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Interim financial results for the six months ended 30 September 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 Group”)
Unaudited unreviewed condensed interim financial results for the six months ended 30 September 2014
Six months ended 30 Twelve months ended Restated six months
Notes September 2014 31 March 2014 ended 30 September 2013
Statement of Financial Position R R R
Assets
Non-current assets
Investments 2 516 321 461 505 987 018 474 751 015
Trade and other receivables 3 19 922 412 19 922 412 9 922 412
Loans to group companies 3 77 506 574 - -
Current assets 31 808 636 105 919 966 121 091 010
Investments 2 25 336 293 98 631 775 116 875 390
Trade and other receivables 4 864 592 7 186 314 4 203 614
Cash and cash equivalents 1 607 751 101 877 12 006
Total assets 645 559 083 631 829 396 605 764 437
Equity and liabilities
Equity
Share capital - ordinary shareholders 4 50 000 000 50 000 000 50 000 000
Share capital - preference shareholders 4 450 000 000 450 000 000 450 000 000
Reserves 5 58 627 126 55 334 324 42 744 930
Retained income 5 71 040 457 60 613 751 49 831 278
Total Equity 629 667 583 615 948 075 592 576 208
Liabilities
Non-current liabilities 13 148 075 12 424 971 10 768 832
Deferred tax 6 13 148 075 12 424 971 10 768 832
Current liabilities 2 743 425 3 456 350 2 419 397
Trade and other payables 1 042 462 1 861 639 980 843
Current tax payable 1 700 963 1 594 711 1 438 554
Total equity and liabilities 645 559 083 631 829 396 605 764 437
Net Asset Value
Net Asset Value attributable to ordinary shareholders 62 966 758 61 594 807 59 257 621
Net Asset Value attributable to preference shareholders 566 700 825 554 353 268 533 318 587
Net Asset Value per ordinary share (cents) 7 1 259 1 232 1 185
Net Asset Value per preference share (cents) 7 1 259 1 232 1 185
Six months ended 30 Twelve months ended Restated six months
Notes ended 30 September
September 2014 31 March 2014 2013
Statement of Comprehensive Income R R R
Revenue 9 923 434 19 234 657 9 384 630
Operating expenses (5 027 747) (8 943 652) (4 313 998)
Operating profit 4 895 687 10 291 005 5 070 632
Other income 7 726 232 24 818 928 10 088 978
Impairments recycled through profit and loss - (6 143 738) -
Profit before taxation 12 621 919 28 966 195 15 159 610
Taxation (2 195 213) (5 814 995) (2 790 883)
Profit after taxation 10 426 706 23 151 200 12 368 727
Other comprehensive income
Items that may be reclassified subsequently to profit or loss: 3 292 802 1 164 392 (11 425 002)
Net gain on available-for-sale financial instruments 11 774 805 20 106 627 (3 958 317)
Realised gain on sale of available-for-sale
(7 726 232)
investments recycled to profit or loss (24 818 928) (10 088 978)
Impairment loss reclassified - 6 143 738 -
Taxation related to components of other comprehensive income ( 755 771) ( 267 045) 2 622 293
Total comprehensive income 13 719 508 24 315 592 943 725
Earnings and headline earnings per share
Per share information (ordinary and preference)
Basic and diluted earnings per share (cents) 8 209 463 247
Headline and diluted headline earnings per share (cents) 8 83 159 83
Statement of Changes in Equity
Fair value
Preference Ordinary adjustment assets
Retained income Total Equity
Share capital share capital – available-for-
sale reserve
R R R R R
Balance at 31 March 2013 450 000 000 50 000 000 54 169 932 37 462 551 591 632 483
Changes in equity
Restated profit - - - 12 368 727 12 368 727
Restated other comprehensive loss - - (11 425 002) - (11 425 002)
Restated balance 30 September 2013 450 000 000 50 000 000 42 744 930 49 831 278 592 576 208
Changes in equity
Profit - - - 10 782 473 10 782 473
Other comprehensive income - - 12 589 394 - 12 589 394
Balance 31 March 2014 450 000 000 50 000 000 55 334 324 60 613 751 615 948 075
Changes in equity
Profit - - - 10 426 706 10 426 706
Other comprehensive income - - 3 292 802 - 3 292 802
Balance 30 September 2014 450 000 000 50 000 000 58 627 126 71 040 457 629 667 583
