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Consolidated audited financial results for the year ended 31 March 2013
Reinet Investments S.C.A. Depositary Receipts
issued by Reinet Securities SA
(Incorporated in Switzerland)
ISIN: CH0045793657
Depositary Receipt Code: REI
COMPANY ANNOUNCEMENT FOR IMMEDIATE RELEASE
22 MAY 2013
CONSOLIDATED AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31 MARCH 2013
The Board of Reinet Investments Manager S.A. announces the results of Reinet Investments S.C.A. for the year ended 31 March 2013
Key financial data
Net asset value at 31 March 2013: EUR 4 023 million, an increase of 10 per cent from 31 March 2012
Net asset value per ordinary share at 31 March 2013: EUR 20.53 (31 March 2012: EUR 18.62)
Profit for the year: EUR 375 million
Fair value at 31 March 2013 of 79 million BAT shares increased by EUR 317 million during the year, reflecting strong growth in the underlying share price
Sale of 5 million British American Tobacco (BAT) shares in the year realised proceeds of EUR 201 million
New investments with overall funding commitments of EUR 770 million closed during the year
Initial investment in Pension Corporation Group Limited
Subsequent to the year-end, further sale of 5 million BAT shares
Reinet Investments S.C.A. (the Company) is a partnership limited by shares incorporated in the Grand Duchy of Luxembourg and having its registered office at 35, boulevard Prince Henri, L-1724 Luxembourg. It is governed by the Luxembourg law on securitisation and in this capacity allows its shareholders to participate indirectly in the portfolio of assets held by its wholly-owned subsidiary Reinet Fund S.C.A., F.I.S. (Reinet Fund or the Fund), a specialised investment fund also incorporated in Luxembourg. The Companys shares are listed on the Luxembourg Stock Exchange, the primary listing, and its South African Depository Receipts are listed in Johannesburg, the secondary listing. The Companys shares are included in the 'LuxX' index of the principal shares traded on the Luxembourg exchange. The Company and the Fund together with the Funds subsidiaries are referred to as Reinet.
Reinet Investments S.C.A.
Registered office: 35, boulevard Prince Henri, L-1724 Luxembourg, Tel. (+352) 22 42 10, Fax (+352) 22 72 53,
Email: info@reinet.com, website: www.reinet.com
CHAIRMANS COMMENTARY
OVERVIEW
FINANCIAL PERFORMANCE
The year saw good development of Reinets net asset value, which increased by 10 per cent from EUR 3 649 million to EUR 4 023 million at 31 March 2013. Profit for the year ended 31 March 2013 amounted to EUR 375 million, of which EUR 199 million reflected realised income and gains from investments, net of operating expenses, minority interests and taxes.
Aggregate new investment commitments during the year amounted to EUR 770 million; EUR 329 million was invested during the year.
DEVELOPMENTS DURING THE YEAR
This year has been one of considerable change for Reinet.
A key development was the commitment to invest GBP 400 million in Pension Corporation Group Limited and its subsidiary Pension Insurance Corporation. This is a significant amount and an important step in the diversification of the Reinet portfolio of investments.
Pension Insurance Corporation specialises in offering companies that have provided their employees with defined benefit pension plans with the means to eliminate what is often the largest liability. It is a leading pension insurer and is regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom. Pension Insurance Corporation has an excellent track record of working with blue-chip companies in the United Kingdom, multinationals and institutions and, with the backing of Reinet, is actively developing its business. New opportunities arise as an increasing number of companies close their defined benefit plans to new members and seek to eliminate both their administration and funding requirements.
Pension Insurance Corporation turned to Reinet as a potential investor given our stated preference to be a long-term partner. The investment fits perfectly with Reinets philosophy and we look forward to a long and rewarding involvement with Pension Insurance Corporation.
During the year, Reinet has also increased its involvement with Renshaw Bay, both agreeing to take a larger equity position in its management company and participating in its investment programmes. The first fruits of Reinets involvement can be seen in the investment made in the JPS Credit Opportunities Fund, which was introduced by Renshaw Bay, and in Reinets commitment to invest GBP 100 million in the recently formed Renshaw Bay Real Estate Finance Fund. We anticipate further collaboration with Renshaw Bay and its management team.
Reinets involvement with Trilantic Capital Partners has been very successful to date. During the year under review, Reinet recognised EUR 42 million in gross gains, principally from Trilantic Fund IV Global, as that fund began realising the value of some of its investments.
Reinet committed to invest USD 100 million in a new US-based Trilantic fund launched during the year. It is worth remembering that, under the terms of the initial deal struck with the Trilantic management team, Reinet participates as a partner in these funds with no management fee expense or carried interest payable to Trilantic. In addition, Reinet is entitled to share in any carried interest earned by the management company.
Reinet is also developing its presence in Asia most notably in China through collaboration with the Milestone Capital team. Based in Shanghai, Milestone Capital has successfully launched three investment funds to date. Reinet has a significant stake in the third fund as well as an interest in its management company. Reinet has also invested in a long-term investment vehicle with the founders of Milestone Capital and other partners.
To fund these investments, Reinet has realised part of its investment in British American Tobacco. In November and December 2012, Reinet sold 5 million BAT shares, realising EUR 201 million. This was in addition to the collar financing which Reinet put in place in February 2012 backed by BAT shares, which raised EUR 358 million. In April and May 2013, Reinet has sold a further 5 million BAT shares, realising some EUR 212 million. As a consequence of the latest sale, Reinets interest in BAT has been reduced from 4.3 per cent to 3.9 per cent.
OUTLOOK
Reinet is now well positioned. The diversification steps that we have taken have broadened the portfolio and have reduced the exposure to one specific business area. The tobacco interests have performed exceptionally to date and the investment in BAT remains a pillar of the business.
Despite the booming markets that we have seen in recent months, many global uncertainties remain. Reinet will continue its approach of cautious investment and diversification, at all times seeking to build value for our shareholders over the long-term.
Johann Rupert
Chairman
Reinet Investments Manager S.A.
