Wrap Text
Full year financial results for the twelve-month period to 30 June 2022
AFRICAN RAINBOW CAPITAL INVESTMENTS LIMITED
Incorporated in the Republic of Mauritius
Company number: C148430
JSE share code: AIL A2X share code: AILJ
ISIN code: MU0553S00000 LEI: 378900F086B090C6FB94
FULL YEAR FINANCIAL RESULTS
for the twelve-month period to 30 June 2022
HIGHLIGHTS
Intrinsic portfolio value increased by 11.3% to R13 659 million
(30 June 2021: R12 275 million)
The R1 384 million increase comprises R1 832 million net fair value gains and net
investment disposals of R448 million.
INAV per share increase of 14.7%(30 June 2021: decrease of 8.1%)
Cash in the ARC Fund of R669 million(30 June 2021: R239 million)
Debt in the fund increased by 12.1% to R974 million(30 June 2021: R869 million)
Significant international equity funding secured in TymeBank and Tyme Global
Disposal of 12.4 million Afrimat shares for R740 million
Management fee under review
Rain to benefit from spectrum acquisition
Kropz Elandsfontein navigating new challenges
NATURE OF BUSINESS
African Rainbow Capital Investments Limited (ARC Investments) is incorporated in the
Republic of Mauritius, holds a Global Business Licence under the Mauritian Financial
Services Act 2007 and is regulated by the Mauritian Financial Services Commission. It
is listed on the JSE Limited with a secondary listing on A2X in South Africa.
OPERATING ENVIRONMENT
The year under review has been characterised by strained trading conditions, mainly
resulting from the contracting economy and associated impact on consumers. Economic
recovery in some sectors is underway post the Covid-19 pandemic. Equity market
performance has improved in some respects, although increased volatility levels
impact investor sentiment.
PERFORMANCE HIGHLIGHTS
The collective efforts of management and investment partners resulted in progress in
early-stage investments as well as consolidating capital in specific businesses. The
Company’s intrinsic investment value in the ARC Fund increased by 14.7% from R11 541
million at 30 June 2021 to R13 242 million at 30 June 2022. During the year under
review, its effective share of the invested assets (or the IPV) increased by 11.3%
from R12 275 million at 30 June 2021 to R13 659 million at 30 June 2022 mainly as a
result of a net increase of R1 384 million in asset values.
The IFRS Net Asset Value (NAV) per share increased by 13.9 % from R8.85 at 30 June
2021 to R10.08 at 30 June 2022.
Performance participation hurdle achieved
The annual growth in the Company’s share in the IPV of the ARC Fund, before the
impact of acquisitions and disposals for the year, was 14.7 %. The annual growth is
above the 10% performance participation hurdle. Consequently, a provisional amount of
R273 million has been recognised in terms of IFRS 2 for the issue of Performance
Participation shares to UBI.
Management fee under review
The fee structure was reviewed during the current year and a new proposed fee
structure, which is expected to result in a significantly reduced management fee,
will be implemented with effect from 1 July 2022 subject to the shareholders’
approval at the Annual General Meeting.
Investment in ARC Fund Net Net Net Net Growth
Asset Investment Increase Asset in Net
Value 30 in Net Value Asset
June 21 Asset 31 Jun Value
Value 22
Intrinsic Portfolio Value 12 275 -448 1 832 13 659 11.30%
Cash in the ARC Fund 239 491 -61 669 179.90%
Debt the ARC Fund -860 -43 -63 -975 12.20%
Other net assets/(liabilities) -104 – -7 -111 6.7%
in the ARC Fund
UBI GP fee payable -100 – -10 -110 10.00%
Other assets/(liabilities) in -4 – 3 -1 -75.00%
the ARC Fund
Intrinsic Investment in the ARC 11 541 – 1 701 13 242 14.70%
Fund at FVTPL*
*FVTPL: Fair Value Through Profit or Loss
SIGNIFICANT EFFECTIVE ACQUISITIONS AND DISPOSALS IN THE DIVERSIFIED INVESTMENTS
PORTFOLIO THROUGH ARC FUND
Afrimat
The ARC Fund sold 12.4 million Afrimat shares for a consideration of R740 million
during the year.