(Note 4) (Note 4) (Note 5) (Note 5)
Six months ended Twelve months Restated six
30 September 2014 ended 31 March 2014 months ended
30 September 2013
R R R
Statement of Cash Flows
Cash flows from operating activities
Cash utilised in operations (3 525 202) (8 841 721) (4 364 022)
Interest income 4 237 828 13 691 554 5 998 603
Dividends received 5 685 606 3 289 244 3 386 027
Tax paid (2 121 628) (4 205 398) (198 927)
Net cash inflow from operating activities 4 276 604 3 933 679 4 821 681
Cash flows from investing activities
Loans to investees - (19 922 412) (9 922 412)
Loans to group companies (77 506 574) - -
Purchase of other financial investments (58 289 712) (161 150 403) (114 062 233)
Proceeds on disposal of financial investments 133 025 556 177 020 472 118 954 429
Net cash outflow from investing activities (2 770 730) (4 052 343) (5 030 216)
Total cash movement for the period 1 505 874 ( 118 664) ( 208 535)
Cash at beginning of period 101 877 220 541 220 541
Total cash and cash equivalents end of period 1 607 751 101 877 12 006
Notes to the condensed interim results for the period ended 30 September 2014
Group Structure
RECM and Calibre Limited (“RAC”) was established in 2010 as a closed-end investment entity that makes long term investments, with the objective of
generating high real returns. This is achieved through the acquisition of assets where size, liquidity, regulations or complexity act as a deterrent
to most buyers. Investments can be listed or unlisted, public or private, and there are no limits as to the geographic location.
The investment infrastructure of RAC is set up to facilitate investments and funding in the most efficient manner. Investments are made either
through the RECM Institutional Worldwide Flexible Fund, through a fully owned subsidiary, RAC Investment Holdings (Pty) Ltd, ("RIH") or directly by
the holding company. RIH has been funded primarily by way of a loan from the holding company. This loan should be seen in the same vein as a level 3
investment. Similarly, since RAC is an investment entity, non-current trade and other receivables also relates to the Company's investment
activities and should be considered in the same vein. See note 3 for a further description of the loan to group companies and non-current trade and
other receivables.
1 Accounting policies - Presentation of condensed interim financial statements
Basis of accounting preparation
The accounting policies applied for the six months are consistent, in all material respects, with those used in the Annual Financial Statements of
the prior period in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS)and the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee. In addition, these interim results have been prepared in accordance with
the presentation and disclosure requirements of International Accounting Standard 34, Interim Financial Reporting, as well as the listing
requirements of the JSE and the Companies Act of South Africa.
The Company had changed its classification from the previous interim period of the preference shares from liability instruments to
equity instruments. Previously, the preference shares were classified as liabilities at fair value through profit and loss. The change
resulted in fair value gains and losses previously recorded in profit and loss having to be reversed.
The Company had also adopted the exemption in IFRS 10 relating to "Investment Entities". As a result, the Company no longer
consolidated its subsidiaries, but accounted for them at fair value under IAS 39. The impact of not consolidating had no impact on the
Net Asset Value of the Company, as the fair value of the subsidiary materially approximated the Net Asset Value of the subsidiary.
The prior period interim results have been adjusted to account for these policy changes. As a result of these changes, the September
2013 comparative figures are not comparable to the September 2013 interim results released in the prior period.
