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Consolidated audited financial results for the year ended 31 March 2015 and proposed dividend
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
28 MAY 2015
CONSOLIDATED AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31 MARCH 2015 AND PROPOSED DIVIDEND
The Board of Reinet Investments Manager S.A. announces the results of Reinet Investments S.C.A. for the year ended 31 March 2015.
Key financial data
* Reinet's net asset value exceeds EUR 5 billion, reflecting a compounded return of 19 per cent per annum since March 2009, including dividends paid
* Net asset value at 31 March 2015: EUR 5 077 million, an increase of EUR 962 million or 23 per cent from 31 March 2014, in part reflecting the appreciation of other currencies against the euro
* Net asset value per ordinary share at 31 March 2015: EUR 25.91 (31 March 2014: EUR 21.00)
* New investments with overall funding commitments of EUR 60 million closed during the year
* Additional investment of EUR 94 million in Pension Corporation made during the year
* Dividends received from British American Tobacco during the year amounted to EUR 133 million
* Initial dividend of EUR 30 million, or EUR 0.153 per share paid during the year
* Proposed dividend of EUR 0.157 per share payable after the 2015 AGM
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 Company's 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 Company's shares are included in the 'LuxX' index of the principal shares traded on the Luxembourg exchange. The Company and the Fund together with the Fund's subsidiaries are referred to as 'Reinet'.
Cautionary statement regarding forward-looking statements
This document contains forward-looking statements as that term is defined in the United States Private Securities Litigation Reform Act of 1995. Words such as 'may', 'should', 'estimate', 'project', 'plan', 'believe', 'expect', 'anticipate', 'intend', 'potential', 'goal', 'strategy', 'target', 'will', 'seek' and similar expressions may identify forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from the forward-looking statements as a result of a number of risks and uncertainties, many of which are outside Reinet's control. Reinet does not undertake to update, nor does it have any obligation to provide updates or to revise, any forward-looking statements. Certain information included in the Management Report is text attributed to the management of investee entities. While no facts have come to our attention that lead us to conclude that any such information is inaccurate, we have not independently verified such information and do not assume any responsibility for the accuracy or completeness of such information.
CHAIRMAN'S COMMENTARY
Dear Shareholder
Overview of results
The Company's net asset value at 31 March 2015 amounted to EUR 5 077 million, some 23 per cent above last year's figure of EUR 4 115. This reflects significant increases in value in British American Tobacco and Pension Corporation. Both of these entities performed well during the year and Reinet's net asset value also increased, in part, due to the appreciation of other currencies against the euro.
Business developments
The past year has seen further investment in our key portfolio interests, which has been achieved without any further divestment of British American Tobacco shares. Having grown the other investments, Reinet's interest in British American Tobacco represented some 70.5 per cent of the net asset value at 31 March 2015, compared to 72.8 per cent 12 months earlier. Reinet remains focused on pursuing the planned diversification of its investment portfolio and the investment in this company provides Reinet with the capacity to fund new opportunities, either through borrowing or through the realisation of part of the shareholding. We constantly analyse how best to structure Reinet's financing going forward and the current low interest rate environment offers interesting possibilities in this respect.
Key events during the year were the contribution of a further GBP 75 million to Pension Corporation, bringing Reinet's total investment in that company to GBP 400 million, in line with the commitment made when we first invested in 2013. I am pleased to say that the value of the investment has continued to grow as the additional capital, together with internally generated funds and a GBP 300 million subordinated debt offering by Pension Corporation, has allowed it to write significant new pension insurance business. We are in close contact with Pension Corporation's management and look forward to continued development of the group under its recently-appointed Deputy Chief Executive Officer, Tracy Blackwell, who will take over as CEO from John Coomber upon his retirement at the end of June 2015.
The year also saw the first significant investments in Trilantic Capital Partners Fund V, which was launched in 2013. Following from the success of Fund IV, in which Reinet initially invested, Reinet has committed a total of USD 100 million to Fund V and USD 33 million to a separate fund which will focus on investments in the energy sector. The preferential terms, which mean that Reinet pays no management fees or carried interest and shares in the carried interest generated by the funds, also apply to this new commitment. We see the continuing involvement with the highly-professional team at Trilantic as a cornerstone of Reinet's private equity interests going forward.
Follow-on investments were made during the year in a number of the unlisted investments in which Reinet has an interest, in particular in funds linked to Renshaw Bay Limited, the Milestone funds in China and our US land and property interests.
Dividend
The Board of Reinet Investments Manager S.A. proposes a dividend of EUR 0.157 per share or some EUR 31 million in total, an increase of 2.6 per cent over the initial dividend paid last year.
Changes in Board composition
The year saw a number of changes to the Board and management teams at Reinet. In September 2014, Frederick Mostert did not stand for re-election to the Board. In December 2014, Alan Grieve retired from the position of CEO of Reinet, having played a key role from its inception; he remains on the Boards of the Reinet management companies so that we continue to benefit from his expertise. Alan's role has been assumed by Wilhelm van Zyl, who joined Reinet last summer.
Ian Whitecourt resigned from the Board of Overseers with effect from 31 December 2014. We are in the process of identifying a new member for the Board of Overseers and would expect that person to be appointed at the annual meeting of shareholders to be held on 25 August 2015.
To all of those who stepped down during the year, I would like to extend my deepest thanks for their contribution to building the Company. I would also like to thank our staff and those in our investee companies for their continuing commitment over the course of the year.
Outlook
We live in strange economic times. The United States economy may be on the mend, whereas Europe's remains troubled. The European Central Bank has reduced interest rates to near zero and has begun quantitative easing just as the Federal Reserve has terminated its QE programme and contemplates interest rate increases. Switzerland has negative interest rates on bank deposits and effectively even on 10-year government bonds.
The euro remains weak against major currencies including sterling and the US dollar; while this has a positive effect on Reinet's net asset value in the current year, future movements in foreign exchange rates could have the opposite effect.
Against this background, we seek to build Reinet's portfolio on sound foundations to maintain and build value over the long term.
Johann Rupert
Chairman
Reinet Investments Manager S.A.
Luxembourg, 28 May 2015
BUSINESS REVIEW
In March 2014, the Company determined that it met the definition of an investment entity in terms of the amended International Financial Reporting Standards ('IFRS') 10. This significantly simplifies the financial information presented in the consolidated financial statements. The consolidated net asset value, the consolidated income statement and the consolidated cash flow statement presented in this business review have been presented in a more comprehensive format than required by IFRS in order to provide readers with more detailed information relating to the underlying assets and liabilities.
+---------------------------------------------------------------------+
|Consolidated Net Asset Value |
|The Consolidated Net Asset Value ('NAV') of Reinet Investments S.C.A.|
|at 31 March 2015 comprised: |
+---------------------------------------------------------------------+
| |31 March 2015| 31 March 2014|
+----------------------------------------+------+------+------+-------+
| | EUR m| %| EUR m| %|
+----------------------------------------+------+------+------+-------+
|Listed investments | | | | |
+----------------------------------------+------+------+------+-------+
|British American Tobacco p.l.c. | 3 579| 70.5| 2 997| 72.8|
+----------------------------------------+------+------+------+-------+
|Unlisted investments | | | | |
+----------------------------------------+------+------+------+-------+
|Pension Corporation Group Limited | 907| 17.9| 548| 13.3|
+----------------------------------------+------+------+------+-------+
|Private equity and related partnerships | 878| 17.3| 655| 15.9|
+----------------------------------------+------+------+------+-------+
|Trilantic Capital Partners | 231| 4.6| 210| 5.1|
+----------------------------------------+------+------+------+-------+
|Fund IV, Fund V, TEP and related | | | | |
+----------------------------------------+------+------+------+-------+
|management companies | | | | |
+----------------------------------------+------+------+------+-------+
|Renshaw Bay and related investments | 223| 4.4| 128| 3.1|
+----------------------------------------+------+------+------+-------+
|Renshaw Bay advisory and investment | | | | |
+----------------------------------------+------+------+------+-------+
|management company | 33| | 26| |
+----------------------------------------+------+------+------+-------+
|JPS Credit Opportunities Fund | 85| | 63| |
+----------------------------------------+------+------+------+-------+
|Renshaw Bay Real Estate | 55| | 38| |
+----------------------------------------+------+------+------+-------+
|Finance Fund | | | | |
+----------------------------------------+------+------+------+-------+
|Renshaw Bay Structured Finance | | | | |
+----------------------------------------+------+------+------+-------+
|Opportunity L.P. | 50| | 1| |
+----------------------------------------+------+------+------+-------+
|36 South macro / volatility funds | 77| 1.5| 72| 1.8|
+----------------------------------------+------+------+------+-------+
| | | | | |
+----------------------------------------+------+------+------+-------+
|Asian private equity and portfolio funds| 167| 3.3| 104| 2.5|
+----------------------------------------+------+------+------+-------+
|Milestone China Opportunities funds, | | | | |
+----------------------------------------+------+------+------+-------+
|investment holdings and management | | | | |
+----------------------------------------+------+------+------+-------+
|company participation | 116| | 77| |
+----------------------------------------+------+------+------+-------+
|GEMS | 3| | 8| |
+----------------------------------------+------+------+------+-------+
|Prescient China Balanced Fund | 48| | 19| |
+----------------------------------------+------+------+------+-------+
| | | | | |
+----------------------------------------+------+------+------+-------+
|Specialised private equity funds | 180| 3.5| 141| 3.4 |
+----------------------------------------+------+------+------+-------+
|Vanterra Flex Investments | 53| | 47| |
+----------------------------------------+------+------+------+-------+
|Vanterra C Change TEM | 30| | 30| |
+----------------------------------------+------+------+------+-------+
|NanoDimension funds and | 56| | 29| |
+----------------------------------------+------+------+------+-------+
|co-investment opportunities | | | | |
+----------------------------------------+------+------+------+-------+
|Fountainhead Expert Fund | 30| | 25| |
+----------------------------------------+------+------+------+-------+
|Other fund investments | 11| | 10| |
+----------------------------------------+------+------+------+-------+
| | | | | |
+----------------------------------------+------+------+------+-------+
|United States land development | 207| 4.1| 134| 3.3 |
+----------------------------------------+------+------+------+-------+
|and mortgages | | | | |
+----------------------------------------+------+------+------+-------+
|Diamond interests | 92| 1.8| 76| 1.9 |
+----------------------------------------+------+------+------+-------+
|Other investments | 11| 0.2| 10| 0.2 |
+----------------------------------------+------+------+------+-------+
| | 5 674| 111.8| 4 420| 107.4 |
+----------------------------------------+------+------+------+-------+
|Cash and liquid funds | 76| 1.5| 223| 5.4 |
+----------------------------------------+------+------+------+-------+
|Bank borrowings and collar financing | | | | |
+----------------------------------------+------+------+------+-------+
|Borrowings | (474)| (9.4)| (420)|(10.2) |
+----------------------------------------+------+------+------+-------+
|Derivative assets/(liabilities) | (32)| (0.6)| (13)| (0.3) |
+----------------------------------------+------+------+------+-------+
| | | | | |
+----------------------------------------+------+------+------+-------+
|Other liabilities | | | | |
+----------------------------------------+------+------+------+-------+
|Fees payable and other liabilities, | (139)| (2.7)| (59)| (1.4) |
+----------------------------------------+------+------+------+-------+
|net of other assets | | | | |
+----------------------------------------+------+------+------+-------+
|Funding by minority partners | (5)| (0.1)| (19)| (0.5) |
+----------------------------------------+------+------+------+-------+
| | 5 100| 100.5| 4 132| 100.4 |
+----------------------------------------+------+------+------+-------+
|Minority interests | (23)| (0.5)| (17)| (0.4) |
+----------------------------------------+------+------+------+-------+
|Consolidated net asset value | 5 077| 100.0| 4 115| 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 Fund's subsidiaries are referred to as 'Reinet'.