Kropz Plc
The ARC Fund invested an additional R362 million into Kropz Plc during the period.
The capital was largely used to fund operational cash shortfall at Elandsfontein
resulting from a delay in the ramp-up as well as to commission the updated
feasibility study for Cominco.
ARCH Emerging Markets Fund of Funds (ARCH EM)
During the year under review the ARC Fund invested R66 million in the ARCH Cold Chain
Solutions East Africa Fund.
Rain
An additional investment of R56 million was made during the year. Rain participated
successfully in the government-initiated spectrum auction where it acquired 20MHz in
the 700MHz band and 20MHz in the 2.6GHz band for a total price of R1.43 billion. The
spectrum allocated to Rain is expected to significantly enhance its competitiveness.
ACQUISITIONS IN THE FINANCIAL SERVICES PORTFOLIO
During the year ended 30 June 2022, the Company effectively made two significant
indirect investments through the ARC Fund’s 49.9% interest in ARC Financial Services
Holdings (ARC FSH).
Crossfin
ARC FSH acquired 37.33% of Crossfin for R415 million resulting in the ARC Fund’s
indirect interest of 19% and R207 million respectively. Crossfin is one of Africa’s
leading independent fintech platforms, as measured by both the volume and value of
transactions processed through its platforms.
TymeBank and Tyme Global
ARC FSH invested an additional R303 million into TymeBank and Tyme Global during the
year as part of the capital requirements for the bank. At 30 June 2022, the ARC Fund
had an effective interest of 25% in TymeBank, in the form of 49.9% of the 50.1%
interest held by ARC FSH in TymeBank.
GROWTH IN INTRINSIC PORTFOLIO VALUE
The 11.3% increase in ARC Investments’ share in the INAV of the ARC Fund at FVTPL was
largely as a result of the Company’s effective share in the net fair value gains of
R1 832 million, which is graphically depicted below.
Key Comments: Diversified Investments (71.7% of Fund Value, 30 June 2021: 74.7%)
Rain (26.6% of Fund Value, 30 June 2021: 27.0%)
The value of the ARC Fund’s interest in Rain has increased by 9.7% for the year under
review. Rain continues to deliver well on both 4G and 5G sales as demand has been
sustained throughout and post the easing of Covid-19 restrictions. The increased
valuation also considers Rain’s business plan post the Spectrum Auction, which was
completed in March and April 2022. The increased valuation is also as a result of a
R56 million additional investment.
Rain achieved its budgeted R1 billion EBITDA for its financial year ended February
2022. This is regarded as a significant achievement as it achieved break-even in the
February 2021 financial year. The ARC Fund’s share in the value of the investment in
Rain increased from R3 314 million at 30 June 2021 to R3 635 million at 30 June 2022.
Afrimat (4.6% of Fund Value, 30 June 2021: 10.0%)
The ARC Fund disposed of 12.4 million Afrimat shares at a price of R59.62 per share
for a total consideration of R740 million in the year under review. As a result, the
ARC Fund’s shareholding in Afrimat decreased from 16% at 30 June 2021 to 7% at 30
June 2022. The capital profit on this disposal amounts to R431 million, generating an
IRR of 27.1%.
Kropz Plc (7.5% of Fund Value, 30 June 2021: 8.9%)
ARC Fund holds 83.2% of the issued share capital in the Kropz Group’s holding
company, Kropz Plc, which is listed on the Alternative Investment Market stock
exchange in London. Kropz Plc is an emerging African phosphate developer that owns
two prized phosphate assets, namely Elandsfontein on the west coast of South Africa
and Cominco in the Republic of Congo. The value of Elandsfontein and Cominco at 30
June 2022 was determined using discounted cash flow models. Using the latest
available phosphate price forecasts from CRU and updated production cost estimates
for Elandsfontein and Cominco (as provided by DRA and Hatch respectively), the ARC
Fund’s investment value was estimated at R1 028 million at 30 June 2022. The full
investment in the Elandsfontein phosphate mine was impaired. At 30 June 2022, the ARC
Fund remaining undrawn committed capital amounted to R73.5 million.