The interim results have been prepared in accordance with the IFRS and IFRIC interpretations at the time of the preparation of the information. As
these standards and interpretations are the subject of ongoing review, they may be amended between the date of this report and the finalization of
the annual financial statements for the year ending 31 March 2015.
Segmental analysis
The directors considered the implications of IFRS 8 Operating Segments and are of the opinion that the operations of the company are substantially
similar and that the risks and returns of these operations are likewise similar. Resource allocation and the management of the operations are
performed on an aggregated basis, and as such the company is considered to be a singly aggregated business and therefore there is no additional
reporting requirements in terms of IFRS 8.
Six months
Restated six months
ended 30 Twelve months ended
ended 30 September
September 31 March 2014
2013
2014
R R R
2 Investments
Fair value hierarchy of available-for-sale financial assets
Level 1
Class 1- Listed shares - Quoted 196 646 401 139 546 424 123 404 858
Class 2- Unlisted shares – Quoted 35 297 800 33 393 135 29 750 772
231 944 201 172 939 559 153 155 630
Level 2
Class 3- Unit trusts 147 322 849 275 624 310 205 955 966
Listed investments held by unit trust 71 521 437 72 062 485 84 067 785
Cash held by unit trust 75 801 412 203 561 825 121 888 181
Class 4- Call Accounts 25 326 080 25 360 823 103 901 351
172 648 929 300 985 133 309 857 317
Level 3
Class 5- Unlisted shares - Unquoted 137 064 624 130 694 101 128 613 458
137 064 624 130 694 101 128 613 458
Total available-for-sale financial assets at fair value 541 657 754 604 618 793 591 626 405
Non-current assets 516 321 461 505 987 018 474 751 015
Current assets 25 336 293 98 631 775 116 875 390
Total Investments 541 657 754 604 618 793 591 626 405
Available Cash
Cash within the Group is held both directly and indirectly on call, along with indirectly through a money market unit trust investment.
The cash holdings are reflected in Class 3 and Class 4 above and represents approximately R101 million of the total R108 million of
cash, including current trade and other receivables, which is immediately available for investment.
Level 3 reconciliation
Opening balance 130 694 101 46 238 454 46 238 454
Purchases 3 632 584 79 875 437 79 414 007
Gains on investments 2 737 939 4 580 210 2 960 997
Closing balance 137 064 624 130 694 101 128 613 458
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 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 were taken 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.
3 Loans to Group Companies
• The loan to RIH represents the initial purchase price of the Group's investment into the Goldrush Gaming Group.
The loan is unsecured, bears no interest and has no fixed terms of repayment.
• Non-current trade and other receivables represent funding to investee companies.
4 Share Capital
Authorised
5 000 000 Ordinary shares of R0.01 each 50 000 50 000 50 000
100 000 000 non-cumulative redeemable participating preference
shares of R0.01 each - - 1 000 000
200 000 000 non-cumulative redeemable participating preference
shares of no par value - - -
50 000 50 000 1 050 000
In the 2014 financial year, the authorised and non-cumulative redeemable participating preference shares were converted into
participating preference shares with no par value. At the same time, the authorised capital was increased from 100 000 000 shares to
200 000 000 shares.
250 000 000 redeemable preference shares of no par value - - -
The redeemable preference shares will have the rights and privileges, restrictions and conditions as determined by the Directors upon
issue thereof, but which are intended to rank in priority to the participating preference shares, the perpetual preference shares and
ordinary shares in respect of dividends and on winding up.
1 500 000 000 perpetual preference shares of no par value - - -
The perpetual preference shares will have the rights and privileges, restrictions and conditions as determined by the Directors upon
issue thereof, but which are intended to rank in priority to the participating preference shares and ordinary shares in respect of
dividends and on winding up.