Luxembourg, 22 May 2013
BUSINESS REVIEW
Consolidated Net Asset Value (NAV)
The NAV of Reinet Investments S.C.A. at 31 March 2013 comprised:
+----------------------------+-------------+------+-------------+------+
| | 31 March 2013 | 31 March 2012 |
+----------------------------+-------------+------+-------------+------+
| | EUR m| %| EUR m| %|
+----------------------------+-------------+------+-------------+------+
|Listed investments | | | | |
+----------------------------+-------------+------+-------------+------+
|British American | 3 317| 82.5| 3 190| 87.4|
|Tobacco p.l.c. | | | | |
+----------------------------+-------------+------+-------------+------+
|Unlisted investments | | | | |
+----------------------------+-------------+------+-------------+------+
|Private equity and | 549| 13.7| 420| 11.6|
|related partnerships | | | | |
+----------------------------+-------------+------+-------------+------+
|Trilantic Capital Partners | 163| 4.0| 149| 4.1|
+----------------------------+-------------+------+-------------+------+
|Fund IV, Fund V | | | | |
|and related | | | | |
|management companies | | | | |
+----------------------------+-------------+------+-------------+------+
|Renshaw Bay and | 75| 1.9| 58| 1.6|
|related investments | | | | |
+----------------------------+-------------+------+-------------+------+
|Renshaw Bay advisory and | 14| | 4| |
|investment management | | | | |
|company | | | | |
+----------------------------+-------------+------+-------------+------+
|JPS Credit | 61| | 54| |
|Opportunities Fund | | | | |
+----------------------------+-------------+------+-------------+------+
|Renshaw Bay Real | -| | -| |
|Estate Finance Fund | | | | |
+----------------------------+-------------+------+-------------+------+
| | | | | |
+----------------------------+-------------+------+-------------+------+
|36 South macro | 83| 2.1| 90| 2.5|
|/ volatility funds | | | | |
+----------------------------+-------------+------+-------------+------+
| | | | | |
+----------------------------+-------------+------+-------------+------+
|Asian private equity | 92| 2.3| 44| 1.2|
|and portfolio funds | | | | |
+----------------------------+-------------+------+-------------+------+
|Milestone China | 61| | 33| |
|Opportunities funds, | | | | |
|co-investment and | | | | |
|related opportunities | | | | |
+----------------------------+-------------+------+-------------+------+
|GEMS | 8| | 11| |
+----------------------------+-------------+------+-------------+------+
|Prescient China | 23| | -| |
|Balanced Fund | | | | |
+----------------------------+-------------+------+-------------+------+
| | | | | |
+----------------------------+-------------+------+-------------+------+
|Specialised private | 136| 3.4| 79| 2.2|
|equity funds | | | | |
+----------------------------+-------------+------+-------------+------+
|Vanterra Flex Investments | 47| | 29| |
+----------------------------+-------------+------+-------------+------+
|Vanterra C Change TEM | 37| | 24| |
+----------------------------+-------------+------+-------------+------+
|NanoDimension Funds and | 25| | 4| |
|co-investment opportunities | | | | |
+----------------------------+-------------+------+-------------+------+
|Fountainhead Expert Fund | 21| | 16| |
+----------------------------+-------------+------+-------------+------+
|Other fund investments | 6| | 6| |
+----------------------------+-------------+------+-------------+------+
| | | | | |
+----------------------------+-------------+------+-------------+------+
|Pension Corporation | 134| 3.3| -| -|
+----------------------------+-------------+------+-------------+------+
|US land development | 105| 2.6| 95| 2.6|
|and mortgages | | | | |
+----------------------------+-------------+------+-------------+------+
|Jagersfontein and other | 102| 2.5| 82| 2.2|
|diamond exploration | | | | |
|interests | | | | |
+----------------------------+-------------+------+-------------+------+
|Other investments | 30| 0.7| 23| 0.6|
+----------------------------+-------------+------+-------------+------+
| | 4 237| 105.3| 3 810| 104.4|
+----------------------------+-------------+------+-------------+------+
|Cash and liquid funds | 326| 8.1| 368| 10.1|
+----------------------------+-------------+------+-------------+------+
|Bank borrowings and | | | | |
|collar financing | | | | |
+----------------------------+-------------+------+-------------+------+
|Borrowings | (435)|(10.8)| (445)|(12.2)|
+----------------------------+-------------+------+-------------+------+
|Derivative assets | (11)| (0.3)| 30| 0.8|
|/ (liabilities) | | | | |
+----------------------------+-------------+------+-------------+------+
|Other liabilities | | | | |
+----------------------------+-------------+------+-------------+------+
|Fees payable and | (60)| (1.5)| (70)| (1.9)|
|other liabilities, net | | | | |
|of other assets | | | | |
+----------------------------+-------------+------+-------------+------+
|Funding by minority partners| (21)| (0.5)| (32)| (0.9)|
+----------------------------+-------------+------+-------------+------+
| | 4 036| 100.3| 3 661| 100.3|
+----------------------------+-------------+------+-------------+------+
|Minority interests | (13)| (0.3)| (12)| (0.3)|
+----------------------------+-------------+------+-------------+------+
| | 4 023| 100.0| 3 649| 100.0|
+----------------------------+-------------+------+-------------+------+
All of the underlying assets are held by Reinet Fund S.C.A., F.I.S. ('Reinet Fund' or the Fund). Reinet Investments S.C.A. and the Fund together with the Funds subsidiaries are referred to as Reinet.
LISTED INVESTMENT IN BRITISH AMERICAN TOBACCO P.L.C.
British American Tobacco p.l.c. (BAT) is a leading tobacco group, employing more than 55 000 people and selling over 200 brands in 180 markets globally.
In 2008, after the formation of Reinet and reflecting the outcome of the subsequent rights issue in December of that year, which allowed shareholders to contribute BAT shares to Reinet for shares, Reinet held 84.3 million shares in BAT.
The investment in BAT is Reinets single largest investment position and is kept under constant review, considering the companys performance, the industry outlook, cash flows from dividends, stock market performance, volatility and liquidity. The share price of BAT has increased significantly from around GBP 17.00 in October 2008 to GBP 35.27 at 31 March 2013, largely driving the growth in Reinets NAV over that period.
During the financial year ended 31 March 2012, Reinet entered into a GBP 300 million medium-term financing facility, pledging 13.7 million BAT shares as security in respect of the financing. The 13.7 million BAT shares are subject to call options held by the lending bank. These call options have strike prices at levels between GBP 37.56 and GBP 38.16. Reinet has put options over the shares, albeit at strike prices significantly below current market levels. During November and December 2012, 5 million BAT shares were sold through the market in order to fund Reinets continuing investment and diversification programme. The shares were sold at an average price of GBP 32.50; the sales proceeds totalling some EUR 201 million.
At 31 March 2013, Reinet held some 79.3 million shares in BAT, representing 4.1 per cent of BATs issued share capital. The value of the investment in BAT in the balance sheet of Reinet was EUR 3 317 million, being 82.5 per cent of Reinets NAV. The BAT share price on the London Stock Exchange increased over the year under review from GBP 31.51 to GBP 35.27.
Subsequent to the end of the financial year and up to the date of this report, Reinet has sold a further 5 million BAT shares at an average price of GBP 35.88 per share. Aggregate proceeds of this share sale programme amounted to some EUR 212 million. These funds will be utilised to meet Reinets commitments to fund new and existing investment opportunities.
Reinet received dividends from BAT during the year amounting to EUR 136 million (GBP 110 million), being BATs final 2011 dividend and its 2012 interim dividend. In May 2013, after the end of the financial year, Reinet received BATs final dividend in respect of its 2012 financial year; this amounted to GBP 73 million.
Further information on BAT is available at www.bat.com.
UNLISTED INVESTMENTS
Reinet seeks, through a range of investment structures, to build partnerships with other investors, specialised fund managers and entrepreneurs to find and develop opportunities for long-term value creation for its shareholders. In evaluating these opportunities, Reinet applies a minimum hurdle rate of return, taking into account the performance of the investment in BAT.
In addition to investments funded since its formation, Reinet is committed to provide funding of EUR 763 million over the lives of its current investments. Details of the funding commitments outstanding at 31 March 2013 are given in the table on page 13 of this report. The increase in commitments during the year under review amounts to EUR 770 million.
Unlisted investments are carried at their estimated fair value. In determining fair value, Reinet Fund Manager S.A. (the Fund Manager) relies on audited financial statements of investee companies, management reporting and, where appropriate, valuations provided by third-party experts. Valuations are based on the net asset value of investment funds, discounted cash flow models and the use of comparable valuation multiples for other entities.
The table above shows the value of the 100 per cent investment in Trilantic Capital Partners and United States land development and mortgages. In each case, Reinet co-invests with minority parties. Amounts attributable to minority parties are shown in the table either as 'funding by minority partners' or 'minority interests'.
Funding commitments are entered into in various currencies including pounds sterling, US dollars and South African rand and are converted into euro below using 31 March 2013 exchange rates.
PRIVATE EQUITY AND RELATED PARTNERSHIPS
Where Reinet invests in funds managed by third parties its philosophy is to partner with the managers of such funds and to share in fees generated by funds under management. This is the case with funds managed by Trilantic, 36 South, Milestone, Prescient, Renshaw and Vanterra. Under the terms of the Investment Advisory Agreement, Reinet pays no management fee to Reinet Investment Advisors Limited on such investments except in the case where no fee or a reduced fee below one per cent is paid to the third party manager. In such cases, the aggregate fee payable to RIAL and the third party manager is capped at one per cent.
