Wrap Text
Audited Abridged Results for the year ended 31 March 2014
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”)
AUDITED ABRIDGED RESULTS FOR THE YEAR ENDED 31 MARCH 2014
COMMENTARY
OVERVIEW
To my fellow shareholders of RECM and Calibre (“RAC”)We have
spent three years acquiring a portfolio of businesses that are
well run by honest and competent managers. We have primarily
focused on acquiring the right businesses at the right price. We
are just about in a position where the heavy lifting will be done
by our investee companies, which will be reflected in a higher
growth rate of our NAV per share.
Last year the Net Asset Value (NAV) of our company, for both the
ordinary and the participating preference shares, grew by 4,1% on
a per share basis. By comparison, the total return generated by
the JSE All Share Index, with dividends included, was 23,6%. We
listed in June 2010. Since then, the market has grown by 104%.
Over that same period, our NAV per share has grown by 23%. As
such, we find ourselves somewhat behind our primary goal of
outperforming the average listed company. The good news is that
we have outperformed our secondary goals: we have grown in real
terms (i.e. in excess of inflation), and we have done better than
money in the bank.
My partners and I firmly believe that the intrinsic value of RAC
is increasing at a much faster rate than the accounting NAV, and
we have put our money where our (collective) mouth is.
Between the three of us, we added significantly to our holding of
both ordinary and preference shares over the past year. In total,
we acquired 1 729 804 ordinary shares for a consideration of R23
517 077. Additionally, we bought 1 165 182 preference shares in
the open market for a consideration of R14 689 627.
None of us have ever received any free or discounted shares, and
we have no share option scheme in place. Every share we own, we
have bought with our own money. We believe this is true skin in
the game.
The fact remains, relative to the market, our accounting NAV has
underperformed. There are a number of factors at work.
Our valuation policy is conservative. Appraising the value of a
business is not a straightforward operation, and does not deliver
indisputable single point solutions. When one values a business,
you are expressing an opinion, and in my experience, one should
hold such opinions lightly.
Being an investment entity, our valuation rules are simple: if a
company we own is listed, we use the market price. If it is
unlisted, but there is an active secondary market, we will use
that price. We might not always agree with valuations derived
from observable transactions, but it is an objective, arm’s
length appraisal. Anything we might come up with is at best an
educated guess, and at worst a subjective, emotional stab in the
dark.
Accounting rules now force us to come up with exactly such a stab
as there is no secondary market for some of our privately owned
businesses. This process is called “Fair Value Accounting” and I
am convinced that it will be abandoned at some point in the
future in the wake of fraud and scandal. The incentives guarantee
it. Like teenagers at an open bar party, things will get out of
hand. Over time, we too, will have to make adjustments to the
values at which assets are carried in our accounts to comply with
IFRS. At RAC, we will account for our activities as
conservatively as we can.
As a result, the first point to remember when judging the growth
of RAC’s NAV against that of the stock market is that almost a
quarter of our NAV is still held at cost, which is our
conservative best estimate of fair value. Please refer to the
portfolio discussion further on for more detail about these
businesses.
Conversely, valuations in the stock market are today arguably
less conservative. Market valuations today are influenced by two
stories. One goes that you can’t pay a high enough price for a
good quality business that has a growing dividend stream, on
account of the low level of interest rates. The second story goes
that in a world where growth is scarce, you can’t pay enough for
growing assets. Companies involved in “Tech 2.0”, “Africa” and
“Education”, amongst other, currently fit this bill. In my
opinion, story stocks have driven market valuations significantly
above levels where there is a satisfactory margin of safety.
Therefore, the second point to remember is that the market
growth, to which our NAV growth is compared, has outstripped its
underlying fundamentals. I have no doubt this will be, in due
course, corrected – a correction which will have less effect on
the NAV of RAC.
At this point I should mention that our most significant
acquisition this year does not even appear on our balance sheet,
yet I have no doubt that it will also contribute to higher growth
going forward: in April of this year, we welcomed Jan van Niekerk
to the partnership that manages the affairs of RAC. Jan joined us
early in the financial year, and has already made huge
contributions – both at RECM, where he is the CEO, and at RAC,
where he is the CFO. Both Theunis and I are pleased to have him
aboard as our partner, and look forward to working with Jan for
many, many years to come.
