable R4.7 million R3.0 million R0.1 million
per 1% change per 1% change. per 1% change
II - SHAREHOLDERS' DIARY
The key dates to be noted by shareholders are as follows:
Details Date
Integrated Annual Report 15 October 2018
Annual General Meeting 13 November 2018
Interim Results Announcement March 2019
Financial year end 30 June 2019
30 June 2019 Results Announcement September 2019
III - CORPORATE INFORMATION
Contact Information African Rainbow Capital Investments Limited
(A company registered and domiciled in the Republic of Mauritius)
www.arci.mu
Registration number C148430
JSE share code AIL
ISIN code MU0553S00000
Directors Mark Cyril Olivier (Chairman)
Deans Tommy Lo Seen Chong
Clive Msipha
Renosi Mokate
Bridget Ntombenhle Radebe
Executive Management Karen Bodenstein
(Chief Financial Officer)
Registered Address Level 3, Alexander House, 35 Cybercity
Ebène, 72201
(Level 3, Alexander House, 35 Cybercity, Ebène, 72201) Mauritius
Registered and incorporated as a private company in Mauritius on 30 June 2017 and
converted to a public company on 2 August 2017.
Company Secretary Intercontinental Trust Limited Level 3,
Alexander House, 35 Cybercity, Ebène, 72201
(Level 3, Alexander House, 35 Cybercity, Ebène, 72201) Mauritius
(Company number: C23546)
Sponsor Rand Merchant Bank, a division of
FirstRand Bank Limited, 1 Merchant Place,
Cnr Fredman Drive and Rivonia Road,
Sandton, Johannesburg, 2196
(PO Box 786273, Sandton, 2146) South Africa
Registration number: 1929/001225/06)
Transfer Secretaries Computershare Investor Services Proprietary Limited
Registration number 2004/003647/07)
Rosebank Towers, 15 Biermann Avenue,
Rosebank, 2196
(PO Box 61051, Marshalltown, 2107) South Africa
Registration number: 2004/003647/07)
SENS release date: 13 March 2018
Auditors PricewaterhouseCoopers Limited & PricewaterhouseCoopers Inc
3rd Floor, 18 Cybercity, Ebène, 72201, Mauritius
5 Silo Square, V&A Waterfront, Cape Town, 8002, South Africa
Investor Relations Ainsley Moos
ainsley@africanrainbowcapital.co.za
+21 (21) 180 0107
+27 (83) 296 4697
Dated: 13 September 2018
Date: 13/09/2018 07:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