The Company records its assets and liabilities in euro; the appreciation of other currencies against the euro has resulted in an overall increase in value in euro terms. Applying current year exchange rates to the March 2014 NAV would result in an increase in value of some EUR 630 million. The total increase in value amounts to EUR 962 million, the additional increase in value being due to increases in the value of underlying investments, decreases in the value of borrowings, offset by increases in other liabilities, all excluding the effects of changes in foreign exchange rates.
LISTED INVESTMENT IN BRITISH AMERICAN TOBACCO P.L.C.
British American Tobacco p.l.c. ('BAT') is a leading global tobacco group, employing more than 57 000 people worldwide.
The investment in BAT remains Reinet's single largest investment position and is kept under constant review, considering the company's 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 in October 2008 to GBP 34.885 at 31 March 2015.
Reinet holds 74.3 million shares in BAT, representing 3.9 per cent of BAT's issued share capital. The value of Reinet's investment in BAT at 31 March 2015 was EUR 3 579 million (31 March 2014: EUR 2 997 million), being 70 per cent of Reinet's NAV. The increase in value of EUR 582 million results from an increase in the BAT share price from GBP 33.350 at 31 March 2014 to GBP 34.885 at 31 March 2015 together with the strengthening of sterling against the euro which accounted for EUR 424 million of the increase.
Reinet received dividends from BAT during the year amounting to EUR 133 million (GBP 107 million), being BAT's final 2013 dividend and its 2014 interim dividend. In May 2015, after the end of the financial year, Reinet received BAT's final dividend in respect of its 2014 financial year; this amounted to EUR 100 million (GBP 74 million).
Nicandro Durante, Chief Executive of British American Tobacco, writing in its annual report for 2014 commented:
'I am delighted with the excellent progress we have made in the four years since I became Chief Executive, during which we have enhanced our strategy with a sharpened focus on the consumer. We have increased our share of the global cigarette market in this period by 70 basis points and grown our Global Drive Brands (GDBs) and share of key segments at an even faster rate, improving the underlying quality of our portfolio. We are meeting consumer needs with differentiated products, including innovations which now make up nearly 50% of our GDB volume.
Our focus on resource allocation is driving major investments in high growth markets, particularly in EEMEA and Asia-Pacific regions, resulting in share growth in these markets. By supporting pricing with strong brands and innovations, substantially reducing costs and improving productivity, we have increased our operating margin by more than 520 basis points over four years. We are also making excellent progress towards our goal to lead across the various next-generation product categories.
This performance shows that we have the right strategy for our business – it has served us well in a changing and challenging market environment and it continued to deliver for our shareholders in 2014.
We expect the trading environment to remain difficult in 2015, and that foreign exchange headwinds will continue to have a significant impact on both a transactional and translational level. However, I am confident that with our proven strategy, strong global presence, powerful brands, talented people and continued focus on efficiency we will deliver value to our shareholders in the short and long term.'
Further information on BAT is available at www.bat.com/annualreport.
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.
Since its formation in 2008, Reinet has invested over EUR 1 596 million and is committed to provide further funding of EUR 405 million to its current investments. Details of the funding commitments outstanding at 31 March 2015 are given in the table headed 'Committed Funds' later in this report. The increase in commitments during the year under review amounted to EUR 60 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 and unaudited financial statements of investee companies, management reporting and valuations provided by third-party experts. Valuations are based on the net asset value of investment funds as well as discounted cash flow models and comparable valuation multiples for other entities, as appropriate.
The table headed 'Consolidated Net Asset Value' above shows the value of the 100 per cent investment in Trilantic Capital Partners and the United States land development and mortgages. In each case, Reinet co-invests with minority investors. Amounts attributable to these minority investors are shown in the table either as 'funding by minority partners' or 'minority interests'.
Funding commitments are entered into in various currencies including sterling, US dollars and South African rand and are converted into euro. The euro amounts for current committed and invested amounts shown for each investment are calculated using the 31 March 2015 exchange rates which in some instances vary significantly from those at 31 March 2014, especially in the case of sterling and US dollar investments. Amounts invested and distributed during the year are shown using actual transaction exchange rates.
PENSION CORPORATION GROUP LIMITED
Committed amount: EUR 552 million (EUR equivalent of GBP commitment)
Invested amount: EUR 552 million (EUR equivalent of GBP commitment)
Pension Corporation Group Limited's ('Pension Corporation') wholly-owned subsidiary, Pension Insurance Corporation plc is one of the UK's leading providers of risk management solutions to defined benefit pension funds. Pension Insurance Corporation plc is authorised and regulated as an insurance company by the Prudential Regulation Authority in the United Kingdom. It has almost GBP 14 billion in assets and has insured 100 000 pension fund members.
During the year under review, in accordance with its commitment, Reinet invested a further GBP 75 million (EUR 94 million) in Pension Corporation to bring its equity holding to 43 per cent from 38 per cent at March 2014. The total invested to date is GBP 400 million (EUR 552 million), which constitutes 100 per cent of Reinet's capital commitment to Pension Corporation.
The investment is carried at an estimated fair value of EUR 907 million at 31 March 2015 (31 March 2014: EUR 548 million), this value takes into account Pension Corporation's audited embedded value at 31 December 2014 and valuation multiples drawn from industry data.
The increase in value of Reinet's holding reflects the increase in Reinet's percentage holding during the year, Pension Corporation's embedded value increasing over the year; the strengthening of sterling against the euro and the increase in comparable multiples being applied by the market in valuing listed companies in the UK insurance sector. The embedded value increase reflects the beneficial impacts of new business written during the year, the addition of new capital, and the positive impact of investment market movements. The comparable company multiples were negatively impacted in March 2014 due in part to legislative changes relating to individual pension-holders and the announcement of a review of the insurance sector; the legislative changes have now been implemented. The increase in value in respect of the strengthening of sterling against the euro amounted to some EUR 91 million.
John Coomber, Chief Executive Officer of Pension Insurance Corporation (”PIC”) commented as follows:
'PIC was able to capitalise on its position as a market leader in the bulk purchase annuity market to achieve some notable headlines in 2014. Our largest transaction, Total, at GBP 1.6bn contributed to a premium volume of GBP 2.6bn from 19 transactions in the year. We issued GBP 300m of regulatory qualifying debt into a favourable market environment thereby adding a modest amount of leverage, c20%, to our equity capital base. And in terms of financial highlights the Group increased embedded value to GBP 1.62bn (2013: GBP 1.29bn) and delivered a pre-tax profit of GBP 163m (2013: GBP 115m).