Issued
5 000 000 Ordinary shares of R0.01 each 50 000 50 000 50 000
Share premium 49 950 000 49 950 000 49 950 000
50 000 000 50 000 000 50 000 000
45 000 000 non-cumulative redeemable participating preference
shares of R10 each 450 000 000 450 000 000 450 000 000
450 000 000 450 000 000 450 000 000
5 Reserves and Retained Income
The reserves comprise all fair value adjustments on available-for-sale financial instruments. When an asset or liability is derecognised,
the fair value adjustment relating to that asset or liability is transferred to profit or loss.
Available-for-sale financial instruments 72 074 038 68 025 468 52 480 890
Deferred tax on available-for-sale financial instruments (13 446 912) (12 691 144) (9 735 960)
Reserves 58 627 126 55 334 324 42 744 930
Retained income 71 040 457 60 613 751 49 831 278
Total Reserves and Retained Income 129 667 583 115 948 075 92 576 208
6 Deferred Tax
Recognised in other comprehensive income 13 148 075 12 424 971 10 768 832
Reconciliation of deferred tax liability
At beginning of year 12 424 971 13 296 442 13 296 442
Temporary difference on revenue receivable - profit and loss ( 32 667) (1 138 516) 94 683
Temporary difference on available-for-sale instruments adjustment
- other comprehensive income 755 771 267 045 (2 622 293)
13 148 075 12 424 971 10 768 832
7 Net Asset Value
Net Asset Value attributable to ordinary shareholders 62 966 758 61 594 807 59 257 621
Net Asset Value attributable to preference shareholders 566 700 825 554 353 268 533 318 587
Number of shares in issue
Ordinary shares 5 000 000 5 000 000 5 000 000
Preferences shares 45 000 000 45 000 000 45 000 000
Net Asset Value per ordinary share (cents) 1 259 1 232 1 185
Net Asset Value per preference share (cents) 1 259 1 232 1 185
8 Earnings and headline earnings per share
Earnings and headline earnings per shares are based on the profit attributable to
ordinary and preference shareholders in issue during the year.
Number of shares in issue
Ordinary shares 5 000 000 5 000 000 5 000 000
Preferences shares 45 000 000 45 000 000 45 000 000
Earnings
Net profit after tax 10 426 706 23 151 200 12 368 727
Adjusted to headline earnings as follows:
Profit on asset disposal (7 726 232) (24 818 928) (10 088 978)
Impairment - 6 143 738 -
Tax adjustment 1 442 302 3 486 210 1 883 370
Headline earnings 4 142 776 7 962 220 4 163 119
Basic earnings per share (cents) 209 463 247
Headline earnings per ordinary share (cents) 83 159 83
9 Events after the reporting period
The directors are not aware of any matter or circumstance arising since the end of the reporting period.
10 Dividends
No dividend has been declared.
Commentary
During the period under review, RAC's NAV per share (ordinary and preference) increased by 2.2% to R12.59. This compares to the total return of
the All Share index of 4.9%.
As at 30 September, our investments are as follows:
R mn Book Value IFRS Fair Value
Mining, Engineering 113.7 129.8
ELB Group, Transhex
Food, Beverage 76.1 103.6
KWV, Sovereign Food, KLK Landbou
Retail 103.4 103.4
Fledge (Dischem), Safari and Outdoor
Gaming 77.5 77.5
Goldrush
Other Investments 56.4 82.1
The American Home, Conduit Capital, Excellerate Holdings
Held for Sale 59.7 41.5
Cash commitments 78
Namakwa Diamonds; Goldrush
Free Cash 29.7
Liabilities -15.9
Mainly CGT provision
Net Assets 629.7
We consistently apply conservative valuations. All listed assets are held at market price, while unlisted
assets are either held at their OTC price - where one exists - or at cost. For assets where there is no visible market price, we perform a
valuation exercise and produce a range of fair values, as required by IFRS. Due to the inherent uncertainty of valuing large stakes in unlisted,
untraded assets, this range is necessarily quite wide. For most of our unlisted investments, this range includes the original
cost price. We have thus chosen to use that price as our best estimate of value.
In addition, we should point out that we explicitly take account of our provision for capital gains when calculating fair value.