Elandsfontein project update
The construction of the processing plant has been completed and the first ore was
introduced in December 2021. Subsequent to the introduction of the ore into the
plant, Elandsfontein suffered further delays in the ramp-up of its operations. The
most recent delay was driven by unexpected ore variability in the current mining
area. Mining rates and the associated delivery of ore to the plant have been
compromised due to the presence of banks of hard material within the orebody that
previous geological work failed to identify. A revised mineral resource estimate and
mining plan will be produced once the results of this drilling have been interpreted.
Cominco project update
Kropz appointed Hatch Limited in February 2021 to complete the updated feasibility
study for Cominco, a significant phosphate deposit in the Republic of Congo. The
updated feasibility study supported a substantially higher valuation of the Cominco
asset.
Gemcap (2.3% of Fund Value, 30 June 2021: 5.3%)
During the year under review, the majority of the assets that were held by GemCap
were sold to the ARC Fund as part of a group restructure, with the exception of
Payprop SA. The Company’s effective investment in GemCap decreased from R651 million
at 30 June 2021 to R318 million at 30 June 2022. The ARC Fund is in the process of
exiting its investment in Humanstate and Payprop SA.
Bluespec (3.5% of Fund Value, 30 June 2021: 2.5%)
The Company’s effective investment in Bluespec increased by 56.8% from R304 million
at 30 June 2021 to R476 million at 30 June 2022.
Fledge Capital Investments (3.6% of Fund Value, 30 June 2021: 3.1%)
The Company’s effective investment in Fledge Capital Investments increased by R115
million from R371 million at 30 June 2021 to R486 million at 30 June 2022. The growth
in value was largely driven by the finalisation of the disposal of Fledge Capital’s
interest in We-Buy-Cars to Transaction Capital. The IRR achieved on this disposal was
78%.
ARC Investments (5.1% of Fund Value, 30 June 2021: 3.1%)
During the year under review, the ARC Fund increased its effective investment in ARC
Investments from R386 million at 30 June 2021 to R700 million at 30 June 2022. The
increase is due to a fair value gain of R221 million and an additional investment of
R93 million at an average cost of R6.49 per share.
ARCH Emerging Markets Fund of Funds (3.0% of Fund Value, 30 June 2021: 2.0%)
The Company’s effective investment in ARCH EM increased by R162 million from R246
million at 30 June 2021 to R408 million at 30 June 2022. The investment in the ARCH
funds was valued at the respective fund NAV valuations in USD terms.
Key Comments: Financial Services Portfolio (28.3% of Fund Value, 30 June 2021: 27.3%)
The Company’s effective interest in the gross IPV of the Financial Services portfolio
increased from R3 346 million at 30 June 2021 to R4 506 million at 30 June 2022,
which is a 34.7% increase during the year under review as detailed in the table
below.
Alexforbes (7.1% of Fund Value, 30 June 2021: 6.2%)
ARC Financial Services Investments (ARC FSI) owns 41.47% of the listed company
Alexforbes. The Company’s effective investment in Alexforbes increased from R767
million at 30 June 2021 to R963 million at 30 June 2022, as a result of the
investment of R121 million and fair value gain of R75 million. ARC FSI acquired an
additional R322.4 million worth of Alexforbes shares over the reporting period, at an
average price of R4.59 per share.
Sanlam 3rd Party Asset Management (2.3% of Fund Value, 30 June 2021: 2.5%)
ARC FSI holds a 25.0% interest in Sanlam Third-Party Asset Management (Sanlam 3rd
PAM). The Company’s effective investment in the Sanlam 3rd PAM increased from R306
million at 30 June 2021 to R309 million at 30 June 2022. The driver of the value
increase was the improved results in the first six months of its financial year to 30
June 2022.
Capital Legacy (2.1% of Fund Value, 30 June 2021: 1.1%)
Capital Legacy is one of the largest estate administrators in South Africa. The
Company’s effective investment in Capital Legacy increased from R141 million at 30
June 2021 to R288 million at 30 June 2022.
TymeBank (10.4% of Fund Value, 30 June 2021: 9.6%)
TymeBank is a leading digital bank. During the period, the fair value of the TymeBank
investment was adjusted to reflect the post-money value of the recently closed
capital raised during which Tencent and the CDC invested into TymeBank and Tyme
Global. TymeBank received USD142.5 million as part of the capital raised. The
Company’s effective interest increased from R1 173 million at 30 June 2021 to R1 417
million at 30 June 2022.