The market in which we operate was itself very healthy, the prior year's growth momentum was sustained as new premium volume in 2014 grew by more than 50% to a record high which we estimate to be cGBP 13bn (2013: GBP 7.5bn). This rapid development combined with the uncertainties in the retail market arising from the newly introduced freedom for individuals to take accumulated savings in defined contribution pension arrangements in forms other than a pension, (including the option of cash) has led to enhanced competitive interest in our sector. It remains to be seen how this will impact our business going forward but we believe that the growth potential of the market is greater than the currently available supply of capital and that we can sustain an attractive growth story notwithstanding inevitable year on year fluctuations.
Looking forward the record low interest rates experienced at the outset of this year are negative for the affordability of our product by pension schemes and we expect 2015 to get off to a slow start. Also key to 2015 is that this is the final year of the current European regulatory regime, Solvency I, and from 1 January 2016 all European insurers will report results on Solvency II a system which still currently lacks clarity for some key risk components. As a consequence of these factors it is possible that 2015 will deliver less positive development than the two years just passed, although we can observe that pipeline enquiries for the second quarter are encouraging.
Finally I would note that I shall retire in June and will be succeeded by Tracy Blackwell, PIC's current Chief Investment officer who has been with the company since its foundation. Tracy has contributed hugely to the current achievements of PIC and the PIC board and I look forward to further successes under her leadership in the future.'
Further information in respect of Pension Corporation is available at www.pensioncorporation.com.
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 China, Renshaw Bay and Vanterra. Under the terms of the investment advisory agreement (the 'Investment Advisory Agreement'), entered into by the Fund Manager and Reinet Investment Advisors Limited (the 'Investment Advisor'), Reinet pays no management fee to the Investment Advisor on such investments except in the case where no fee or a reduced fee below 1 per cent is paid to the third-party manager. In such cases, the aggregate fee payable to the Investment Advisor and the third-party manager is capped at 1 per cent.
TRILANTIC CAPITAL PARTNERS
Trilantic Capital Partners ('Trilantic') is a global private equity firm focused on making controlling and significant minority interest investments in companies in North America and Western Europe. Trilantic employs flexible transaction structures and has a strong heritage of partnering with family-owned businesses and providing growth capital to management teams.
Reinet and its minority partner invest in the Trilantic general partnerships and management companies ('Trilantic Management'). 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 Trilantic Capital Partners IV L.P. ('Fund IV Global') and Trilantic Capital Partners IV (Europe) L.P. ('Fund IV Europe') (together 'Fund IV'), Trilantic Capital Partners V (North America) L.P. ('Fund V'), Trilantic Energy Partners (North America) L.P. ('TEP') and to any future funds launched by Trilantic where Reinet makes a commitment. As at 31 March 2015, Reinet's share of any carried interest earned by Trilantic Management is 11.25 per cent in respect of Fund IV, 15 per cent in respect of Fund V and 10 per cent in respect of TEP.
Charlie Ayres, Chairman of the Executive Committee of Trilantic Capital Partners, commented as follows:
'We remain cautiously optimistic regarding the outlook of U.S. domestic companies and believe that we are well positioned to ride out any lingering waves on the energy front, we will continue adhering to our investment discipline which we believe has been critical in protecting capital, enhancing value and maximizing returns. We have divested companies that have reached maturity and are methodically putting capital to work where we find attractive risk/reward opportunities that can drive appropriate risk-adjusted returns. Patience and flexibility will be essential in the upcoming year in our deployment of capital. We will also continue to strive to build value in our existing portfolio and aim to have our mature companies take advantage of the hot market as we look for attractive exits.'
In respect of Fund IV Europe, Vittorio Pignatti-Morano, Chairman of Trilantic Europe, commented:
'At the end of 2014 and early 2015 the European economy as a whole looks in a much better place than it did a few months ago due to a number of factors which include (i) the rapid and substantial decline of the euro to dollar exchange rate means that Europe's less competitive labour forces are now able to compete, (ii) the 40% drop in oil prices has substantially helped European manufacturing industries, (iii) consolidation of the recovery in Spain, structural reforms in Italy being implemented at an unprecedented pace and the French government beginning to react to the economic paralysis of the last few years, (iv) the ECB has taken over the control function of the key national banks, leading to corporate and consumer lending growing after several years of contraction. There are a number of clouds on the horizon in 2015 though. The most worrying is the potential for major political change with a busy calendar of general elections, starting with the UK in May and followed by Spain in the autumn. Populism is on the rise in Europe at a time when governments are seeking to heal their economies.
High liquidity in the market, supported by the ECB's quantitative easing programme, has resulted in high exit multiples being achieved. We see this trend continuing into 2015 and have already benefitted from these factors in realisations or activations of exit processes for companies held in the Trilantic Fund IV Europe portfolio. Despite rising valuations, we continue to find attractive investment opportunities at lower multiples than the headline numbers being paid in the market, consistent with Trilantic Europe's value investing approach. Our specialty remains the ”buy-in” approach, partnering with families, corporates or entrepreneurs in proprietary transactions where sellers are looking for the right partner to provide value-added support in order to take a company to the ”next level” in terms of management and growth.'
Further information on Trilantic is available at www.trilantic.com.
Trilantic Capital Partners IV L.P. and Trilantic Capital Partners IV (Europe) L.P.
Committed amount: EUR 185 million (EUR commitment and EUR equivalent of USD commitment)
Invested amount: EUR 150 million (EUR commitment and EUR equivalent of USD commitment)
Reinet has a 90 per cent interest in an entity which invests in two funds, Fund IV Global, which invests primarily in North America, and Fund IV Europe, which invests primarily in Western Europe. Current investments held in the Fund IV Global portfolio in North America in which Reinet has interests include natural gas and oil exploration and production; sports and casual accessories; soft goods and electronics; electricity transmission component manufacture and supply; and outdoor and fitness accessories. In Western Europe, Fund IV Europe has interests in gaming machines and video-lotteries; education publishing; commodities broking; telecom operations and high-speed rail equipment manufacturing.
During the year under review, Reinet and its partner invested an additional EUR 1 million in Fund IV and received capital repayments of EUR 9 million. Net carried interest earned amounted to EUR 3 million together with realised gains of EUR 18 million, before tax. Of these amounts, in aggregate, EUR 19 million was attributable to Reinet and EUR 2 million to the minority partner.
As at 31 March 2015, Reinet and its partner have invested the equivalent of EUR 112 million (31 March 2014: EUR 99 million), net of capital repayments, in Trilantic Management and Fund IV. Capital repayments were received during the year under review, as Fund IV continues the process of realising investments. Total cash proceeds received from Fund IV during the year, being gains, carried interest and repayments of capital, amounted to EUR 30 million.
The investment is carried at the estimated fair value of EUR 198 million at 31 March 2015 (31 March 2014: EUR 199 million). The investment in Fund IV is based on audited valuation data provided by Trilantic Management as at 31 December 2014. The decrease in the value is due to distributions of capital and gains in the year, offset by net increases in unrealised gains on underlying investments and the strengthening of the US dollar against the euro during the year which amounts to some EUR 20 million. Of the EUR 198 million carrying value, some EUR 178 million is attributable to Reinet, with the balance being attributable to its minority partner.
At 31 March 2015, Reinet had remaining commitments of EUR 35 million to invest in Fund IV.
Trilantic Capital Partners V (North America) L.P.
Committed amount: EUR 97 million (EUR equivalent of USD commitment)
Invested amount: EUR 28 million (EUR equivalent of USD commitment)
Independent from the investment held in Fund IV, Reinet has also committed some EUR 93 million to Trilantic Capital Partners V (North America) L.P. ('Fund V') together with a commitment of some EUR 4 million to Fund V's general partner ('Fund V GP'). Current investments held in the Fund V portfolio in North America include interests in hotel management services; natural gas and oil exploration and production, as well as fresh water transportation and storage services to industry participants; professional staffing and direct hire services; and outdoor equipment.
During the year under review, Reinet invested EUR 11 million in Fund V and Fund V GP. The investment is carried at the estimated fair value of EUR 29 million at 31 March 2015 (31 March 2014: EUR 11 million), based on audited valuation data provided by Trilantic Management as at 31 December 2014.
At 31 March 2015, Reinet had remaining commitments of EUR 69 million to invest in Fund V.
Trilantic Energy Partners (North America) L.P.
Committed amount: EUR 24 million (EUR equivalent of USD commitment)
Invested amount: EUR 5 million (EUR equivalent of USD commitment)
As at 31 March 2015, Reinet had committed an amount of EUR 24 million to TEP. In May 2015 Reinet increased its commitment by EUR 7 million (USD 8 million).
Current investments held in the TEP portfolio in North America focus on interests in natural gas and oil exploration and production, as well as fresh water transportation and storage services to industry participants.
During the year under review, Reinet invested EUR 4 million in TEP. The investment is carried at the estimated fair value of EUR 4 million at 31 March 2015 (31 March 2014: EUR nil), based on audited valuation data provided by Trilantic Management as at 31 December 2014.
At 31 March 2015, Reinet had remaining commitments of EUR 19 million to invest in TEP.
RENSHAW BAY AND RELATED INVESTMENTS
Renshaw Bay Advisory and Investment Management Entity
Committed amount: EUR 35 million (including an increase of EUR 5 million during the year) (EUR equivalent of GBP commitment)
Invested amount: EUR 33 million (EUR equivalent of GBP commitment)
Reinet has co-invested with Mr William T. Winters, RIT Capital Partners plc and Renshaw Bay's management team 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.