THE BELOW TABLE SETS OUT THE COMPOSITION OF OUR NET ASSET VALUE:
COMPOSITION OF NAV
Share
Total % of of
invest- Fair port- earn-
ments value(1) folio ings(2)
Investment Note Rm Rm Rm Rm
Retail 3 99,8 99,8 16,0 3,6
Safari and Outdoor;
Fledge
Mining and Engineering 4 62,0 81,5 13,2 0,6
Trans Hex; ELB Group
Food and Beverage 5 76,1 82,7 13,4 7,8
KWV; Sovereign Food;
KLK Landbou
Other long-term
investments 6 56,4 76,1 12,6 11,1
The American Home;
Conduit Capital;
Excellerate Holdings
Other investments 7 61,3 55,6 9,0 (6,7)
Total investments 355,6 395,7 64,2 16,4
Cash retained for
commitments 8 180,0 29,2
Goldrush; Namakwa
Diamonds; JV with
ELB Group
Remaining cash 228,9 48,9 7,9
Total investments 584,6 624,6 101,3
Net other liabilities (8,7) (1,3)
Net asset value 615,9 100,0
NOTES:
1. As mentioned above, we have placed a fair value on all the
assets. Where possible, we used market prices. Where these
were not available, we used our own estimate of fair value.
Due to the uncertainty around valuation, in many instances
our best estimate of fair value currently does not differ
much from the price at which we made the initial acquisition.
2. These are our share of the net profits after tax of our
investee businesses. These numbers refer to the latest
reported 12-month period for each company; they have not been
audited, and some of them are derived from management
accounts or have otherwise been estimated. The earnings
numbers assume we held our investments for the full year.
3. RAC owns 27% of Safari and Outdoor, and my partner Theunis de
Bruyn is on the board. This business consists of two stores,
one in Stellenbosch and one in Pretoria. They sell hunting
and outdoor equipment. Revenue and profits have grown by over
20% for the financial year ending March. During May 2014 a
new store was opened in Rivonia, which should further enhance
their growth prospects.
We also own a minority stake in a leveraged structure called
Fledge Holdings, which in turn owns a small stake in Dischem.
Dischem is a privately owned health and beauty focused
retailer. They are currently growing rapidly, through an
expanding footprint and market share gains. We have not
included any earnings from Dischem in the table, as the debt
in the Fledge structure has first call on any earnings.
4. Recently, we acquired a stake of just less than 12% of
Transhex. As Transhex is our partner in the proposed Namakwa
transaction (see note 8), we have effectively increased our
exposure to it. We know the company well, as Theunis has been
on the board for over 5 years. In the year to March Transhex
made a small profit, after recovering from losses incurred
during the first half. Profitability is not yet where it
should be, and we expect continued improvements in future.
RAC owns 3,1% in ELB Group, a well-managed engineering
business. They dealt with the turmoil caused by the financial
crisis very well, and are now benefitting from the weak
position of many of their competitors. In their most recent
reporting period they maintained earnings and actually grew
their dividend, in a very tough environment. Theunis also
serves on their board, and has done so for almost 8 years. We
couldn’t ask for better partners, and we aim to do more
business with them – see note 8. After year-end we
(marginally) increased our stake in the business by tendering
our holding of B&W Instrumentation shares into the scheme of
arrangement whereby ELB acquired the entire shareholding of
B&W.
5. RAC owns 4,7% of KWV, which is priced at less than half its
book value – a book value which is growing, albeit slowly.
This year, KWV returned to marginal profitability, and if
management’s endeavor to improve its local and global sales
execution works, it can earn substantially more. We don’t
know if this will happen, but we have a high regard for the
management team – and if the prizes their wines are winning
are any indication, the odds favour success. Over the past
year, we have continued to add to our holding.