Trilantic Capital Partners - Fund IV
Original commitment: EUR 167 million (including commitment in respect of an additional interest acquired from a minority partner during the year)
Trilantic Capital Partners (Trilantic) is a global private equity firm focused on controlling and significant minority interest investments in North America and Europe. Trilantic employs flexible transaction structures and has a strong record of partnering with family-owned businesses and providing growth capital to management teams. Current investments held in the Fund IV portfolio in the United States include interests in hospital supplies services; natural gas and oil exploration; aggregates extraction and distribution; sports and casual accessories, soft goods and electronics; electricity transmission component manufacture and supply; and outdoor and fitness accessories. In Europe, Fund IV has interests in gaming machines and video-lotteries; events management; publishing; commodities broking; mobile telephony and high-speed rail equipment manufacture and maintenance.
Reinet bought an interest in the Trilantic Capital Partners management companies (Trilantic Management), in conjunction with the management team, from the Lehman Brothers bankruptcy estate for EUR 8 million in 2009.
At that time, Reinet also committed to invest in two funds managed by Trilantic Management, Trilantic Capital Partners Fund IV Global L.P., which invests primarily in the United States, and Trilantic Capital Partners Fund IV (Europe) L.P. (together Fund IV). A holding company was established to hold the investment in Trilantic Management and Fund IV. Reinet acquired an 80 per cent interest in this holding company with two partners holding the balance and sharing in the investment commitments. During the year under review Reinet repurchased a 10 per cent interest in the holding company from one of its partners, bringing its ownership to 90 per cent and increasing its remaining commitment by 12.5 per cent.
The investment in Trilantic Management provides that Reinet and its partner will not pay any management fees or carried interest cost on substantially all of the investments in funds under Trilantic management. In addition, the agreement provides for Reinet and its partner to receive a share of the carried interest payable to Trilantic Management on the realisation of investments held in the funds, once a hurdle rate has been achieved. This applies to the existing funds and to any future funds to be launched by Trilantic. Reinets share of any carried interest earned by Trilantic Management is 11.25 per cent.
As at 31 March 2013, Reinet and its partner have invested the equivalent of EUR 113 million (31 March 2012: EUR 109 million), net of capital repayments, in Trilantic Management and Fund IV. Significant capital repayments were received during the year under review, as Fund IV began the process of realising investments.
The investment is carried at the estimated fair value of EUR 163 million at 31 March 2013 (31 March 2012: EUR 149 million). The investment in Fund IV is based on audited valuation data provided by Trilantic Management as at 31 December 2012. The increase in the valuation is due to increases in unrealised gains on underlying investments together with the strengthening of the US dollar against the euro during the year. Of the EUR 163 million carrying value, some EUR 147 million is attributable to Reinet, with the balance being attributable to its minority partner.
During the year under review, Reinet and its partner earned net carried interest of EUR 6 million and realised gains of EUR 42 million, before tax, on their share of the investments realised by Fund IV. Of these amounts, in aggregate, EUR 43 million was attributable to Reinet and EUR 5 million to the minority partner. Total cash proceeds received from Fund IV during the year, being gains, carried interest and repayments of capital, amounted to EUR 79 million.
At 31 March 2013, Reinet had remaining commitments of EUR 41 million to invest in Fund IV.
Trilantic Capital Partners - Fund V
Original commitment: EUR 80 million
In May 2012, Reinet approved a commitment of some EUR 78 million to Trilantic Capital Partners V (North America) L.P. (Fund V) together with a commitment of some EUR 2 million to Fund Vs general partner. Fund V will invest principally in North America. Reinet may increase its commitment up to 10 per cent of aggregate investors commitments to Fund V. Fund V should complete its fundraising activities in the coming months and will thereafter roll-out its investment activities in line with the philosophy applied to earlier funds.
Under the terms of the original strategic agreement, no management fee or carried interest will be payable to Trilantic Management in respect of the funds to be invested in Fund V. Reinet will also be entitled to receive a share of any carried interest earned by Trilantic Management on the investments held through Fund V.
In April 2013, Reinet made an initial investment of EUR 6 million in Fund V.
Further information on Trilantic is available at www.trilanticpartners.com.
Renshaw Bay and related investments
Renshaw Bay advisory and investment management entity
Original commitment: EUR 16 million (including additional interest acquired during the year)
Reinet has co-invested with Mr William T. Winters and RIT Capital Partners plc in an investment advisory and management business, known as Renshaw Bay. Renshaw Bay is focused on investment opportunities resulting from dislocations and structural changes in capital markets. The business is managed by Mr Winters, a former Co-Chief Executive Officer of JP Morgan Investment Bank.
Initially, Reinet held 25.01 per cent of the business alongside Mr Winters, who held 50 per cent, and RIT Capital Partners, which held 24.99 per cent. During the year under review, Reinet purchased an additional 7.7 per cent of the business from RIT Capital Partners to bring its total holding to 32.7 per cent and reduce RIT Capital Partners stake to 17.3 per cent. Mr Winters and senior management hold 50 per cent of the entity.
Reinet has invested EUR 14 million to date in Renshaw Bay (31 March 2012: EUR 3 million). The investment is carried at the estimated fair value of EUR 14 million at 31 March 2013 (31 March 2012: EUR 4 million). The current carrying value is based on a recent independent valuation of Renshaw Bay.
At 31 March 2013, Reinet had remaining commitments of EUR 2 million to invest in Renshaw Bay; this amount was invested in April 2013.
To date, Reinet has also invested in the JPS Credit Opportunities Fund and the Renshaw Bay Real Estate Finance Fund, both opportunities identified and developed by Renshaw Bay.
JPS Credit Opportunities Fund (Cayman) Ltd. (JPS Credit Fund)
Original commitment: EUR 55 million
The investment in JPS Credit Fund, which was the first transaction introduced to Reinet by Renshaw Bay, focuses on liquid opportunities in the credit markets. JPS Credit Fund is managed by JP Morgan Asset Management.
JPS Credit Funds investment objective is to achieve attractive risk-adjusted returns through both capital appreciation and current income by taking positions in publicly traded and privately held securities, derivatives and other instruments (including bonds, credit default swaps and index options), primarily in credit and credit-related markets.
Reinet invested its full commitment to JPS Credit Fund during the year ended 31 March 2012. The investment is carried at the estimated fair value of EUR 61 million at 31 March 2013 (31 March 2012: EUR 54 million) based on the valuation at that date provided by the fund manager.
Renshaw Bay Real Estate Finance Fund
Original commitment: EUR 119 million
In November 2012, Reinet committed to invest EUR 119 million in this fund.
The Renshaw Bay Real Estate Finance Fund was created to take advantage of opportunities resulting from a funding gap between the expected demand for commercial real estate finance and its availability from banks, other traditional lenders and equity investors.
Reinets investment to date of EUR 1 million has been largely absorbed by the costs incurred in setting up the fund. Consequently, the fair value at 31 March 2013 is considered to be nil. Reinet is committed to invest a further EUR 118 million in the fund. Of this commitment, EUR 8 million was invested in April 2013.
Further information on Renshaw Bay may be found at www.renshawbay.com.
36 South global macro/volatility funds
Original commitment: EUR 88 million
36 South is an absolute return fund manager that specialises in managing global macro/volatility funds. The fund management philosophy is to invest when market estimates of volatility are mis-priced. The volatility may apply to a wide range of underlying asset classes ranging from currencies and interest rates to equities. 36 Souths strategies are designed to perform well in most market environments, but substantially outperform in periods of extreme market movement and volatility.
Reinet has co-invested with the 36 South management team in the fund management and distribution companies. Reinet is also an investor in the 36 South funds. The funds are established through an Irish-registered investment fund 36 South Funds plc.
During the year ended 31 March 2012, Reinets EUR 88 million commitment to 36 South was invested in full. Of this, EUR 15 million represented its initial investment in and loans to the jointly-held fund management companies; EUR 3 million of the loan has been repaid to date.