During the year, Reinet participated in a capital increase bringing its total holding to 43.8 per cent. Mr Winters and senior management continue to hold 50 per cent of the entity. The additional investment in the year amounted to EUR 3 million.
Reinet has invested EUR 33 million to date in Renshaw Bay (31 March 2014: EUR 26 million). The investment is carried at the estimated fair value of EUR 33 million at 31 March 2015 (31 March 2014: EUR 26 million).
At 31 March 2015, Reinet had remaining commitments of EUR 2 million to invest in Renshaw Bay.
Bill Winters, Chief Executive Officer of Renshaw Bay, commented:
'Renshaw Bay has made positive progress over the past year reaching important milestones in both of the primary business lines: financing European commercial real estate and managing structured and specialty finance assets.
In early 2015 our real estate finance business line celebrated the final close of the Renshaw Bay Real Estate Finance Fund L.P. with GBP 258 million of commitments from a broad range of investors including major pension funds, local authorities, foundations and high net worth individuals. Alongside Renshaw Bay Real Estate Finance Fund L.P., we have a GBP 97.5 million related mandate which invests in parallel with Renshaw Bay Real Estate Finance Fund L.P.
Overall the real estate finance business line now manages approximately GBP 550 million of capital and to the end of March 2015 had completed real estate transactions totaling GBP 678 million of which we manage GBP 374 million in our funds. The focus for the year ahead is the deployment of existing investor commitments. Assuming this progresses as forecasted, further fund raising for a successor fund to the Renshaw Bay Real Estate Finance Fund L.P. and also a new fund targeting longer term, lower leverage loans is anticipated for later in 2015.
In our structured finance activities we completed our first investments across a range of sub-strategies and continue to build a diversified portfolio which will underpin further capital raising later in 2015. We continue to identify interesting opportunities with strong risk-adjusted returns in various specialty finance and structured credit areas.
In February 2015, I announced my intention to step down from the CEO role. Following this news, I along with the management team have worked to implement a succession plan.'
Reinet has also invested in the JPS Credit Opportunities Fund, the Renshaw Bay Real Estate Finance Fund and the Renshaw Bay Structured Finance Opportunity L.P.
Further information on Renshaw Bay may be found at www.renshawbay.com.
JPS Credit Opportunities Fund (Cayman) Ltd. ('JPS Credit Fund')
Committed amount: EUR 65 million (EUR equivalent of USD commitment)
Invested amount: EUR 65 million (EUR equivalent of USD commitment)
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 Fund's 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 85 million at 31 March 2015 (31 March 2014: EUR 63 million) based on the valuation at that date provided by the fund manager.
The increase in fair value during the year is due to increases in the value of underlying investments together with the strengthening of the US dollar against the euro during the year.
Renshaw Bay Real Estate Finance Fund
Committed amount: EUR 138 million (EUR equivalent of GBP commitment)
Invested amount: EUR 55 million (EUR equivalent of GBP commitment)
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. The fund attracted total commitments of some GBP 258 million (EUR 356 million) as at the final closing in February 2015.
During the year under review, in accordance with its commitment Reinet invested an additional EUR 9 million, net of capital repayments, in the Renshaw Bay Real Estate Finance Fund. The amounts repaid were in respect of subsequent fund closings and the admission of new investors to the fund.
Reinet has invested EUR 55 million to date (31 March 2014: EUR 39 million). The fair value at 31 March 2015 is EUR 55 million (31 March 2014: EUR 38 million) based on audited valuation data provided by Renshaw Bay at 31 December 2014.
Reinet is committed to invest a further EUR 83 million in the fund.
Renshaw Bay Structured Finance Opportunity L.P.
Committed amount: EUR 140 million (EUR equivalent of USD commitment)
Invested amount: EUR 56 million (EUR equivalent of USD commitment)
Renshaw Bay Structured Finance Opportunity L.P. seeks to provide investors with attractive risk-adjusted returns through investments principally in the structured finance and credit markets. The fund seeks to take advantage of opportunities driven by structural and regulatory change in the capital markets, as well as complexity fatigue and the retreat of capital.
During the year under review, Reinet invested an additional EUR 42 million in the Renshaw Bay Structured Finance Opportunity L.P.
Reinet has invested EUR 56 million to date (31 March 2014: EUR 3 million). The investment is carried at the estimated fair value of EUR 50 million at 31 March 2015 (31 March 2014: EUR 1 million), based on audited valuation data provided by Renshaw Bay at 31 December 2014.
Reinet is committed to invest a further EUR 84 million in the fund.
36 SOUTH GLOBAL MACRO/VOLATILITY FUNDS
Committed amount: EUR 88 million
Invested amount: EUR 88 million
36 South is an absolute return fund manager that specialises in managing global macro/volatility funds. 36 South was established in 2001 and specialises in finding cheap convexity, principally in long-dated options, across all asset classes. Its global volatility strategies are designed to perform well in most market environments but to 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.
Reinet invested its full commitment of EUR 88 million to 36 South in the year ended 31 March 2011.
The investment in the funds is carried at an estimated fair value of EUR 69 million, based on unaudited capital statements received from the fund manager as at 31 March 2015 (31 March 2014: EUR 64 million); and the fair value of the short-term loan and investment in the fund management companies amounted to EUR 8 million (31 March 2014: EUR 8 million). The investments in total have a fair value of EUR 77 million (31 March 2014: EUR 72 million). The change in valuation reflects the movement in the value of the underlying funds.
Richard (Jerry) Haworth, Chief Executive Officer of 36 South Capital Advisors LLP, commented as follows:
'36 South is a leading global volatility Hedge Fund Manager. We manage a number of hedge funds which primarily benefit from higher volatility regimes and/or directions in various financial markets.
We mentioned last year that we have seen a period of complacency due to the suppression of volatility by Central Banks through quantitative easing and ultra-low interest rates.
Not only has this policy been continued throughout this current year, we expect it to continue for the forthcoming year. Low interest rates in particular have driven investors to any market which promises any reasonable yield hence the recent stampede into the equities markets. Providers of yield product are structuring high yield products by selling ”future” volatility hence depressing the current price of volatility in a few financial markets. Whilst not ideal in the short term, a low current market price of volatility gives us a unique opportunity to buy and warehouse great value options which will benefit from any return to a more volatile regime in the financial markets.
Volatility is what ”we don't know we don't know” and whilst we cannot predict, we can prepare. Given the cyclical and mean reverting nature of volatility, we aim to assist in preparing our clients for volatility which must surely ensue this period of government inspired financial market volatility suppression.'
Further information on 36 South may be found at www.36south.com.
ASIAN PRIVATE EQUITY AND PORTFOLIO FUNDS
Milestone China Opportunities funds ('Milestone'), investment holdings and management company participation
Reinet has invested with Milestone Capital in a management company based in Shanghai. Reinet has also invested in certain funds and investment companies managed by Milestone Capital.
Milestone Capital has a strong track record in helping portfolio companies scale their operations and be listed on either domestic or foreign stock exchanges. Funds under management 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 Milestone's investment team. Current areas of investment include: restaurants; B2C online travel services; bio-pharmaceutical manufacturers; medical device manufacturers; food and beverage distribution; brands covering sportswear and apparel; big data services; e-commerce; power generation equipment and retail pharmacies.
Managing Partner of Milestone Capital, Ms Yunli Lou, commented:
'2014 was a productive year for Milestone Capital. 2014 marked a return to form for China's equity capital markets, and a number of issuers, led by Alibaba, Inc., had oversubscribed and highly successful IPOs. Throughout the year, we actively deployed substantial capital, committing a total of USD 133.4 million in seven new investments in the healthcare and consumer sectors. In many instances, we invested in companies that we had been pro-actively following for many months. In particular, we actively deployed capital in the healthcare sector, where we believe many privately-held companies will emerge as national – and in some cases, global – leaders in fields such as medical devices and new drug development. We also continued to work closely with our existing portfolio companies to help support their various growth initiatives.
For the full year 2014, China's GDP growth was 7.4%, compared to a 7.7% in 2013. This represented the weakest annual expansion since 1990, but was largely in line with the government's growth targets. While economic growth is clearly decelerating, the economy also continues to rebalance away from an investment-driven model towards an economy led by consumption. Services, which are more closely correlated with consumption than with investment, grew to account for 48.2% of the economy last year, up 1.3 percentage points from 2013. We believe this deceleration of growth and transition towards a consumption-driven GDP is a positive development for the long-term health of the economy.
While overall GDP growth will decelerate in 2015, innovative businesses in the consumer and healthcare sectors are seeing exceptional growth prospects, as their business models and technologies are reshaping and improving how many Chinese lead their lives. In 2015 we will continue to look for attractive opportunities in the consumer and healthcare sectors and will look to begin to harvest some of our portfolio investments while the market window remains open.'
Further information on Milestone Capital and Milestone funds may be found at www.mcmchina.com.
Management company participation
Committed amount: EUR 8 million (EUR equivalent of USD commitment)
Invested amount: EUR 8 million (EUR equivalent of USD commitment)
Reinet has invested in a management company which is the general partner of Milestone China Opportunities Fund III L.P. and any subsequent funds.
Reinet invested its full commitment to the management company in the year ended 31 March 2012.
In line with Reinet's policy not to value potential future performance fees and carried interest, this investment has been written down to a nominal value at 31 March 2015 and 31 March 2014.