We also own 11,3% of Sovereign Foods, a poultry producer in
the Eastern Cape area. Management is doing a good job in
running the business efficiently and growing its product
range. Earnings are under pressure currently, but we think
that Sovereign will be a major beneficiary of the tough times
the industry is going through at present. The weaker
competitors are going out of business; the irrational,
continuous, industry capacity expansion has been stymied and
the weak rand is making imports less competitive. Over the
past year, our ownership stake has increased, both through
our own buying of shares, as well as Sovereign buying back
its shares in the open market. The poultry industry is going
through a wave of consolidation; we think Sovereign is buying
up the cheapest assets in the industry.
We have a small investment of 5,6% in KLK Landbou Bpk, an
agri-business headquartered in Upington. Their main lines of
business include meat processing, fuel sales and motor
dealerships. It is a well-run business, and profitability has
been on a tear over the past few years. Two years ago RAC
tendered an offer to purchase an influential stake in the
business. Unfortunately, we only ended up with our current
holding, and were not able to progress further. However, we
are very happy with this passive minority investment, and
look forward to further supporting the management team in
their endeavours.
6. Our other long-term investments are a diverse group. RAC owns
7% of Conduit Capital, a specialist insurance business.
Management has done a good job of underwriting risk over the
past few years. In their most recent set of financial
results, net written premium grew by 17% – always a good
indicator of future profitability, as long as the
underwriting is sound. Management is incentivized on
underwriting profitability, not premium growth or investment
income, which augurs well for future profitable growth. We
increased our holding in this company over the past year.
RAC owns 6% of Excellerate Holdings, an unlisted industrial
services company. Despite the tough economic environment,
they grew revenue by 10%, and net profits by 22%. This
management team punches way above their weight, and we can’t
wait to see what they come up with over the next few years.
We also own 1,6% of The American Homes (TAH), a single family
residential REIT, based in Atlanta, Georgia. Here, the news
is not so good. After a good 2012, the NAV of the company
suffered a modest decline last year, mainly due to poor
operational controls. While it was growing rapidly, these
deficiencies went undetected. When TAH stopped their buying
program due to higher home prices, they presented themselves
with a bang. And as is always the case with this sort of
thing, the problems are larger, take longer and cost more to
fix than one would expect. The good news is that management
appears to have appointed some good people and resolved the
issues; the company is back on a firm footing. Having said
all of that, it is becoming clear that the long-term
economics of buy to let are not all that enticing – even when
one buys homes at well below replacement cost. So far, the
investment outcome has been satisfactory, but below our high
expectations, and together with the management team we are
reviewing our options.
7. Our other investments have reduced (in number) significantly
over the past year. We completely exited from Infrasors,
Afrocentric, Trustco, Argent, Amecor, ElementOne, and
Metrofile. In some cases we made mistakes in evaluating the
economics of the business or the quality of management. In
others, the price the market offered for our stake was
irresistible. Be that as it may, this group of “mistakes” of
one form or another made us a tidy profit of almost R32mn on
an initial investment of R72mn. We would gladly make such
mistakes again and again, if they all had this outcome.
Unfortunately, they don’t. We are still part owner of 6
companies in this category and, as is always the case, we
ended up keeping the worst for last. Their valuations
relative to our book cost shows this clearly. Fortunately
after year-end we sold one (in return for ELB Group stock)
and there seem to be offers for two others on the horizon. We
will do our utmost to realize the best value we can. But we
do not have high hopes here. It is possible that the value of
these companies as a group declines further over time.
The losses this group made as a whole stems from one investee
Company, and is due to a once-off balance sheet adjustment.
After year-end, this business has filed for business
protection. Our exposure at cost was just over 3% of NAV. All
the other companies in this group traded profitably, and seem
set for further growth going forward.
8. After year-end, we closed our initial 20% investment in
Goldrush, a leading operator of bingo and limited pay-out
machines in South Africa. Our transaction has a clear and
specific agreement between management, the founder of the
business, and ourselves for RAC to further increase its stake
in Goldrush in the foreseeable future. Here, Jan represents
us on the board. The company owns 18 Bingo licenses, of which
10 are operational – mostly in Gauteng, Northwest and
Mpumulanga provinces. Much effort (and expenditure) is going
into acquiring and activating sites for the other 8 licenses.
