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Prepared comments by the Chairman at RAC shareholders meeting, Newlands, 28 August 2013
RECM and Calibre Limited
(Incorporated in the Republic of South Africa)
(Registration number 2009/012403/06)
Preference share code: RACP
ISIN: ZAE000145041
(“RAC” or the “Company”)
Prepared comments by the Chairman at RAC shareholders meeting, Newlands, 28 August 2013
The first few months of the new financial year has been quite active for RECM and Calibre (RAC). We have
welcomed Jan van Niekerk to the board, restructured our shareholders and the company’s control structure
and we have fully committed our capital base to an exciting array of investments.
Let me deal with each in turn.
Jan joined RECM in April of this year as CEO. He subsequently joined the board of RAC as CFO in May of this
year. Jan brings a wealth of financial markets expertise to RAC. In the short time that he has been with us, he
has already contributed significantly to the growth of our company.
We restructured the shareholding of the ordinary shares in RAC. Both Jan and I purchased significant
additional shares in RAC to do so, for which we paid NAV, i.e. above market prices. We think we got a bargain.
The result is that 100% of the ordinary shares are held by the three executive directors of RAC, Theunis de
Bruyn, Jan van Niekerk and I. This represents a significant monetary commitment by all three of us. I would
remind you that we have no options or phantom share schemes. All shares have been purchased outright, for
cash.
Finally, since year-end, RAC has either invested, or committed to investments, which in aggregate brings us to
a position where all of the equity capital of the company has been applied. Most of our recent investments
are in businesses that are growing rapidly, where consumers want and like to buy their product, and which
need capital for growth in order to satisfy their consumers. This bodes well for future opportunities to deploy
more capital into businesses we know and like.
The following table sets out the current allocation of the company’s capital to the various investments.
Rand Invested/Committed (R mn) % of total Type of investment
145 24 Alternative gaming
100 17 Retail
90 15 Mining
75 13 Food
35 6 US Housing
150 25 Small listed companies
Allow me some time to discuss each part of our investment portfolio:
We have acquired a significant stake in the third largest LPM and bingo operator in South Africa. This
transaction is still subject to all the necessary regulatory approvals, but should close by October. The company
is growing rapidly and therefore has the opportunity to deploy capital to roll out the sites for which it has
already acquired licenses. We are proud to partner with one of the better management teams in this fast
growing sector.
Our investment into the retail sector comprises two companies: Safari & Outdoor and Dischem. S&O is a fast
growing purveyor of fine hunting and related equipment. It currently has two stores: one in Stellenbosch and
one in Pretoria, and is opening a third in Johannesburg. RAC has acquired a significant stake in this business,
and we are excited to partner with an outstanding management team. If you are interested in hunting and the
great outdoors, please make sure to visit their stores: they will have what you are looking for.
We have also acquired a minority stake in Fledge Capital, which in turn has as its only investment a minority
stake in Dischem, another fast growing consumer goods company with outstanding management.
The mining investment was initially committed to almost three years ago. It entails a JV with Transhex to
purchase a diamond mine called Namakwa, from De Beers. We are still waiting on the imminent approval of
one final suspensive condition. Once this is done, we will move full steam ahead with what promises to be a
strongly cash generative proposition. We think we have partnered with the best management team in the
diamond business, and look forward to a long and profitable relationship. We have also identified other
opportunities in the mining sector. It is a sector where capital has recently become scarce, and risk/return
ratios to those providers able to step into the breach can be attractive.
Our investment into the Food sector is through two companies (KWV and Sovereign Foods) which are slow
growing, but well managed and where the price we paid to acquire our shareholding is substantially below
what we think a reasonable intrinsic value is for the two businesses.
Last year, we invested into the US single family residential housing market. I am pleased to report that this
investment is progressing well. We initially invested into a limited partnership, at gross rental yields of over
15% in US Dollar terms. Subsequently the partnership was absorbed into a larger unlisted investment trust.
We are still carrying this investment at book value as their year-end audit is still in progress. Once we have
received audited financials we will be able to place a more realistic value on this investment.
Finally we own a portfolio of smaller listed companies. All of these were purchased at prices that we thought
were significantly below intrinsic value. Some have worked out well, other less well. Overall, the portfolio has
shown a gain of 18% since we started buying these shares. We think some of these investments will provide us
with the basis for fruitful long term partnerships.
Overall, we have committed the company’s capital to good businesses with good management teams, and we
have paid what we believe to be good prices. (As a rude indication of valuation, the average P/E on our
acquisitions is around 6)
In our annual report, we disclosed the NAV per ordinary and preference share of RAC to be R11,83. At the end
of July, after significant transactional activity (and the costs associated with it), the unaudited NAV per share
has declined marginally to R11,73. In our annual report, we estimated that the NAV was 64% of the Intrinsic
Value as at 31 March 2013. Today, we think this gap has widened even further. We believe the intrinsic value is
at a premium to NAV, and therefore a significant premium to the current share price.
I believe that the patience that we have applied in completely deploying the capital of the company, has
allowed us to create a unique portfolio of desirable assets – a portfolio of businesses that imply significant
returns on our capital. But we have only begun. We remain open for business, and keen to take calls from
people who want to do business with us.
As a significant shareholder in RAC, I am very excited about the future.
Any forward looking statements contained in this announcement have not been reviewed nor reported on by
the Company’s auditors.
Piet Viljoen
Chairman
Cape Town
28 August 2013
Sponsor
Deloitte & Touche Sponsor Services (Pty) Ltd
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