Milestone China Opportunities Fund II L.P. ('Milestone II')
Committed amount: EUR 15 million (EUR equivalent of USD commitment)
Invested amount: EUR 13 million (EUR equivalent of USD commitment)
Reinet assumed the participation in Milestone II from Richemont when Reinet was formed in 2008. Since that time Reinet has invested EUR 13 million, net of capital repayments. The fund is now at a mature stage and assets are being realised over the remaining life of the fund.
At 31 March 2015, this investment is estimated to have a fair value of EUR 4 million based on audited data provided by the fund manager at 31 December 2014 (31 March 2014: EUR 5 million).
At 31 March 2015, Reinet's remaining commitment to Milestone II is EUR 2 million.
Milestone China Opportunities Fund III L.P. ('Milestone III')
Committed amount: EUR 93 million (EUR equivalent of USD commitment)
Invested amount: EUR 79 million (EUR equivalent of USD commitment)
In June 2011, Reinet committed to invest USD 100 million (EUR 93 million) in Milestone III.
During the year under review, Reinet invested an additional EUR 29 million in Milestone III.
As at 31 March 2015, capital contributions of EUR 80 million had been made to Milestone III, (31 March 2014: EUR 36 million). This investment is carried at the estimated fair value of EUR 66 million at 31 March 2015, based on audited valuation data provided by the fund manager at 31 December 2014 (31 March 2014: EUR 33 million). The increase in fair value over the year under review is mainly the result of the additional capital invested together with the strengthening of the US dollar against the euro, offset by a decrease in the value of underlying investments.
At 31 March 2015, Reinet's remaining commitment to Milestone III is EUR 14 million.
Investment holdings
Committed amount: EUR 58 million (EUR equivalent of USD commitment)
Invested amount: EUR 52 million (EUR equivalent of USD commitment)
Reinet has also invested in a long-term investment vehicle in partnership with certain of the Milestone general partner principals and other partners. The investment vehicle seeks to leverage the investment expertise of the Milestone principals.
As at 31 March 2015, capital contributions of EUR 52 million had been made in respect of these investments (31 March 2014: EUR 39 million). This increase is due to the movement in the USD/EUR exchange rate in the year.
These investments are carried at the estimated fair value of EUR 46 million at 31 March 2015, based on a recent independent valuation with listed investments marked to market values at the year-end (31 March 2014: EUR 39 million).
At 31 March 2015, Reinet's remaining commitment is EUR 6 million.
General Enterprise Management Services International Limited ('GEMS')
Committed amount: 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. GEMS II has been liquidated and GEMS III is 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.
During the year under review distribution proceeds of EUR 4 million were received from the funds.
At 31 March 2015, the investment in GEMS III is carried at the estimated fair value of EUR 4 million based on a recent independent valuation (31 March 2014: EUR 8 million).
Further information on GEMS can be found at www.gems.com.hk.
Prescient China Balanced Fund ('Prescient China')
Committed amount: EUR 30 million (EUR equivalent of USD commitment)
Invested amount: EUR 30 million (EUR equivalent of USD commitment)
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 in Prescient China and in its management company. Reinet invested its full capital commitment to the fund in March 2013 and invested EUR 2 million in the management company in March 2015.
The investment in both entities is carried at the estimated fair value of EUR 48 million based on unaudited valuation statements provided by the fund manager at 31 March 2015 (31 March 2014: EUR 19 million). The increase in value reflects the increase in the Chinese equity market during the year along with the strengthening of the US dollar against the euro.
Reinet has no further commitment to invest in the fund or management company.
Liang Du, Portfolio Manager of the Prescient China Balanced Fund, commented as follows:
'The year ending March 2015 was an exciting one for Prescient China. Prescient China has tripled the AUM of the business growing from USD 50 million to USD 150 million. Through this process we have also launched our fixed income capability for the first time in late 2014, starting to establish a track record in the fixed income space.
The Chinese market continued to liberalise, released policy and our own interactions with regulators continue to reinforce that view. With market liberalisation comes opportunity and going forward it should make it easier to expand into this market. The global market has begun to take notice of the Chinese capital market, the business is well positioned to capitalise on such an opportunity when it occurs.
With the Chinese market doing very well, the fund has seen exceptional performance through the year. Initial investors would have seen their NAV increase by around 65% over the past 2 years. This resulted in some healthy performance fees for the business. Equity alpha continue to be strong bringing cumulative alpha to around 8% over the past 2 years.
Looking forward Prescient China is looking to grow further in 2015, with a more welcoming regulatory regime, as well as stronger track record. We will look to build on the success of the business.'
Further information on Prescient China may be found at www.prescient.co.za.
SPECIALISED PRIVATE EQUITY FUNDS
Vanterra Flex Investments L.P. ('Vanterra')
Committed amount: EUR 93 million (EUR equivalent of USD commitment)
Invested amount: EUR 51 million (EUR equivalent of USD commitment)
Vanterra was established in 2010 to invest in privately issued securities 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 Fund IV, in the United States land development and mortgages and in Vanterra C Change Transformative Energy and Materials I, L.P. and AIV-A L.P. In addition, Vanterra has investments in US healthcare and in a Brazilian private equity fund. 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 2015, EUR 51 million of committed funds (31 March 2014: EUR 44 million), together with EUR 4 million in respect of expenses (31 March 2014: EUR 3 million) had been invested in the fund.
During the year under review, Vanterra distributed a part of its minority holding in United States land development and mortgages to Reinet Fund; the value of this distributed interest amounted to EUR 5 million, in addition Vanterra returned unused capital amounting to EUR 4 million.
This investment is carried at the estimated fair value of EUR 53 million at 31 March 2015, based on unaudited financial information as at 31 December 2014 (31 March 2014: EUR 47 million). The increase in value reflects increases in the value of underlying investments and the strengthening of the US dollar against the euro in the year, offset by the distribution of assets noted above.
Reinet is committed to invest a further EUR 42 million in Vanterra.
Shad Azimi, Managing Partner of Vanterra Capital, commented:
'As our investment period winds down, our primary goal for 2015 will be to harvest the portfolio and generate liquidity. The majority of the exposure within the portfolio is to the US, geographically, which continues to experience a strong sellers' market. We anticipate longer hold periods for our emerging markets exposure given the volatility in Brazil.
In addition to Vanterra's investments in Trilantic Capital Partners Fund IV and United States land development and mortgages, where it invests alongside Reinet, Vanterra has investments in the following established platforms: Vanterra Transformative Energy and Materials, BTG Pactual Brazil Investment Fund I and Cressey and Company Health Care Fund IV.
In 2015, Vanterra will look to realize value in older positions, and will continue to execute on its operational and strategic initiatives within its newer core platforms. Some of the older vintage platforms have already demonstrated their ability to achieve successful realisations in select investments. Vanterra expects that the next few years will be when the hard work put in during the harvesting period will lead to meaningful exits across the majority of our platforms.'
Further information on Vanterra may be found at www.vanterra.com.
Vanterra C Change Transformative Energy and Materials I, L.P. ('Vanterra C Change TEM')
Committed amount: EUR 61 million (EUR equivalent of USD commitment)
Invested amount: EUR 60 million (EUR equivalent of USD commitment)
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.
In the year under review, Reinet invested an additional EUR 3 million in Vanterra C Change TEM and its general partner.
As at 31 March 2015, capital contributions of EUR 60 million had been made to the fund (31 March 2014: EUR 45 million). This investment is carried at the estimated fair value of EUR 30 million based on unaudited financial information as at 31 December 2014 (31 March 2014: EUR 30 million). The additional capital invested together with the strengthening of the US dollar against the euro have compensated for a decrease in the value of underlying investments.
Reinet is committed to invest a further EUR 1 million in Vanterra C Change TEM and its general partner.
Dan Matloff, Chief Financial Officer of TEM Capital, commented:
'During 2014, we sought to stabilize our fund, narrow our focus, and position ourselves for positive developments. We reduced our obligations by attracting co-investments and tightened cost controls, as our portfolio made progress toward improved performance.
Of our five platforms, our standout investment is the multinational passenger rail company, which continues to outperform profit expectations. Our building materials platform made forward progress during the year, with revenue growth and increased commercial opportunities. Our alternative cement business was hampered with litigation during 2014, but remains a business with good prospects, operating in a large potential market.
Our intent for 2015 is to conclude our funding obligations to the portfolio, including attracting co-investment capital. We are confident in a favourable outcome with the passenger rail company, and are determined to overcome the challenges in the alternative cement company in order to realize its potential and thereby maximize returns to our investors.'
Further information on Vanterra C Change TEM may be found at www.temcapital.com.
NanoDimension funds and co-investment opportunities
Committed amount: EUR 56 million (including an increase of EUR 1 million during the year) (EUR commitment and EUR equivalent of USD commitment)
Invested amount: EUR 40 million (EUR commitment and EUR equivalent of USD commitment)
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 Richemont's initial investment in the first NanoDimension fund and its commitments to that fund and in May 2012 committed a further EUR 52 million to invest in the second NanoDimension fund and to co-invest with the fund in one specific project.
In the year under review, Reinet invested an additional EUR 4 million in the NanoDimension funds and the co-investment.