Goldrush also own 3 LPM Route operator licenses in Gauteng,
Northwest and Limpopo provinces, which are already making a
tidy profit. Overall, net profit after tax for this business
has grown by over 100% – off a very low base – in their
current financial year.
We are fortunate enough to partner with a wonderful
management team, running a business with good economics. Our
expectations for this business are high.
Our potential investment of 27,2% in Namakwa Diamonds has
been held up for over three years now by one precedent
condition, which remained outstanding as at our financial
year-end. Over this period, the amount we have committed to
the transaction has reduced from an initial R120mn to R40mn.
The size of our interest has reduced from 34% to 27,2%. The
economics of the business remain favourable, and we couldn’t
wish for a better management team than that of Transhex to
partner with in acquiring an asset of this nature. Subsequent
to our year-end, the sale agreement has been amended and the
effective date of the transaction is now expected to be
October 2014.
During the year we entered into a joint venture agreement
with ELB Group to pursue opportunities in the mining sector,
through operating tolling businesses with modular plant
designed by ELB engineering. We have yet to enter into our
first agreement, but prospects seem encouraging. Very few
players are willing to finance infrastructure in this sector,
potentially creating good investment opportunities.
Our pipeline of potential transactions remains exciting, and we
have the capacity to invest in new projects. During the course of
the year, our shareholders approved changes to our capital
structure which allows us the flexibility to access such funding
under certain conditions.
EXTERNAL AUDIT OPINION
The external auditors, Ernst & Young Inc., have audited the
financial statements of RECM and Calibre Limited for the year
ended 31 March 2014 from which these summary financial statements
have been extracted. A copy of their unmodified audit report is
available for inspection at the Company’s registered office. Any
reference to future financial performance included in this
announcement has not been reviewed nor reported on by the
auditors.
STATEMENT OF FINANCIAL POSITION
at 31 March 2014
Restated
2014 2013
Notes R R
ASSETS
Non-current assets 525 909 430 447 802 810
Investments 4 505 987 018 447 802 810
Trade and other receivables 19 922 412 –
Current assets 105 919 966 158 221 213
Investments 4 98 631 775 152 579 425
Trade and other receivables 7 186 314 4 267 845
Current tax receivable – 1 153 402
Cash and cash equivalents 101 877 220 541
Total assets 631 829 396 606 024 023
EQUITY AND LIABILITIES
Equity 615 948 075 591 632 483
Share capital – ordinary
shareholders 50 000 000 50 000 000
Share capital – preference
shareholders 3 450 000 000 450 000 000
Reserves 55 334 324 54 169 932
Retained income 3 60 613 751 37 462 551
Liabilities
Non-current liabilities 12 424 971 13 296 442
Deferred tax 12 424 971 13 296 442
Current liabilities 3 456 350 1 095 098
Trade and other payables 1 861 639 1 095 098
Current tax payable 1 594 711 –
Total equity and liabilities 631 829 396 606 024 023
Number of shares in issue
Ordinary shares 5 000 000 5 000 000
Preference shares 45 000 000 45 000 000
Net asset value
Net asset value attributable
to ordinary shareholders 61 594 807 59 163 249
Net asset value attributable
to preference shareholders 554 353 268 532 469 234
Net asset value per ordinary
share (cents) 1 232 1 183
Net asset value per preference
share (cents) 1 232 1 183
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2014
Restated
2014 2013
R R
Revenue 19 234 657 20 773 118
Operating expenses (8 943 652) (8 070 220)
Operating profit 10 291 005 12 702 898
Other income 24 818 928 2 066 548
Impairments recycled through
profit and loss (6 143 738) –
Profit before taxation 28 966 195 14 769 446
Taxation (5 814 995) (3 128 904)
Profit for the year 23 151 200 11 640 542
Other comprehensive income:
Items that may be reclassified
subsequently to profit or loss:
Net gain on available-for-sale
financial instruments 20 106 627 30 757 099
Realised gain on sale of
available-for-sale investments
recycled to profit or loss (24 818 928) (1 520 604)
Impairment loss reclassified 6 143 738 –
Taxation related to components of
other comprehensive income (267 045) (5 457 752)