The balance of EUR 73 million is Reinets investment in the 36 South Funds plc. This investment is carried at its estimated fair value of EUR 71 million based on unaudited capital statements received from the fund manager as at 31 March 2013 (31 March 2012: EUR 78 million), together with the fair value of the short-term loan of EUR 12 million (31 March 2012: EUR 12 million), for a total of EUR 83 million (31 March 2012: EUR 90 million). The change in valuation reflects the movement in the value of the underlying funds.
Further information on 36 South may be found at www.36south.com.
Asian private equity and portfolio funds
Milestone China Opportunities Funds (Milestone), co-investments and management company participation
Original commitment: EUR 13 million (Milestone II), EUR 78 million (Milestone III) and EUR 54 million (Co-investments and management companies)
The Milestone China Opportunities Fund II L.P. (Milestone II) and Fund III L.P. (Milestone III) invest primarily in domestic Chinese high-growth companies seeking expansion or acquisition capital. Milestone funds seek to maximise medium to long-term capital appreciation by making direct investments to acquire minority or majority equity stakes in those companies identified by Milestones investment team. Milestone has a strong track record in helping portfolio companies list on either domestic or foreign stock exchanges. Current areas of investment include: restaurants; B2B and B2C online travel services; bio-technology; branded sportswear; online group buying services; power generation equipment; fashion retailing; and retail pharmacies.
Reinet has a participation in Milestone II, which it assumed from Richemont when Reinet was formed in 2008. At 31 March 2013, this investment is estimated to have a fair value of EUR 6 million based on unaudited capital statements received from the fund manager as at 31 December 2012 (31 March 2012: EUR 10 million). The fund is at a mature stage and assets are being realised over the remaining life of the fund. Reinets remaining commitment to Milestone Fund II is EUR 2 million.
In June 2011, Reinet entered into an agreement to invest in Milestone III and its general partner, and to co-invest, at its option, in certain of Milestone IIIs proposed investments.
As at 31 March 2013, capital contributions of EUR 22 million had been made to Milestone III (31 March 2012: EUR 3 million). The investment in the fund together with the co-investment are carried at the estimated fair value of EUR 20 million at 31 March 2013 based on a recent independent valuation (31 March 2012: EUR 16 million).
Reinet has also invested EUR 7 million in the general partner of Milestone III. The investment is carried at managements estimated fair value of EUR 7 million at 31 March 2013 taking into account the cost of the investment made in late 2011 and the performance since that date (31 March 2012: EUR 7 million).
During the year, Reinet invested EUR 28 million in a long-term investment vehicle in partnership with certain of the Milestone general partner principals and other partners, including Remgro Limited. This vehicle will co-invest in opportunities identified by Milestone and forms part of the co-investment commitment. The investment is carried at the estimated fair value of EUR 28 million at 31 March 2013 based on the unaudited financial statements at that date.
The investments in Milestone III, its general partner and co-investments are carried at a total estimated fair value of EUR 55 million as at 31 March 2013, (31 March 2012: EUR 10 million).
At 31 March 2013, Reinets remaining commitment to Milestone Fund III and co-investment opportunities is EUR 61 million.
Further information in respect of the Milestone Funds can be found at www.mcmchina.com.
General Enterprise Management Services International Limited (GEMS)
Original commitment: no Reinet commitment; investment assumed from Richemont and fully funded at that time
Based in Hong Kong, GEMS operates investment funds focused on the natural resources sector and on growth opportunities. GEMS principal objective is to achieve medium to long-term capital appreciation by investing in a diversified portfolio of equity or equity-linked investments in Asia. GEMS growth funds have made investments in a variety of industries including financial services, consumer/retail, telecommunications, and electronics.
At the time of its formation in 2008, Reinet assumed the investments in the GEMS II and GEMS III funds that had been made by Richemont. Both funds were fully funded by Richemont and no further investment or commitment has been made by Reinet. Both GEMS II and GEMS III are now in the divestment stage and it is expected that Reinet will realise the value of the remainder of its investments in these funds in due course. At 31 March 2013, the aggregate investment in the GEMS funds is carried at the estimated fair value of EUR 8 million based on a recent independent valuation (31 March 2012: EUR 11 million).
Further information on GEMS can be found at www.gems.com.hk.
Prescient China Balanced Fund (Prescient China)
Original commitment: EUR 25 million
Prescient China is a fund managed by a subsidiary of Prescient Holdings Limited, a South African-listed fund manager. The newly-launched fund invests in equities, bonds, cash and derivatives with the objective of generating inflation-beating returns at acceptable risk levels. It invests principally in equities and other instruments listed on the Shanghai and Shenzhen Stock Exchanges.
In March 2013, Reinet committed to invest EUR 23 million in Prescient China and EUR 2 million in its management company. Reinet invested its full capital commitment of EUR 23 million in the fund in March 2013. This investment is carried at the estimated fair value of EUR 23 million based on unaudited valuation statements provided by the fund manager at 31 March 2013. Reinets commitment to invest EUR 2 million in the management company structure remained uncalled at 31 March 2013.
Further information on Prescient may be found at www.prescient.co.za.
SPECIALISED PRIVATE EQUITY FUNDS
Vanterra Flex Investments L.P. (Vanterra)
Original commitment: EUR 78 million
Vanterra was established in March 2010 to invest in listed and unlisted funds and to make direct investments in the United States and emerging markets. Vanterra seeks to construct a globally diversified private equity portfolio providing investors with long-term capital appreciation. Vanterra has co-invested alongside Reinet in Trilantic, in the United States land development and mortgages and in Vanterra C Change Transformative Energy & Materials I, L.P. In addition, Vanterra has investments in US healthcare and in a specialist fund in Brazil. During the year under review, Vanterra also co-invested with Trilantic Fund IV Europe in a Spanish high-speed train manufacturer.
Reinet is an investor in both Vanterra and in its general partner.
As at 31 March 2013, EUR 43 million of committed funds (31 March 2012: EUR 28 million), together with EUR 3 million in respect of expenses (31 March 2012: EUR 2 million) had been invested in the fund. This investment is carried at the estimated fair value of EUR 47 million at 31 March 2013 (31 March 2012: EUR 29 million), based on unaudited financial information as at 31 December 2012.
Reinet is committed to invest a further EUR 35 million in Vanterra.
Vanterra C Change Transformative Energy & Materials I, L.P. (Vanterra C Change TEM)
Original commitment: EUR 51 million
Vanterra C Change TEM was established in July 2010 to invest in companies and projects providing products or services that supply cleaner energy; create a more cost-effective building environment through the use of energy efficient technologies; and develop renewable resources as a substitute for fossil and other traditional fuels.
Reinet is an investor in Vanterra C Change TEM and in its general partner.
As at 31 March 2013, capital contributions of EUR 41 million had been made to the fund (31 March 2012: EUR 27 million). This investment is carried at the estimated fair value of EUR 37 million (31 March 2012: EUR 24 million), based on unaudited financial information as at 31 December 2012.
Reinet is committed to invest a further EUR 10 million in Vanterra C Change TEM. Of this, a further EUR 1 million was invested in April 2013.
Further information on Vanterra may be found at www.vanterra.com.
NanoDimension funds and co-investment opportunities
Original commitment: EUR 47 million
NanoDimension Management Limited has established two funds in which Reinet is an investor. The focus of each fund is to invest in and support the growth and commercialisation of nanotechnology, the manipulation of matter at an atomic and molecular level. Areas of investment by the funds include: pharmaceuticals and drug delivery structures; optical and electronic switches; and thin film photo-chromatic coatings.
Reinet assumed Richemonts initial investment in the first NanoDimension fund and its commitments to that fund and in May 2012 committed a further EUR 42 million to invest in the second NanoDimension Fund and to co-invest with the fund in one specific project.
At 31 March 2013, the fair value of Reinets investment in the two funds and the co-investment amounted to EUR 25 million (31 March 2012: EUR 4 million). The estimate of fair value is based on valuation statements received from the fund manager as at 31 December 2012 together with an independent valuation of the co-investment. Reinets remaining commitments to the funds amounted to EUR 19 million at 31 March 2013.