At 31 March 2015, capital contributions of EUR 40 million had been made to the funds and co-investment (31 March 2014: EUR 28 million). The fair value of Reinet's investment in the two funds and the co-investment amounted to EUR 56 million (31 March 2014: EUR 29 million). The estimate of fair value is based on audited valuation data received from the fund manager as at 31 December 2014 together with an independent valuation of the co-investment. The increase in value reflects increases in the value of underlying investments and the strengthening of the US dollar against the euro in the year.
Reinet's remaining commitments to the funds amounted to EUR 16 million at 31 March 2015.
Aymeric Sallin, Founder of NanoDimension, commented:
'2014 was a solid year for both NanoDimension and the world of nanotechnology.
In nanotechnology, we saw the scientific community celebrate the nanosciences with the Nobel Prize for Chemistry and Physics, top academic research institutions like MIT making substantial investments in facilities dedicated to nanotechnology (MIT.nano) and innovative and forward-thinking companies like Google announce programs in nanomedicine.
At NanoDimension, 2014 was a year of hard work with our portfolio companies. We also harvested our deal flow – investing in four new companies.
Our existing portfolio of companies is performing well. As a selective update, View is producing electrochromic glass at high yield and has installed Dynamic Glass in over 150 buildings. Large real estate investors led the latest financing round of View, a sign of company maturity. All efforts are now on sales and market penetration. Our portfolio company Blend hired a new CEO and will enter the clinical trials with its personalized platinum program later this year.
Our four new investments are in nanomedicine and at the convergence of the physical and life sciences. ARMO Biosciences is progressing rapidly and has already enrolled 168 patients and is seeing interesting data emerge in some of the hardest-to-treat cancers. ACIR Biosciences, a sister of ARMO, is developing a different, potentially synergistic immunotherapy. Emulate, one of the largest spin-offs to date from Harvard, is developing organs-on-chips. The chips were recently recognized by the MOMA for their design and potential contribution to society. Finally, Twist is setting up the tools to enable the synthetic biology revolution.
We believe the strong deal flow reflects the growth of nanotechnology and the NanoDimension organization. CEOs and start-ups are leveraging the billions of dollars invested in nanoscience over the past three decades. The NanoDimension team is benefiting from working together closely over the past decade.
Looking forward, we are bullish for 2015. We are excited to see the developments of our existing companies and to make new investments in break-through, enabling nanotechnologies.'
Further information on NanoDimension may be found at www.nanodimension.com.
Fountainhead Expert Fund ('Fountainhead')
Committed amount: EUR 37 million (including an increase of EUR 19 million during the year) (EUR equivalent of USD commitment)
Invested amount: EUR 18 million (EUR equivalent of USD commitment)
Fountainhead is a fund investing in a concentrated manner in global equities offering superior potential for capital appreciation and value realisation by benchmarking themselves to global inflation and striving for absolute real returns through time.
During the year under review, Reinet committed to invest a further EUR 19 million (USD 20 million) in Fountainhead, the additional commitment will be funded subject to the fulfilment of certain conditions. Reinet has invested EUR 18 million to date in Fountainhead.
As at 31 March 2015, the fair value of the investment was EUR 30 million based on the unaudited valuation at that date provided by the fund manager (31 March 2014: EUR 25 million).
Andre Cillie, Managing Partner of Andre Cillie Capital Management (Pty) Limited, manager of Fountainhead, commented:
'Three years have passed since Reinet initially entrusted us with their investment capital. We are relatively pleased with the performance to date, having compounded at 20,3% CAGR over that period. More importantly, we are very excited about the return prospects over the next few years. We feel that the overall market is expensive, yet for concentrated bottom up stock pickers such as ourselves there remain some very compelling opportunities.
Most of the value accretion to date has resulted from intrinsic value growth via increased earnings and astute value creating activities by company management. There has been very little rerating or narrowing of the gap between current market prices of our companies and what we believe are their conservative intrinsic values. As a result we feel that the current portfolio has never been as well positioned from a future return perspective.
Our companies did not deliver much in the terms of share price appreciation in 2014. This did not bother us in the slightest, as they managed to grow their intrinsic values. Had there been deterioration in the companies' fundamentals then the price action would have been justified, but that was not the case. Most of the market action in 2014 and year to date in 2015 revolves around the endless vacillation of the market about the eventual timing of the lift-off towards interest rate normalisation in the US. As long-term investors whether this happens in three or twelve months makes very little difference to our outlook for our portfolio companies.
It is our hope that market prices of our portfolio companies stay depressed for the foreseeable future. The reason for this is that most of our portfolio companies are not only over capitalized, but they have value conscious management teams that are using these depressed prices to drive significant value accretion via share buybacks. A rational investor should prefer owning an ever-increasing share of these wonderful businesses at bargain prices, rather than experiencing a small increase in their share prices over the short term.'
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 11 million at 31 March 2015 based on valuation statements received from the fund managers (31 March 2014: EUR 10 million).
UNITED STATES LAND DEVELOPMENT AND MORTGAGES
Committed amount: EUR 161 million (including an increase of EUR 23 million during the year) (EUR equivalent of USD commitment)
Invested amount: EUR 161 million (EUR equivalent of USD commitment)
Reinet has co-invested both directly and with partners to acquire interests in real estate development projects. The investments are located in Florida, Georgia, Colorado, North and South Carolina and Nevada. These include properties where infrastructure services have been laid but where the construction of properties has not yet commenced. In addition, Reinet has invested in residential golf communities, owning the land for sale to future homeowners together with infrastructure assets. Reinet has also purchased mortgage debt linked to such developments from financial institutions, usually at significant discounts to face value.
During the year under review, Reinet invested an additional EUR 19 million in these projects and repaid funding provided by a minority partner in the amount of EUR 7 million.
At 31 March 2015, Reinet had invested EUR 161 million in these projects (31 March 2014: EUR 99 million). The increase in amounts invested includes some EUR 36 million in respect of foreign exchange gains due to the strengthening of the US dollar against the euro during the year.
The investment is carried at the estimated fair value of EUR 207 million (31 March 2014: EUR 134 million), of which EUR 199 million is attributable to Reinet (31 March 2014: EUR 116 million) and EUR 8 million to its partners (31 March 2014: EUR 18 million).
The current valuation is based on independent valuations of underlying assets as at 31 December 2014. The increase in the valuation reflects the capital contributions made during the year, the increase in value of underlying assets and the strengthening of the US dollar against the euro during the year which amounts to some EUR 43 million.
During the year under review, Vanterra distributed a part of its minority holding in United States land development and mortgages to Reinet Fund; the value of this distributed interest amounted to EUR 5 million. In addition, Reinet Fund purchased the remaining minority shares by repaying funding provided by another minority partner in the amount of EUR 8 million. These transactions did not impact the aggregate fair value of the investment in United States land development and mortgages but did result in a reduction in the liability to minority partners and reduced the value attributable to minority interests.
Reinet has no further commitment to invest in these investments as at 31 March 2015.
John Kunkel, Chief Executive Officer of Arendale Holdings Corporation, commented:
'Arendale Holdings Corp. and its affiliated companies have placed investments in the US residential land development sector with a bias towards the Southeastern United States, and also a bias toward two distinct sectors of the market. The first sector is a portfolio of 'production' communities which supply completed lots to production builders who, in turn, supply housing to the populous of the market. The second sector emphasizes investments in high-end private golf and club communities, each of which are a marquis community and have been recognized in the past for their quality.
This second sector has been the focus of more recent attention and the investments made have been at favourable values, in distressed situations. Each of the projects in this sector has been through a bankruptcy, foreclosure, or both prior to Arendale's investment. Therefore, each now require time and attention to re-establish the quality of the brand, the confidence in the new ownership group, and the direction of the development. Several steps have been taken to showcase the credibility of Arendale and the quality of these communities. In 2014 and early 2015, we have been honoured to be recognized in the forefront of many industry awards and rankings.
Our task has been to continue to divest the first sector portfolio which is now ripe for sale, and to continue to re-create the brand for the second sector holdings. It stands to reason that the more seasoned production communities are providing better results year-over-year with improvements in the industry. The high-end community segment is expected to outperform within two to five years once key investment projects within these communities are complete, remnant inventory held by third parties is sold off, credibility is re-established, and targeted marketing resumes. Values within these communities should continue to rise as the market cures.
From a macro-economic standpoint, we are pleased with the continual growth in the US residential real estate market and the market positions we hold. While we are not experiencing the robust demand of the early 2000's, we believe that the complete fallout of the industry in the latter 2000's is now done; healing has occurred, and the underlying demand drivers are now stabilizing. Our industry thrives on household creations, which over the past several decades have been fuelled primarily from population growth, immigration, employment growth, and general wealth creation. All indicators point toward continued improvement in housing starts for the next decade at levels that are well above today's activity. This growth is expected to touch all price points and consumer groups, with the younger and older homeowners leading the demand. Once again, our portfolio is well positioned to capitalize in growth markets and in the specific sectors which should experience greater growth.
The industry is still not without challenges which come from economic and political uncertainty, interest rate sensitivity, real wages relative to the cost of housing (particularly in urban areas), and the relatively stringent underwriting criteria which still exists for home financing. We are mindful of each and continue to manage current holdings attempting to mitigate risk wherever possible. As capital is returned, new investments will be placed with an eye on diversity and positioned in markets that are best positioned for household growth.'
DIAMOND INTERESTS
Reinet has invested in two projects in South Africa.