Other comprehensive income for
the year net of taxation 1 164 392 23 778 743
Total comprehensive income 24 315 592 35 419 285
Earnings and headline earnings
per share
Per share information (ordinary
and preference)
Basic and diluted earnings per
share (cents) 463 233
Headline earnings per share (cents) 159 208
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2014
Preference Ordinary
share share
capital capital
Note R R
Balance at 1 April 2012,
as previously stated – 50 000 000
Restatement 3 450 000 000 –
Balance at 1 April 2012,
restated 450 000 000 50 000 000
Profit for the year – –
Other comprehensive income – –
Balance at 31 March 2013 450 000 000 50 000 000
Profit for the year – –
Other comprehensive income – –
Balance at 31 March 2014 450 000 000 50 000 000
Fair value
adjustment
assets Total
available- share-
for-sale Retained holders'
reserve income equity
R R R
Balance at
1 April 2012,
as previously
stated 30 391 189 (24 769 869) 55 621 320
Restatement – 50 591 878 500 591 878
Balance at
1 April 2012,
restated 30 391 189 25 822 009 556 213 198
Profit for the year – 11 640 542 11 640 542
Other comprehensive
income 23 778 743 – 23 778 743
Balance at
31 March 2013 54 169 932 37 462 551 591 632 483
Profit for the year – 23 151 200 23 151 200
Other comprehensive
income 1 164 392 – 1 164 392
Balance at
31 March 2014 55 334 324 60 613 751 615 948 075
STATEMENT OF CASH FLOWS
for the year ended 31 March 2014
Restated
2014 2013
R R
Cash flows from operating activities
Cash utilised in operations (8 841 721) (7 433 156)*
Interest income 13 691 554 19 522 763 *
Dividends received 3 289 244 3 130 578
Tax paid (4 205 398) (4 671 592)
Net cash inflow from operating
activities 3 933 679 10 548 593
Cash flows from investing activities
Loans to investees (19 922 412) –
Purchase of other financial
investments (161 150 403) (130 587 179)*
Proceeds on disposal of financial
investments 177 020 472 119 557 086 *
Net cash outflow from investing
activities (4 052 343) (11 030 093)
Net movement in cash and cash
equivalents (118 664) (481 500)
Cash and cash equivalents at
beginning of the year 220 541 702 041
Cash and cash equivalents at the
end of year 101 877 220 541
* Prior year figures reclassified to show the interest movement
fully in interest income as opposed to in cash utilised in
operations as well as to show the split of investing activities
between acquisitions and proceeds on disposals. Cash utilised
in operations and interest income were previously reported as
(R4 032 330) and R17 642 540.Net cash outflows from investing
activities was previously reported as (R12 550 696).
NOTES TO THE ABRIDGED RESULTS
1. BASIS OF PREPARATION
The summary financial statements are prepared in accordance
with the requirements of the JSE Limited Listings
Requirements for abridged reports, and the requirements of
the Companies Act applicable to summary financial statements.
The Listings Requirements require abridged reports to be
prepared in accordance with the framework concepts and the
measurement and recognition requirements of International
Financial Reporting Standards (IFRS), the SAICA Financial
Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by the
Financial Reporting Standards Council, and to also, as a
minimum, contain the information required by IAS 34 Interim
Financial Reporting. The accounting policies applied in the
preparation of the financial statements, from which the
summary financial statements were derived, are in terms of
International Financial Reporting Standards and are
consistent with the accounting policies applied in the
preparation of the previous annual financial statements,
other than as more fully set out below.
IFRS 8 – Operating Segments has not been applied. Operating
decisions of the Company are not made based on Segments, but
rather by looking at each investment individually.
The summary financial statements do not contain all the
disclosures required by International Financial Reporting
Standards and the requirements of the Companies Act of South
Africa as applicable to annual financial statements. Reading
the summary financial statements, therefore, is not a
substitute for reading the audited financial statements of
RECM and Calibre Limited.
2. CHANGES IN ACCOUNTING POLICY
The Company has early adopted the exemption in IFRS 10
relating to “Investment Entities”, with a date of initial
application of 1 April 2013.