Further information on NanoDimension may be found at www.nanodimension.com.
Fountainhead Expert Fund
Original commitment: EUR 16 million
Fountainhead Expert Fund (Fountainhead) is a newly created absolute return fund investing in a concentrated manner in global equities offering superior potential for capital appreciation and value realisation.
In February 2012, Reinet invested EUR 16 million in Fountainhead. The amount invested represents Reinets full commitment to the fund.
As at 31 March 2013, the fair value of the investment was EUR 21 million (31 March 2012: EUR 16 million), based on the valuation at that date provided by the fund manager.
Further information on Fountainhead may be found at www.fountainheadpartners.co.za.
Other fund investments
This includes small, specialist funds investing in private equity businesses, start-up ventures and listed securities. These investments are valued at their fair value of EUR 6 million at 31 March 2013 (31 March 2012: EUR 6 million), based on valuation statements received from the fund managers.
Pension Corporation Group Limited
Original commitment: EUR 475 million
Pension Corporation Group Limiteds wholly-owned subsidiary, Pension Insurance Corporation is one of the UKs leading providers of risk management solutions to defined benefit pension funds. Pension Insurance Corporation is authorised and regulated as an insurance company by the Prudential Regulation Authority in the United Kingdom. It has in excess of GBP 6 billion in assets and has insured almost 60 000 pension fund members. Clients include FTSE 100 companies, multinationals and the public sector.
In October 2012, Reinet invested an initial EUR 119 million in Pension Corporation Group Limited. The initial investment represents a 16 per cent ordinary shareholding in Pension Corporation Group Limited, a newly-established group holding company. Reinet is committed to invest a further EUR 356 million in one or several tranches to finance new business over the period to 2017. This will lead to Reinet ultimately having an equity position of 43 per cent in the company. Reinets shareholding in Pension Corporation Group Limited carries at all times voting rights commensurate with its ultimate 43 per cent shareholding.
The investment is carried at an estimated fair value of EUR 134 million at 31 March 2013 based on Reinets internal valuation model, taking into account the embedded value at 31 December 2012 and multiples drawn from industry data.
In accordance with its commitment, Reinet invested a further EUR 59 million in Pension Corporation Group Limited in April 2013, bringing its equity holding to 22 per cent.
Further information in respect of Pension Corporation is available at www.pensioncorporation.com.
United States Land Development and Mortgages
Original commitment: EUR 78 million
Reinet has co-invested with partners to acquire interests in real estate development projects, usually properties where infrastructure services have been laid but where construction of properties has not yet commenced. It has also invested in mortgage debt on such developments and in specific properties. The investments are principally in Florida, Colorado and North and South Carolina.
At 31 March 2013, Reinet had invested its total commitment of EUR 78 million in these projects (31 March 2012: EUR 68 million). The investment is carried at the estimated fair value of EUR 105 million (31 March 2012: EUR 95 million) of which EUR 88 million is attributable to Reinet and EUR 17 million to its partners.
The current valuation is based on independent valuations of underlying assets as at 31 December 2012. The increase in the valuation reflects the strengthening of the US dollar against the euro during the year. There are initial signs of strengthening in the US property market generally, although it is too soon to consider any large-scale realisation of these assets for the time being.
Reinet has no further commitment to invest in these investments as of 31 March 2013.
Jagersfontein and Other Diamond Exploration Interests
Project cost: EUR 104 million
Reinet is an investor in an entity which extracts diamonds from the waste tailings of mining operations which began over a century ago. The tailings are located at Jagersfontein in South Africa. Developments in terms of gemstone extraction technology since the mines were first excavated mean that there is now the potential to recover stones which were previously treated as waste.
As anticipated at the time of making the investment, Reinet has entered into agreements to sell a substantial part of its equity holdings in this project to third parties. The sales were completed during the year under review, resulting in Reinet reducing its effective interest in the Jagersfontein project to 48 per cent. Other shareholders include a local community Black Economic Empowerment (BEE) organisation and the parties who are responsible for the day-to-day operations. Reinet has provided loans to the BEE partner and other partners to allow them to acquire their equity interests in the project. The loans will be repaid out of cash flow from the project.
Reinet has also invested in a separate project, which is in the process of acquiring rights to source diamonds on an as yet unexploited site near Kimberley in South Africa.
As with the Jagersfontein investment, at the time of making the investment, it was anticipated that Reinet would enter into agreements to sell a substantial part of its equity holdings in this project to third parties, including local BEE interests. These agreements are subject to regulatory approvals being obtained and conditions precedent being met. Upon finalisation of the regulatory issues and completion of the anticipated equity sales, Reinet will have an equity interest of 49 per cent in this project.
As at 31 March 2013, Reinet held equity interests of EUR 22 million (31 March 2012: EUR 26 million) in the above investments and had provided loans of EUR 60 million (31 March 2012: EUR 48 million). In addition, EUR 7 million is receivable from third parties in respect of sales of part of the equity investments and Reinet has accrued income of EUR 13 million (31 March 2012: EUR 8 million) in respect of the funding that it has provided in connection with the projects to date.
In aggregate, these investments are carried at their estimated fair value of EUR 102 million at 31 March 2013 (31 March 2012: EUR 82 million). The current valuations are based on discounted cash flow analyses prepared by local management in each case. Reinet increased its commitment by EUR 13 million during the year and as at 31 March 2013 is committed to invest a further EUR 22 million in these projects.
The exposure to the South African rand has been substantially hedged by borrowings in that currency and through forward exchange contracts.
OTHER INVESTMENTS
This portfolio includes small businesses with significant growth potential as well as interests in businesses which require assistance in restructuring their activities before value can be realised. Also included is one small position in a listed security. These assets are valued at their aggregate fair value of EUR 30 million at 31 March 2013 (31 March 2012: EUR 23 million), based on an analysis of each of the investments.
Committed Funds
The table below summarises Reinets outstanding investment commitments as at 31 March 2013.
+----------------------+-----------------+-------------+----------------+
| | As at 31|Exchange rate| Commitments in |
| | March 2012(1)| effects(2)| year |
| | EURm| EURm| EURm |
+----------------------+-----------------+-------------+----------------+
| | | | |
+----------------------+-----------------+-------------+----------------+
|Private equity and | | | |
|related partnerships | | | |
+----------------------+-----------------+-------------+----------------+
|Trilantic Capital | 62| 1| 87|
|Partners(3) | | | |
+----------------------+-----------------+-------------+----------------+
|Renshaw Bay and | | | |
|related investments | | | |
+----------------------+-----------------+-------------+----------------+
|Renshaw Bay | 9| -| 4|
|advisory and | | | |
|investment management | | | |
|company | | | |
+----------------------+-----------------+-------------+----------------+
|JPS Credit | -| -| -|
|Opportunities Fund | | | |
+----------------------+-----------------+-------------+----------------+
|Renshaw Bay Real | -| -| 119|
|Estate Finance Fund | | | |
+----------------------+-----------------+-------------+----------------+
|Asian private equity | | | |
|and portfolio funds | | | |
+----------------------+-----------------+-------------+----------------+
|Milestone China | 105| 3| -|
|Opportunities funds | | | |
|co-investment and | | | |
|related opportunities | | | |
+----------------------+-----------------+-------------+----------------+
|GEMS | -| -| -|
+----------------------+-----------------+-------------+----------------+
|Prescient China | -| -| 25|
|Balanced Fund | | | |
+----------------------+-----------------+-------------+----------------+
|Specialised private | | | |
|equity funds | | | |
+----------------------+-----------------+-------------+----------------+
|Vanterra Flex | 47| 2| |
|Investments | | | |
+----------------------+-----------------+-------------+----------------+
|Vanterra C Change TEM | 23| 1| -|
+----------------------+-----------------+-------------+----------------+
|Nano Dimension funds | 2| -| 42|
|and co-investments | | | |
|opportunities | | | |
+----------------------+-----------------+-------------+----------------+
|Other fund investments| 6| -| -|
+----------------------+-----------------+-------------+----------------+
|Pension Corporation | -| -| 475|
+----------------------+-----------------+-------------+----------------+
|US land development | 7| -| -|
|and mortgages | | | |
+----------------------+-----------------+-------------+----------------+
|Jagersfontein and | 32| (3)| 13|
|other diamond | | | |
|exploration interests | | | |
+----------------------+-----------------+-------------+----------------+
|Other investments | 25| -| 5|
+----------------------+-----------------+-------------+----------------+
| | 318| 4| 770|
+----------------------+-----------------+-------------+----------------+
(1) Commitments are calculated using 31 March 2012 exchange rates.