In total these projects are carried at their estimated fair value of EUR 92 million at 31 March 2015 (31 March 2014: EUR 76 million).
The exposure to the South African rand has been hedged through borrowings and forward exchange contracts.
Henk van Zuydam, Chief Financial Officer of both projects, commented as follows:
'Rooipoort has delivered a number of high value diamonds during the past year, the highlight being a 164.74ct stone sold for USD 2.1 million in South Africa. The company has partnered on a trial basis with a local beneficiator to enable the company to meet its minimum target of 15% sold to South African beneficiators / polishers.
Jagersfontein has implemented various measures to address operational efficiencies throughout the plant and the conveyor system, which have resulted in lower operational costs. The company is currently experimenting with primary crushing on the courser material which to date has shown good promise on the delivery of larger stones. The majority of the Jagersfontein production revenue however remains in the smaller goods on run of mine production. The demand for these goods is significantly higher in the Antwerp market than in South Africa.
Both projects have continued with the route to market being through two tenders - the South African Diamond Exchange and Export Centre in South Africa and our tenders in Antwerp. There is a continued price appreciation in Antwerp compared to South Africa on the exported goods.'
Jagersfontein
Project cost: EUR 65 million (EUR equivalent of ZAR cost)
Invested amount: EUR 63 million (EUR equivalent of ZAR cost)
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.
Reinet's effective interest in the Jagersfontein project is 48 per cent. Other shareholders include a Black Economic Empowerment ('BEE') organisation, a local community trust and the parties responsible for the day-to-day operations.
Of the proceeds of diamond sales during the year, EUR 7 million (ZAR 85 million) was used to repay loans and interest due to Reinet with the balance retained to fund on-going operations.
As at 31 March 2015, Reinet held equity interests of EUR 18 million (31 March 2014: EUR 15 million) in the above investment and had outstanding loans of EUR 22 million (31 March 2014: EUR 25 million). In addition, EUR 8 million (31 March 2014: EUR 6 million) is receivable from third parties in respect of sales of part of the equity investments and Reinet has accrued income of EUR 5 million (31 March 2014: EUR 3 million) in respect of funding provided in connection with the project to date.
The investment is carried at its estimated fair value of EUR 53 million at 31 March 2015 (31 March 2014: EUR 49 million). The current valuation is based on discounted cash flow analyses prepared by local management.
Reinet is committed to invest a further EUR 2 million in this project as at 31 March 2015.
Rooipoort
Project cost: EUR 29 million (EUR equivalent of ZAR cost)
Invested amount: EUR 28 million (EUR equivalent of ZAR cost)
Reinet has a 49 per cent interest in a separate project, which has acquired rights to source diamonds on a previously unexploited site at Rooipoort near Kimberley in South Africa. Other shareholders include a BEE organisation and the parties responsible for the day-to-day operations.
During the year under review, Reinet made loans of EUR 2 million (ZAR 25 million) to Rooipoort. Of the proceeds of diamond sales during the year, EUR 3 million (ZAR 40 million) was used to repay loans and interest due to Reinet with the balance retained to fund on-going operations.
As at 31 March 2015, Reinet held equity interests of EUR 11 million (31 March 2014: EUR 4 million) in the above investment and had outstanding loans of EUR 20 million (31 March 2014: EUR 17 million). In addition, EUR 4 million (31 March 2014: EUR 3 million) is receivable from third parties in respect of sales of part of the equity investments and Reinet has accrued income of EUR 4 million (31 March 2014: EUR 3 million) in respect of the funding that it has provided in connection with the project to date.
The investment is carried at its estimated fair value of EUR 39 million at 31 March 2015 (31 March 2014: EUR 27 million). The current valuation is based on discounted cash flow analyses prepared by local management.
Reinet is committed to invest a further EUR 1 million in this project as at 31 March 2015.
OTHER INVESTMENTS
This portfolio includes small developing businesses as well as interests in businesses which require assistance in restructuring their activities before value can be realised. These assets are valued at their aggregate fair value of EUR 11 million at 31 March 2015 (31 March 2014: EUR 10 million).
Committed Funds
The table below summarises Reinet's outstanding investment commitments as at 31 March 2015.
+----------------+--------+--------+---------+--------+--------+--------+
| | As at|Exchange|Committed| Funded| As at| As at|
+----------------+--------+--------+---------+--------+--------+--------+
| |31 March| Rate| during| During|31 March|31 March|
+----------------+--------+--------+---------+--------+--------+--------+
| | 2014| effects| the year|the year| 2015| 2015|
+----------------+--------+--------+---------+--------+--------+--------+
| | (1)| (2)| (3)| (3)| (3)| |
+----------------+--------+--------+---------+--------+--------+--------+
| | EUR m| EUR m| EUR m| EUR m| EUR m| %|
+----------------+--------+--------+---------+--------+--------+--------+
| | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Pension | 91| 13| -| (104)| -| -|
|Corporation (4) | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
| | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Private equity | | | | | | |
|and | | | | | | |
|related | | | | | | |
|partnerships | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Trilantic | | | | | | |
|Capital | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Partners | 112| 29| -| (18)| 123| 30.4|
+----------------+--------+--------+---------+--------+--------+--------+
|Fund IV, Fund | | | | | | |
|V, TEP | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|and related | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|management | | | | | | |
|companies(5) | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Renshaw Bay and | | | | | | |
|related | | | | | | |
|investments | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Renshaw Bay | | | | | | |
|advisory | | | | | | |
|and investment | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|management | -| -| 5| (3)| 2| 0.5|
|company | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|JPS Credit | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Opportunities | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Fund | -| -| -| -| -| -|
+----------------+--------+--------+---------+--------+--------+--------+
|Renshaw Bay Real| | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Estate Finance | 82| 11| -| (10)| 83| 20.5|
|Fund | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Renshaw Bay | | | | | | |
|Structured | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Finance | | | | | | |
|Opportunity | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|L.P. | 106| 29| -| (51)| 84| 20.5|
+----------------+--------+--------+---------+--------+--------+--------+
|Asian private | | | | | | |
|equity | | | | | | |
|and portfolio | | | | | | |
|funds | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Milestone China | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Opportunities | | | | | | |
|funds | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|investment | | | | | | |
|holdings | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|and management | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|company | 44| 13| -| (35)| 22| 5.4|
|participation | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|GEMS | -| -| -| -| -| -|
+----------------+--------+--------+---------+--------+--------+--------+
|Prescient China | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Balanced Fund | 1| 1| -| (2)| -| -|
+----------------+--------+--------+---------+--------+--------+--------+
|Specialised | | | | | | |
|private | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|equity funds | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Vanterra Flex | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Investments | 29| 8| -| 5| 42| 10.4|
+----------------+--------+--------+---------+--------+--------+--------+
|Vanterra C | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Change TEM | 3| 1| -| (3)| 1| 0.2|
+----------------+--------+--------+---------+--------+--------+--------+
|NanoDimension | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|funds and | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|co-investments | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|opportunities | 16| 4| 1| (5)| 16| 4.0|
+----------------+--------+--------+---------+--------+--------+--------+
|Fountainhead | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Expert Fund | -| -| 19| -| 19| 4.7|
+----------------+--------+--------+---------+--------+--------+--------+
|Other fund | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|investments | 5| 1| -| (3)| 3| 0.7|
+----------------+--------+--------+---------+--------+--------+--------+
|United States | | | | | | |
|land | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|development and | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|mortgages(5) | 9| 2| 23| (34)| -| -|
+----------------+--------+--------+---------+--------+--------+--------+
|Diamond | 6| 2| -| (5)| 3| 0.7|
|interests | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
|Other | 4| 1| 12| (9)| 8| 2.0|
|investments | | | | | | |
+----------------+--------+--------+---------+--------+--------+--------+
| | 508| 114| 60| (277)| 405| 100.0|
+----------------+--------+--------+---------+--------+--------+--------+
(1) Commitments are calculated using 31 March 2014 exchange rates.
(2) Reflects exchange rate movements between 31 March 2014 and 31 March 2015.
(3) Amounts calculated using 31 March 2015 exchange rates.
(4) The amount paid to Pension Corporation in the year amounts to EUR 94 million using actual exchange rates, the additional EUR 10 million relates to exchange differences between the date of payment and the year end rate.
(5) Commitments noted represent only Reinet's share of the investments at 31 March 2015, additional commitments payable by minority partners amount to EUR 4 million in respect of Trilantic and EUR nil in respect of United States land development and mortgages.
Funding commitments are entered into in various currencies including sterling, US dollars and South African rand and are converted into euros using 31 March 2015 exchange rates.
CASH AND LIQUID FUNDS
Reinet holds cash on deposit principally in European banks.
Reinet's liquidity is measured by its ability to meet potential cash requirements, including unfunded commitments on investments and the repayment of borrowings, and can be summarised as follows:
Cash at bank EUR 76m
Undrawn borrowing facilities EUR 414m
Cash required for unfunded commitments (refer to table on above) (EUR 405m )
Cash required to meet ZAR borrowing obligations (refer to note below) (EUR 34m )
Existing bank borrowings of EUR 440 million under the collar financing arrangements noted below will be settled either by the delivery of BAT shares pursuant to the put and call options in place, by the proceeds of the sale of BAT shares or may be rolled over or replaced by other borrowings.
Reinet may sell further BAT shares or use such shares to secure additional financing facilities from time to time.