The reason the Company has early adopted the exemption in
IFRS 10, is to ensure more appropriate accounting and
disclosure for its investments where it has control or
significant influence. Consolidation of investments that have
a business unrelated to that of an Investment Entity, can
lead to confusing results and disclosures, and hence,
adoption of the exemption to consolidate will provide results
and disclosures that are more appropriate for users of the
financial statements.
As a result of the adoption of the exemption in IFRS 10
relating to “Investment Entities”, the Company is no longer
consolidating its subsidiaries, but accounting for them at
fair value under IAS 39.
The Company’s subsidiary, the RECM Institutional Worldwide
Flexible Fund (WWFF) is no longer consolidated. The RECM
Institutional Worldwide Flexible Fund is a Collective
Investment Scheme, operating in South Africa, 99,9% of which
is owned by the Company.
The fair value of the subsidiary as at 31 March 2014 is R202
361 940 (31 March 2013: R265 160 302), which is the value at
which it was held in the accounts of the Company. The impact
of not consolidating the WWFF will have no impact on the Net
Asset Value of the Company. Whereas previously, in the
consolidated Group accounts, we would have reflected all the
underlying assets and liabilities of the WWFF, we now only
show the fair value of the investment in the Company accounts
with no Group accounts being shown. The Company accounts have
always reflected the investment in the WWFF at fair value,
thus there is no need for a restatement.
3. PRIOR PERIOD RESTATEMENT OF PREFERENCE SHARES AS EQUITY
INSTRUMENTS
The Company changed its classification of the preference
shares from liability instruments to equity instruments. In
previous years the preference shares were classified as
liabilities. We now believe the substance of these shares is
that of equity rather than debt as per IAS 32.
The preference shares issued by the Company do not have a
fixed maturity, and the Company has no contractual obligation
to make any payments in relation to the preference shares. As
a result, the Company has changed its classification of the
preference shares to equity, and the directors feel that this
change allows for more appropriate disclosure for readers of
the financial statements. In terms of IAS 8 we need to
restate the prior year financial statements. Previously the
preference shares were classified as financial liabilities at
fair value through profit and loss. In the current year they
have been classified as equity instruments which are carried
at the consideration received for them. This results in fair
value gains and losses previously recorded in profit and loss
having to be reversed, impacting profit and loss, opening
retained income and the carrying value of the preference
shares.
The change in accounting policy does not affect the Net Asset
Value per share for the current or any prior years.
Refer to note 1 for further details.
The restatements are as follows:
2013
As pre-
viously
stated Restated
R R
Statement of comprehensive income
Fair value adjustment on financial
liabilities (31 877 356) –
(Loss)/profit before tax (17 107 910) 14 769 446
(Loss)/profit for the year (20 236 814) 11 640 542
Basic and diluted earnings
per share (405) 233
Headline earnings per share (435) 202
Statement of financial position
Retained income (45 006 683) 37 462 551
Preference shares – liability 532 469 234 –
Preference shares – equity – 450 000 000
2012
As pre-
viously
stated Restated
R R
Statement of comprehensive income
Fair value adjustment on financial
liabilities
(Loss)/profit before tax
(Loss)/profit for the year
Basic and diluted earnings per share
Headline earnings per share
Statement of financial position
Retained income (24 769 869) 25 822 009
Preference shares – liability 500 591 878 –
Preference shares – equity – 450 000 000
2014 2013
R R
4. INVESTMENTS
Fair value hierarchy of
available-for-sale financial assets
Level 1
Class 1 – Listed shares – Quoted 139 546 424 102 223 402
Class 2 – Unlisted shares – Quoted 33 393 135 34 319 355
172 939 559 136 542 757
Level 2
Class 3 – Unit trusts 275 624 310 315 562 953
Listed investments 72 062 485 139 522 459
Cash 203 561 825 176 040 494
Class 4 – Call accounts 25 360 823 102 038 071
300 985 133 417 601 024
Level 3
Class 5 – Unlisted
shares – Unquoted 130 694 101 46 238 454
130 694 101 46 238 454
Total available-for-sale
financial assets at fair value 604 618 793 600 382 235
Non-current assets
Available-for-sale 505 987 018 447 802 810
Current assets
Available-for-sale 98 631 775 152 579 425
Total investments 604 618 793 600 382 235
Level 3 reconciliation
Opening balance 46 238 454 280 000
Purchases 79 875 437 42 388 454
Sales – –
Gains on investments 4 580 210 3 570 000
Closing balance 130 694 101 46 238 454
Level 1
Class 1 available-for-sale financial assets are valued at the
listed price per the exchange on which they trade.