Tyme Global (9.6% of Fund Value, 30 June 2020: 8.8%)
Tyme Global is headquartered in Singapore and represents the holding company through
which the multi-country digital banking proposition will be launched. During the
period, the fair value of Tyme Global was increased to reflect
the post-money value of the recently closed capital raised during which Tencent and
the CDC invested into TymeBank and Tyme Global. Tyme Global received USD37.5 million
as part of the capital raised. The value of ARC FSH’s investment in Tyme Global
increased to R1 003 million net of deferred tax as a result, representing a 457%
valuation uplift.
MAJOR EVENTS SUBSEQUENT TO REPORTING PERIOD
Kropz Group
The ARC Fund advanced an additional R180.3 million loan to help fund operations at
Elandsfontein.
TymeBank
TymeBank announced its intention to acquire Retail Capital, a leading fintech funder
of small and medium enterprises (“SMEs”), subsequent to year-end. The deal is still
subject to regulatory approvals. This acquisition will support TymeBank’s offering to
its business banking clients. It will also see Retail Capital’s lending expertise
being combined with TymeBank’s deposit base and operations to serve a broader
customer base.
Management fee under review
The fee structure was reviewed during the current year and a new proposed fee
structure, which is expected to result in a significantly reduced management fee,
will be implemented with effect from 1 July 2022 subject to the shareholders’
approval at the Annual General Meeting. The proposed management fee will change from
a fixed fee percentage of assets under management to an actual cost incurred plus a
5% profit margin basis. The proposed performance participation fee only considers the
growth in net asset value above the 10% performance hurdle, as opposed to the current
arrangement whereby the fund manager participates in growth from the ground-up.
LEVEL OF ASSURANCE
The annual results have been audited by the Company’s auditors,
PricewaterhouseCoopers Inc. who expressed an unmodified audit opinion thereon. Their
report also includes communication of key audit matters. This opinion is available,
along with the annual financial statements on the Company’s website at
https://arci.mu/investor-relations/#sens on 13 September 2022 and available for
inspection at the Company’s registered office(1).
GOVERNANCE & LEADERSHIP
ARC Investments is managed and controlled in Mauritius by an experienced,
multinational Board of Directors (the Board) of which the majority is independent.
The Board has final oversight and responsibility in respect of ARC Investments’
business, strategy and key policies. This includes the investment in the ARC Fund.
There are no executive directors on the Board of ARC Investments.
ABOUT THIS ANNOUNCEMENT
This short form announcement is the responsibility of the directors and the
information contained herein is only a summary of the information in the full
Financial Results announcement and does not contain full or complete details. Any
investment decision by investors and/or shareholders should be based on consideration
of the full announcement that was released on
https://senspdf.jse.co.za/documents/2022/JSE/ISSE/AILE/FResults22.pdf and on the ARC
Investments’ website https://arci.mu/investor-relations/#sens on 13 September 2022.
This short- form announcement does not contain any additional information not
appearing in the full Financial Results released on SENS. The full announcement is
available for inspection at the registered office(1) and designated office(2) of ARC
Investments and the offices of the Sponsor(3) at no charge during normal business
hours. Copies of the full announcement may be requested by email from
investors@arci.mu. Ebène, Mauritius (with simultaneous circulation in Johannesburg)
13 September 2022.
13 September 2022
Mark Cyril Olivier
Chairman of the Board
Clive Msipha
Chairman of the Audit and Risk Committee
Karen Bodenstein
Chief Financial Officer
SPONSOR
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
(1)The registered office: Level 3, Alexander House, 35 Cybercity, Ebène, 72201, Mauritius
(2)Designated Office: 6th Floor, Phase 3, 11 Alice Lane, Sandhurst, Gauteng
(3)The offices of the sponsor: Rand Merchant Bank, a division of FirstRand Bank
Limited, 1 Merchant Place Cnr Fredman Drive and Rivonia Road, Sandton, Johannesburg,2196
Date: 13-09-2022 07:30:00
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