(2) Reflects exchange rate movements between 31 March 2012 and 31 March 2013.
(3) The new commitment reflects the 10 per cent interest related to the purchase of shares from a minority partner during the year together with the commitment to invest in Fund V.
+----------------------+---------+-------------+---------------------+
| | Funded| As at 31| As at 31 March 2013|
| | EURm| March 2013| %|
| | | EURm| |
+----------------------+---------+-------------+---------------------+
| | | | |
+----------------------+---------+-------------+---------------------+
|Private equity and | | | |
|related partnerships | | | |
+----------------------+---------+-------------+---------------------+
|Trilantic Capital | (29)| 121| 15.9|
|Partners(3) | | | |
+----------------------+---------+-------------+---------------------+
|Renshaw Bay and | | | |
|related investments | | | |
+----------------------+---------+-------------+---------------------+
|Renshaw Bay | (11)| 2| 0.2|
|advisory and | | | |
|investment management | | | |
|company | | | |
+----------------------+---------+-------------+---------------------+
|JPS Credit | -| -| -|
|Opportunities Fund | | | |
+----------------------+---------+-------------+---------------------+
|Renshaw Bay Real | (1)| 118| 15.5|
|Estate Finance Fund | | | |
+----------------------+---------+-------------+---------------------+
|Asian private equity | | | |
|and portfolio funds | | | |
+----------------------+---------+-------------+---------------------+
|Milestone China | (45)| 63| 8.3|
|Opportunities funds | | | |
|co-investment and | | | |
|related opportunities | | | |
+----------------------+---------+-------------+---------------------+
|GEMS | -| -| -|
+----------------------+---------+-------------+---------------------+
|Prescient China | (23)| 2| 0.2|
|Balanced Fund | | | |
+----------------------+---------+-------------+---------------------+
|Specialised private | | | |
|equity funds | | | |
+----------------------+---------+-------------+---------------------+
|Vanterra Flex | (14)| 35| 4.6|
|Investments | | | |
+----------------------+---------+-------------+---------------------+
|Vanterra C Change TEM | (14)| 10| 1.3|
+----------------------+---------+-------------+---------------------+
|Nano Dimension funds | (25)| 19| 2.5|
|and co-investments | | | |
|opportunities | | | |
+----------------------+---------+-------------+---------------------+
|Other fund investments| (2)| 4| 0.5|
+----------------------+---------+-------------+---------------------+
|Pension Corporation | (119)| 356| 46.7|
+----------------------+---------+-------------+---------------------+
|US land development | (7)| -| -|
|and mortgages | | | |
+----------------------+---------+-------------+---------------------+
|Jagersfontein and | (20)| 22| 2.9|
|other diamond | | | |
|exploration interests | | | |
+----------------------+---------+-------------+---------------------+
|Other investments | (19)| 11| 1.4|
+----------------------+---------+-------------+---------------------+
| | (329)| 763| 100.0|
+----------------------+---------+-------------+---------------------+
(1) Commitments are calculated using 31 March 2012 exchange rates.
(2) Reflects exchange rate movements between 31 March 2012 and 31 March 2013.
(3) The new commitment reflects the 10 per cent interest related to the purchase of shares from a minority partner during the year together with the commitment to invest in Fund V.
Funding commitments are entered into in various currencies including sterling, US dollars and South African rand and are converted into euros using 31 March 2013 exchange rates.
The amounts shown above are Reinets commitments to invest; where Reinet co-invests with minority partners the amounts do not include the partners commitments.
CASH AND LIQUID FUNDS
Reinet holds cash on deposit principally in European banks and in a sterling liquidity fund holding highly rated short-term commercial paper. Interest rates remain exceptionally low in respect of both euro and sterling deposits, the currencies in which the bulk of funds are held.
BANK BORROWINGS AND RELATED DERIVATIVE CONTRACTS
Borrowings
In February 2012, in order to meet its on-going commitments, Reinet entered into a GBP 300 million medium-term financing facility. At 31 March 2013, the fair value of the borrowing was EUR 356 million (31 March 2012: EUR 350 million). The transaction incorporates the purchase by Reinet of put options and the sale by Reinet of call options over 13.7 million BAT shares. The unpaid net option premium is payable over the period to 2017 and is carried as a liability at its fair value of EUR 42 million as at 31 March 2013 (31 March 2012: EUR 52 million).
Reinet has also borrowed ZAR 443 million to fund its investments in South African projects. At 31 March 2013, the fair value of the borrowing was EUR 37 million (31 March 2012: EUR 43 million).
Derivative assets / (liabilities) put and call options and forward exchange contracts
As part of the GBP 300 million financing facility, Reinet has purchased put options which provide protection should the value of the BAT shares used to secure the borrowings fall below a certain amount. Reinet has also sold call options over an equal number of BAT shares. Both the put options and the call options are carried at their respective fair values at the balance sheet date. The net derivative liability is carried at its fair value of EUR 15 million at 31 March 2013 (31 March 2012: net asset value of EUR 30 million).
Reinet has entered into forward exchange contracts to sell 600 million South African rand. The rand has weakened significantly against the euro over the course of the year under review resulting in a reduction in the fair value of rand denominated assets. Reinet has invested a total of ZAR 975 million in South African projects to date. Of this ZAR 443 million has been borrowed locally, which acts as a natural hedge. The exposure in respect of the balance of ZAR 532 million is mitigated by the use of the forward exchange contracts. The net asset in respect of the forward contracts is carried at its fair value of EUR 4 million at 31 March 2013.
OTHER LIABILITIES
Fees payable and other liabilities, net of other assets
Fees payable and other liabilities comprise principally EUR 32 million in respect of the performance fee payable as at 31 March 2013, the management fee payable and a provision for deferred taxes of EUR 19 million relating to gains arising from the investments in Trilantic Capital Partners and withholding taxes relating to the investment in US land and mortgages, together with other operating expenses currently payable. The performance fee and management fee are payable to Reinet Investment Advisors Limited.
The management fee for the year under review amounted to EUR 33 million (31 March 2012: EUR 26 million), of which EUR 15 million was payable at 31 March 2013.
Funding by minority partners
Reinet invests in certain investments, principally Trilantic Capital Partners and US land and developments, along with minority partners. As capital calls are received, minority partners fund their share by advancing funds to Reinet; as distributions are received from investees, Reinet refunds their pro-rata share to the minority partners. The purchase of 10 per cent of the investment in Trilantic Capital Partners from a minority partner in the year included the repayment of funding previously received and resulted in a reduction in the amount due to minority partners. The net amounts received of EUR 22 million, are shown as Funding by minority partners in the table on page 4.
MINORITY INTERESTS
Minority partners share in the gains and losses arising in the investments in which they have interests. To the extent that gains are not distributed to minority partners, their share of the uplift in valuation is accounted for as a liability to them.