Class 2 available-for-sale financial assets are valued at the
quoted price based on the latest over the counter trades.
Level 2
Class 3 available-for-sale financial assets are valued at the
net asset value of the unit trust.
Class 4 available-for-sale financial assets are valued by
taking the following market observable data into account and
applying them to the holdings:
• credit spread of the institution at which the funds are
held
• any difference in the interest rate earned and what is
available in the market
Level 3
Class 5 available-for-sale financial assets are valued using
a number of valuation techniques based on the following
unobservable market data for each investment:
• Net profit of investee
• Equity and net debt of investee
• Return on capital
• Price/Earnings ratio
• Expected cash flows
Management uses the above information in multiple valuation
techniques as well as profitability valuation techniques by
comparing the investee information to similar type entities
in the listed market. The nature of the fair value
calculations means that fair values range greatly and are
sensitive to indirect and direct quantifiable and
unquantifiable inputs. Factors that we took into account in
all valuations include the current market conditions, the
invested market segment and interest rate certainty. The
market for these instruments often has significant barriers
to entry, making the comparison pool of similar entities very
shallow. Specifically, the retail pharmaceutical industry and
hunting equipment industry have few market entrants with
little reliable comparative data. Like all our investments,
we plan on seeing the value of the business grow over a
number of years to realise their true potential. Where we
have influence over our investee companies we plan to play an
active role in the long term strategy of the company,
ensuring that our interests are aligned.
5. EVENTS AFTER THE REPORTING DATE
On 5 May 2014, RAC Investment Holdings (Pty) Ltd, a 100 %
subsidiary of the Company, purchased 30 323 689 shares in
Goldrush Group Proprietary Limited for an amount of R41 840
626. Goldrush is a gaming group, focused largely on the Bingo
and Limited Payout Machines (LPMs) sector.
On 5 June 2014, amendments to the Sale Agreement entered into
between Emerald Panther Investments 78 (Pty) Ltd (“EPI”) and
De Beers Consolidated Mines Limited (“DBCM”) to purchase
Namaqualand Mines (“NM”) were signed. This will facilitate
the purchase by RAC of a shareholding in EPI of 27,2%. The NM
transaction has certain conditions pending, which are
expected to be met on or about 31 October 2014.
On 2 June 2014, Protech Khuthele Holdings Limited (“Protech”)
issued a notice of application for business rescue and
cautionary announcement. Shareholders were advised that
Protech would commence with voluntary business rescue.
Shareholders were further advised that Protech has received
demands for immediate repayment for project expenses incurred
which Protech is unable to pay. Protech believes there is a
reasonable prospect of rescuing the company, as the assets,
fairly valued exceed the liabilities of the company. At cost,
RAC had a 3% exposure to Protech within its portfolio of
assets.
Signed on behalf of the board
PG Viljoen JC van Niekerk
Cape Town
18 June 2014
Directors: PG Viljoen (Chairman), MVP Davis, T de Bruyn, G
Pretorius, JG Swiegers, JC van Niekerk
Company Secretary: G Simpson
Financial results preparer: Wesley Junor CA(SA)
Registered Office: 7th Floor Claremont Central, 8 Vineyard Road,
Claremont, 7700 South Africa
Transfer Secretaries: Link Market Services South Africa (Pty)
Ltd, 13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein,
2001
Sponsor: Questco (Pty) Ltd, Entrance D, 2nd Floor, The Pivot, 1
Montecasino Boulevard, Fourways, 2055
Date: 18/06/2014 03:27:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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