We are more than happy to pay the Receiver their fair share of our gains, and account and disclose such very real reductions in net
realisable value properly.
Over the past six months, we invested an initial R77.5 million into Goldrush for a 20% stake in this leading operator of Bingo and Limited
Payout Machines in South Africa. We acquired a further 11% of Transhex for R51 million to increase our stake to 25%. We also made further
inroads into selling off our held for sale investments. The buyout offer for Kelly by Adcorp was approved, for which we should receive over
R25 million.
Transhex has announced that the transaction to acquire Namakwa Mines is expected to close on 31 October, at which time they will start mining
operations. This also means we will finally invest our commitment of just less than R40 million into Emerald Panther Investments, our JV with
Transhex, which was set up for the purposes of acquiring Namakwa Mines. Although Baken mine is running out of reserves rapidly, Namakwa and
Somiluana in Angola have the potential to be good cash generating assets for Transhex.
Goldrush continues to expand rapidly. It is rolling out its existing Bingo licenses at a good pace, and has applied for further licenses in more
provinces. It was recently awarded one of the two route operator licenses for LPM's in the Northern Cape. In the year to date, revenue
increased by 60% and profits have grown by over 700%. Goldrush is still very early in its growth cycle, and we look forward to what the future
holds for this business.
Sovereign Foods recently reported results, and is out-performing its peers handsomely. Its headline earnings grew by 49%, and cash generation
was strong. Despite this, current profitability is still well below average levels. We expect strong earnings growth from this well run
business over the next few years.
Earlier this year Safari and Outdoor opened its third store, situated in Rivonia. Growth is above expectations, and has helped S & O to grow
its revenue by just over 50% over the past year, while profits have shown a similar increase. We believe there is still room for expansion of
this strong franchise, after which it has a strong cash generating ability.
Most of our other businesses are doing well, with the exception of Protech Khuthule, which filed for bankruptcy. Its value has been written
down to zero, as we do not expect to recover anything out of liquidation. We don't mind making mistakes, as long as they are not too large, and
as long as we learn from them. The lesson here: many of the assets on the balance sheets of companies involved in the contracting industry
are not always what they seem to be. Accounting standards are of no help in this regard. This is another reason why we are, and always intend to
be; conservative in the way we apply the "fair value" principle that is so prominent in IFRS.
Two of our non-executive directors - Gerrit Pretorius and Vernon Davis - tendered their resignations during the period. We would
like to thank them for the significant contributions they made to our business, and wish them well for their future endeavors.
The process to replace them is well underway.
Our investment pipeline looks promising. These opportunities could add to our already significant cash generating potential. To execute on these,
it is possible that we need to raise more capital, specifically in the form of debt. In our view, the market price of RAC undervalues the assets
we own, and as such, this rules out using our equity to fund any new acquisitions. In addition, with interest rates at generational lows, now
is not a bad time to raise debt funding.
We would like to thank the management of our partner companies for their hard work. Furthermore, we are always on the lookout to partner with
more good companies with good management, available at good prices. If you are a seller, or if you know of such a situation, please give us
a call. If nothing else, you'll get a quick answer.
Signed on behalf of the board
PG Viljoen
Cape Town, 16 October, 2014
Directors: PG Viljoen (Chairman), MVP Davis, T de Bruyn, G Pretorius, JG Swiegers, JC van Niekerk
Company Secretary: G Simpson
Financial results preparer: W. Junor CA(SA)
Registered Office:
7th Floor
Claremont Central
8 Vineyard Road
Claremont, 7700
South Africa
Transfer Secretaries: Sponsor:
Link Market Services South Africa (Pty) Limited Questco (Pty) Ltd
13th Floor The Pivot
Rennie House 1 Montecasino Boulevard
19 Ameshoff Street Entrance D, 2nd Floor
Braamfontein, 2004 Fourways, 2055
Date: 16/10/2014 02:08:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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