+-----------------------------+------------------+------------------+
|SUMMARISED CONSOLIDATED | Year ended | Year ended |
|INCOME STATEMENT | | |
+-----------------------------+------------------+------------------+
| | 31 March 2013 | 31 March 2012 |
+-----------------------------+-------------+----+-------------+----+
| | EURm|EURm| EURm|EURm|
+-----------------------------+-------------+----+-------------+----+
|INCOME | | | | |
+-----------------------------+-------------+----+-------------+----+
|BAT dividends | 136| | 114| |
+-----------------------------+-------------+----+-------------+----+
|Interest and other | 12| | 11| |
|investment income | | | | |
+-----------------------------+-------------+----+-------------+----+
|Realised gains on investments| 140| | 9| |
+-----------------------------+-------------+----+-------------+----+
|Carried interest earned | 6| 294| 7| 141|
|on investments | | | | |
+-----------------------------+-------------+----+-------------+----+
| | | | | |
+-----------------------------+-------------+----+-------------+----+
|EXPENSES | | | | |
+-----------------------------+-------------+----+-------------+----+
|Performance fee | (32)| | (38)| |
+-----------------------------+-------------+----+-------------+----+
|Management fee | (33)| | (26)| |
+-----------------------------+-------------+----+-------------+----+
|Operating expenses, | (9)| | (9)| |
|foreign exchange and | | | | |
|transaction-related costs | | | | |
+-----------------------------+-------------+----+-------------+----+
|Interest expense | (12)|(86)| (4)|(77)|
+-----------------------------+-------------+----+-------------+----+
|REALISED INVESTMENT INCOME, | | 208| | 64|
|NET OF EXPENSES | | | | |
+-----------------------------+-------------+----+-------------+----+
|FAIR VALUE ADJUSTMENTS | | | | |
+-----------------------------+-------------+----+-------------+----+
|BAT | 231| | 803| |
+-----------------------------+-------------+----+-------------+----+
|Other investments | (12)| | 31| |
+-----------------------------+-------------+----+-------------+----+
|Derivative asset / liability | (45)| | (10)| |
+-----------------------------+-------------+----+-------------+----+
|Borrowings | 2| 176| 3| 827|
+-----------------------------+-------------+----+-------------+----+
| | | 384| | 891|
+-----------------------------+-------------+----+-------------+----+
|OTHER CHARGES | | | | |
+-----------------------------+-------------+----+-------------+----+
|Tax expense | | (4)| |(19)|
+-----------------------------+-------------+----+-------------+----+
|Minority interest | | (5)| | (7)|
+-----------------------------+-------------+----+-------------+----+
|Profit attributable to the | | 375| | 865|
|shareholders of the Company | | | | |
+-----------------------------+-------------+----+-------------+----+
INCOME
Dividends received from BAT increased by 20 per cent from EUR 114 million (GBP 100 million) to EUR 136 million (GBP 110 million) during the year under review. The increase is due to an increase of GBP 0.12 per share in the underlying dividends paid by BAT and a favourable sterling / euro exchange rate at the time of the dividend payments. The dividends received from BAT represent the final 2011 dividend, paid in May 2012, as well as the interim 2012 dividend paid in September 2012. The BAT final 2012 dividend was approved at the BAT AGM held on 25 April 2013 and was paid on 8 May 2013. That dividend has not been accrued at 31 March 2013 and does not form part of the income received during the year under review.
Interest income is earned on bank deposits and loans made to underlying investments.
Total realised gains of EUR 140 million include EUR 98 million in respect of the sale of 5 million BAT shares during the year. The gain was calculated by reference to the cost of the investment when the BAT shares were first carried at fair value when Reinet was established in 2008. Gains of EUR 42 million are in respect of investments realised by the Trilantic funds. Reinets share of the Trilantic gains amounts to EUR 38 million with EUR 4 million being due to the minority partners.
Carried interest of EUR 6 million was earned in respect of investments realised by the Trilantic funds. Of this, Reinets share amounts to EUR 5 million with EUR 1 million being due to the minority partners.
EXPENSES
The performance fee for the year ended 31 March 2013 amounts to EUR 32 million (31 March 2012: EUR 38 million). The performance fee is calculated as 10 per cent of the increase in the aggregate market value of Reinet Investments S.C.A. over the period since completion of the rights issue in December 2008 up to 31 March 2013, less the sum of all performance fees paid in respect of previous periods.
The management fee for the year ended 31 March 2013 amounts to EUR 33 million (31 March 2012: EUR 26 million) with other operating expenses of EUR 1 million in respect of charges from Reinet Investments Manager S.A. (the General Partner), transaction costs of EUR 5 million and other expenses, including legal and other fees, which amounted to EUR 3 million.
Interest expense relates to rand and sterling borrowings.
FAIR VALUE ADJUSTMENTS
The investment in the remaining 79 million BAT shares increased in value by EUR 317 million during the year under review. Of this, EUR 359 million was attributable to the increase in value of the underlying BAT shares in sterling terms offset by EUR 42 million due to the depreciation of sterling against the euro over the course of the year. The sale of 5 million BAT shares resulted in a reversal of the previously recorded unrealised gain of EUR 82 million at 31 March 2012.
The unrealised fair value adjustment of EUR 12 million reflects decreases, for the most part, in the value of the Milestone investments offset by the increase in the fair value of the investment in Pension Corporation.
The fair value of the collar financing derivative decreased by EUR 45 million during the year thereby changing from an asset at the beginning of the year to a liability at the end of the year, reflecting mainly the increase in the price of the BAT shares underlying the put and call options.
Borrowings are carried at fair value reflecting the discounted cash flow value of future principal and interest payments taking into account prevailing interest rates. An unrealised gain of EUR 6 million arose in respect of the rand borrowing due to the weakening of the South African rand during the year. An unrealised loss of EUR 4 million arose in respect of the sterling borrowing. Of this, a gain of EUR 5 million is due to the weakening of the sterling / euro exchange rate during the year and a loss of EUR 9 million arose due to the effect of lower interest rates used in discounting future cash flows.
OTHER CHARGES
The net tax expense of EUR 4 million includes corporate and withholding taxes paid in respect of gains realised on Trilantic investments as well as a deferred tax provision in respect of unrealised gains, expected distributions and accrued interest in respect of Trilantic and other US investments. Over provisions for taxes relating to prior periods reduced the net tax expense for the year under review.
The minority interest expense arises in respect of the minority partners shares in the earnings of the Reinet entities which hold the Trilantic and US land and development interests, respectively.
Profit attributable to shareholders of the Company for the year amounted to EUR 375 million.
+------------------------+-------------+-----+-------------+-----+
|CASH FLOW |Year ended 31| |Year ended 31| |
| |March 2013 | |March 2012 | |
+------------------------+-------------+-----+-------------+-----+
| | EUR m|EUR m| EUR m |EUR m|
+------------------------+-------------+-----+-------------+-----+
|Investing activities | | | | |
+------------------------+-------------+-----+-------------+-----+
|Proceeds from sale | 271| | 19| |
|of investments | | | | |
+------------------------+-------------+-----+-------------+-----+
|Investments made | (327)| | (256)| |
+------------------------+-------------+-----+-------------+-----+
|Proceeds from movements | 57| 1| 64|(173)|
|in government bond and | | | | |
|sterling liquidity funds| | | | |
+------------------------+-------------+-----+-------------+-----+
| | | | | |
+------------------------+-------------+-----+-------------+-----+
|Financing activities | | | | |
+------------------------+-------------+-----+-------------+-----+
|Repayment of funding | (3)| | -| |
|to minority partners | | | | |
+------------------------+-------------+-----+-------------+-----+
|Funding from | -| | 11| |
|minority partners | | | | |
+------------------------+-------------+-----+-------------+-----+
|Payment to | (15)| | -| |
|minority partner | | | | |
+------------------------+-------------+-----+-------------+-----+
|Repayment of | (10)| | -| |
|bank borrowings | | | | |
+------------------------+-------------+-----+-------------+-----+
|Proceeds from | -| (28)| 358| 369|
|bank borrowings | | | | |
+------------------------+-------------+-----+-------------+-----+
| | | | | |
+------------------------+-------------+-----+-------------+-----+
|Operating activities | | | | |
+------------------------+-------------+-----+-------------+-----+
|Dividends, interest and | 139| | 115| |
|other income received | | | | |
+------------------------+-------------+-----+-------------+-----+
|Carried interest | 6| | 7| |
|received | | | | |
+------------------------+-------------+-----+-------------+-----+
|Interest expense | (10)| | (3)| |
+------------------------+-------------+-----+-------------+-----+
|Operating and | (39)| | (32)| |
|related expenses | | | | |
+------------------------+-------------+-----+-------------+-----+
|Performance fee paid | (38)| | (86)| |
+------------------------+-------------+-----+-------------+-----+
|Taxes paid | (12)| 46| (4)| (3)|
+------------------------+-------------+-----+-------------+-----+
| | | | | |
+------------------------+-------------+-----+-------------+-----+
|Net cash inflow | | 19| | 193|
+------------------------+-------------+-----+-------------+-----+
|Opening cash position | | 249| | 53|
+------------------------+-------------+-----+-------------+-----+
|Effect of exchange rate | | (4)| | 3|
|changes on cash balances| | | | |
+------------------------+-------------+-----+-------------+-----+
|Closing cash position | | 264| | 249|
+------------------------+-------------+-----+-------------+-----+
| | | | | |
+------------------------+-------------+-----+-------------+-----+
|Liquid funds were | | | | |
|held as follows: | | | | |
+------------------------+-------------+-----+-------------+-----+
|Cash | | 264| | 249|
+------------------------+-------------+-----+-------------+-----+
|Sterling liquidity fund | | 62| | 101|
+------------------------+-------------+-----+-------------+-----+
|Government bond fund | | -| | 18|
+------------------------+-------------+-----+-------------+-----+
|Total | | 326| | 368|
+------------------------+-------------+-----+-------------+-----+
| | | | | |
+------------------------+-------------+-----+-------------+-----+
INVESTING ACTIVITIES
Proceeds from the sale of investments include EUR 201 million in respect of the sale of BAT shares and EUR 69 million realised through Trilantic.
Investments totalling EUR 327 million were made during the year, including Pension Corporation Group, US real estate related opportunities, Trilantic, Jagersfontein and other diamond exploration interests, and Milestone, Renshaw Bay and Prescient China Fund. The balance relates to other unlisted investments.
EUR 18 million was redeemed from the euro-denominated government bond fund during the year and EUR 39 million (GBP 33 million) redeemed from the sterling liquidity fund. In accordance with International Financial Reporting Standards (IFRS), these funds are shown as financial assets rather than liquid funds in the balance sheet, notwithstanding that the funds are readily realisable and short-term in nature. In addition to bank deposits of EUR 264 million, Reinet held EUR 62 million in the sterling liquidity fund at 31 March 2013. In total, available liquid funds therefore amounted to EUR 326 million at the balance sheet date.
FINANCING ACTIVITIES
Funding received in respect of 10 per cent of investments made in Trilantic and 20 per cent of investments made in US land and development, net of sales proceeds received, was repaid to the minority partners.
A payment of EUR 15 million represents the purchase of 10 per cent of the investment in Trilantic Capital Partners from a minority partner in the year.
No additional bank borrowings were incurred during the year under review (2012: EUR 358 million).
OPERATING ACTIVITIES
Dividends received from BAT increased by 20 per cent from EUR 114 million (GBP 100 million) to EUR 136 million (GBP 110 million) during the year under review. The increase is due to an increase of GBP 0.12 per share in the underlying dividends paid by BAT and a strengthening in the sterling / euro exchange rate at the time of the dividend payments. The dividends received from BAT represent the final 2011 dividend, paid in May 2012, as well as the interim 2012 dividend paid in September 2012.
Carried interest of EUR 6 million was received in respect of the investment in Trilantic.
Interest of EUR 7 million was paid in respect of the sterling loan and EUR 3 million in respect of the ZAR-denominated loan in the year.
The performance fee of EUR 38 million was paid in respect of the year ending 31 March 2012. The performance fee payable in respect of the current year will be paid in May 2013.
US taxes of EUR 12 million were paid in the year under review, this amount comprises taxes withheld by Trilantic in respect of gains and carried interest received, together with estimated taxes paid on gains and income which will be taxable in the United States.
Liquid funds increased by EUR 15 million over the year to EUR 264 million as the proceeds from the sales of BAT shares and the inflow of dividends received from BAT exceeded amounts invested in new investments together with payment of the performance fee and operating expenses.
DIVIDEND
Taking into account the continuing investment commitments of Reinet Fund, the General Partner considers it appropriate not to propose a dividend at this time.
SHARES IN ISSUE
The number of shares in issue remained unchanged during the period at 195 942 286. This figure includes 1 000 management shares held by the General Partner.
FINANCIAL STATEMENTS
The consolidated financial statement at 31 March 2013, on which this announcement is based, have been audited and approved by the Board of the General Partner on 16 May 2013 and are subject to shareholder approval at the annual general meeting to be held in September 2013. The printed Reinet Annual Report and Accounts will be available upon request from mid-July 2013.
STATUTORY INFORMATION
Primary Listing
Reinet Investments S.C.A. shares are listed on the Luxembourg Stock Exchange with the ISIN number LU0383812293. Thomson Reuters code REIT.LU and Bloomberg code REIN.LX. Reinet shares are included in the LuxX index of the principal shares traded on the Luxembourg exchange.
Secondary Listing
Reinet Investments S.C.A. South African Depository Receipts are traded on the stock exchange in Johannesburg under the ISIN number CH 0045793657. Thomson Reuters code REIJ.J and Bloomberg code REI:SJ.
Reinet Investments Manager S.A.
General Partner
For and on behalf of Reinet Investments S.C.A.
22 May 2013
Website: www.reinet.com
Reinet Investments S.C.A. is a partnership limited by shares incorporated in the Grand Duchy of Luxembourg and having its registered office at 35 boulevard Prince Henri, L-1724 Luxembourg. It is governed by the Luxembourg law on securitisation and in this capacity allows its shareholders to participate indirectly in the portfolio of assets held by its wholly-owned subsidiary Reinet Fund S.C.A. F.I.S., a specialised investment fund also incorporated in Luxembourg. Reinet Investments shares are listed on the Luxembourg Stock Exchange, its primary listing, and Reinet Investments South African Depository Receipts are listed in Johannesburg, its secondary listing.
Notes for South African editors
Acknowledging the interest in Reinets results on the part of South African investors, set out below are key figures from the results expressed in rand.
Using the closing euro/rand exchange rate prevailing as at 31 March 2013 of 11.8408, and a rate of 10.2282 as at 31 March 2012.
+----------------------------------+-------------+-------------+
| |31 March 2013|31 March 2012|
+----------------------------------+-------------+-------------+
| | | |
+----------------------------------+-------------+-------------+
|Net asset value | ZAR 47 636 m| ZAR 37 323 m|
+----------------------------------+-------------+-------------+
| | | |
+----------------------------------+-------------+-------------+
|Net asset value per ordinary share| ZAR 243.09| ZAR 190.45|
+----------------------------------+-------------+-------------+
| | | |
+----------------------------------+-------------+-------------+
Using the average euro/rand exchange rate for the year ended 31 March 2013 of 10.9566 and an average rate of 10.2374 for the year ended 31 March 2012.
+-------------------+-------------+-------------+
| |31 March 2013|31 March 2012|
+-------------------+-------------+-------------+
| | | |
+-------------------+-------------+-------------+
|Profit for the year| ZAR 4 109 m| ZAR 8 855 m|
+-------------------+-------------+-------------+
| | | |
+-------------------+-------------+-------------+
| | | |
+-------------------+-------------+-------------+
Sponsor
RAND MERCHANT BANK (a division of FirstRand Bank Limited)
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