The undrawn borrowing facilities comprise a facility with Bank of America Merrill Lynch of GBP 150 million and a facility with Morgan Stanley of GBP 150 million, in total GBP 300 million (EUR 414 million). As at 31 March 2015, these facilities had not been drawn upon.
BANK BORROWINGS AND RELATED DERIVATIVE CONTRACTS
Borrowings
In February 2012, in order to meet its ongoing commitments, Reinet entered into a GBP 300 million medium-term collar financing arrangement. At 31 March 2015, the fair value of the borrowing was EUR 415 million (31 March 2014: EUR 358 million). The increase in fair value reflects lower market interest rates and the strengthening of sterling against the euro during the year. The collar financing arrangement involves the purchase by Reinet of put options and the sale by Reinet of call options over 13.7 million BAT shares. The remaining unpaid net option premium is payable over the period to 2017 and is carried as a liability at its fair value of EUR 25 million as at 31 March 2015 (31 March 2014: EUR 32 million). 1.4 million BAT shares have also been pledged to guarantee the balance of the net option premium and a portion of the interest payments.
Reinet has also borrowed ZAR 443 million to fund its investments in South African projects. At 31 March 2015, the fair value of the borrowing was EUR 34 million (31 March 2014: EUR 30 million). The increase in fair value is due to the strengthening of the South African rand during the year.
Derivative assets / (liabilities) – put and call options and forward exchange contracts
Put and call options in respect of the GBP 300 million medium-term collar financing arrangement noted above are carried at their respective fair values at the balance sheet date. The net derivative liability is carried at its fair value of EUR 26 million at 31 March 2015 (31 March 2014: EUR 16 million).
Reinet has entered into forward exchange contracts to sell ZAR 715 million (31 March 2014: ZAR 890 million). The net derivative liability in respect of the forward exchange contracts is carried at its fair value of EUR 6 million at 31 March 2015 (31 March 2014: asset value EUR 3 million).
OTHER LIABILITIES
Fees payable and other liabilities, net of other assets
Fees payable and other liabilities comprise principally of an accrual of EUR 78 million in respect of the performance fee payable as at 31 March 2015, together with the half-yearly management fee payable of EUR 18 million. The performance fee and management fee are payable to the Investment Advisor. The management fee for the year under review amounted to EUR 39 million (31 March 2014: EUR 35 million).
In addition, a provision for deferred taxes of EUR 24 million relating to unrealised gains arising from the investments in the Trilantic funds has been made. Withholding taxes of EUR 14 million relating to the investment in United States land development and mortgages have also been provided for, together with other operating expenses currently payable.
Funding by minority partners
Reinet invests in certain investments, principally the Trilantic funds and United States land development and mortgages, 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. During the year under review, Reinet Fund purchased a part of the minority interests in United States land development and mortgages. In addition Vanterra Flex distributed a part of its minority holding in the same investment to Reinet Fund. These transactions reduced the amounts due to minorities.
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.
+-----------------------------+------+-------------+-----+-------------+
|CONSOLIDATED INCOME STATEMENT| | Year ended| | Year ended|
+-----------------------------+------+-------------+-----+-------------+
| | |31 March 2015| |31 March 2014|
+-----------------------------+------+-------------+-----+-------------+
| | EUR m| EUR m|EUR m| EUR m|
+-----------------------------+------+-------------+-----+-------------+
|INCOME | | | | |
+-----------------------------+------+-------------+-----+-------------+
|BAT dividends | 133| | 126| |
+-----------------------------+------+-------------+-----+-------------+
|Interest and other | 21| | 20| |
|investment income | | | | |
+-----------------------------+------+-------------+-----+-------------+
|Realised gains on | -| | 108| |
|investments – BAT | | | | |
+-----------------------------+------+-------------+-----+-------------+
|– Others | 20| | 6| |
+-----------------------------+------+-------------+-----+-------------+
|Realised gains on | -| | 9| |
|foreign exchange contracts | | | | |
+-----------------------------+------+-------------+-----+-------------+
|Carried interest earned | 3| 177| 2| 271|
|on investments | | | | |
+-----------------------------+------+-------------+-----+-------------+
| | | | | |
+-----------------------------+------+-------------+-----+-------------+
|EXPENSES | | | | |
+-----------------------------+------+-------------+-----+-------------+
|Performance fee | (78)| | (12)| |
+-----------------------------+------+-------------+-----+-------------+
|Management fee | (39)| | (35)| |
+-----------------------------+------+-------------+-----+-------------+
|Operating expenses, foreign | | | | |
|exchange and | | | | |
+-----------------------------+------+-------------+-----+-------------+
|transaction-related costs | (7)| | (8)| |
+-----------------------------+------+-------------+-----+-------------+
|Interest expense | (12)| | (11)| |
+-----------------------------+------+-------------+-----+-------------+
|Tax expense | (6)| (142)| (10)| (76)|
+-----------------------------+------+-------------+-----+-------------+
|REALISED INVESTMENT INCOME, | | | | |
|NET OF | | | | |
+-----------------------------+------+-------------+-----+-------------+
|EXPENSES | | 35| | 195|
+-----------------------------+------+-------------+-----+-------------+
|FAIR VALUE ADJUSTMENTS | | | | |
+-----------------------------+------+-------------+-----+-------------+
|BAT – unrealised (loss)/gain | 582| |(111)| |
|on shares held | | | | |
+-----------------------------+------+-------------+-----+-------------+
|– reversal of unrealised gain| -| |(105)| |
|on shares sold (1) | | | | |
+-----------------------------+------+-------------+-----+-------------+
|Other investments | 448| | 115| |
+-----------------------------+------+-------------+-----+-------------+
|Derivative instruments | (19)| | (2)| |
+-----------------------------+------+-------------+-----+-------------+
|Borrowings | (62)| 949| 7| (96)|
+-----------------------------+------+-------------+-----+-------------+
| | | 984| | 99|
+-----------------------------+------+-------------+-----+-------------+
|Effect of exchange rate | | | | |
|changes on cash | | | | |
+-----------------------------+------+-------------+-----+-------------+
|balances | | 14| | (3)|
+-----------------------------+------+-------------+-----+-------------+
|Net profit | | 998| | 96|
+-----------------------------+------+-------------+-----+-------------+
|Minority interest | | (6)| | (4)|
+-----------------------------+------+-------------+-----+-------------+
|Profit attributable to the | | | | |
|shareholders of the | | | | |
+-----------------------------+------+-------------+-----+-------------+
|Company | | 992| | 92|
+-----------------------------+------+-------------+-----+-------------+
(1) The reversal of the unrealised gain on shares sold represents the unrealised gain as at 1 April 2013 on the 5 million BAT shares sold during the year ended 31 March 2014.
INCOME
Dividends received from BAT increased by 6 per cent in euro terms from EUR 126 million (GBP 106 million) to EUR 133 million (GBP 107 million) during the year under review. The increase is due to an increase of GBP 0.07 in the dividend per BAT share and a strengthening in the sterling/euro exchange rate at the time of the dividend payments, offset by the reduced number of BAT shares held following the sale of 5 million BAT shares in April 2013. The dividends received from BAT represent the final 2013 dividend, paid in May 2014, as well as the interim 2014 dividend paid in September 2014. The BAT final 2014 dividend was approved at the BAT AGM held on 29 April 2015 and was paid on 7 May 2015. This dividend has not been accrued at 31 March 2015 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 on investments of EUR 20 million include EUR 18 million in respect of investments realised by the Trilantic funds. Reinet's share of the Trilantic gains amounts to EUR 16 million with a further EUR 2 million being attributable to the minority partner.
Carried interest of EUR 3 million was attributable to Reinet in respect of investments realised by the Trilantic funds.
EXPENSES
The performance fee for the year ended 31 March 2015 amounts to EUR 78 million (31 March 2014: EUR 12 million). The performance fee is calculated as 10 per cent of the Cumulative Total Shareholder Return as defined in the Reinet Prospectus, published on 10 October 2008, including dividends paid, over the period since completion of the rights issue in December 2008 up to 31 March 2015, less the sum of all performance fees paid in respect of previous periods.
The management fee for the year ended 31 March 2015 amounts to EUR 39 million (31 March 2014: EUR 35 million) with other operating expenses of EUR 1 million in respect of charges from Reinet Investments Manager S.A. (the 'General Partner') and other expenses, including legal and other fees, which amounted to EUR 6 million.
Interest expense relates to sterling and rand denominated borrowings.
The net tax expense of EUR 6 million includes corporate and withholding taxes payable 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 the Trilantic funds and other US investments.
FAIR VALUE ADJUSTMENTS
The investment in the 74.3 million BAT shares increased in value by EUR 582 million during the year under review. Of this, EUR 158 million was attributable to the increase in value of the underlying BAT shares in sterling terms and EUR 424 million due to the appreciation of sterling against the euro over the course of the year.
The unrealised fair value adjustment of EUR 448 million in respect of other investments includes the increase in the fair value of the investment in Pension Corporation of EUR 265 million, Unites States land development and mortgages of EUR 31 million, Renshaw Bay and related investments of EUR 41 million, Prescient China of EUR 27 million, NanoDimension investments of EUR 24 million, and Trilantic funds of EUR 14 million, along with increases in value of other smaller investments including the positive effect of changes in foreign exchange rates against the euro during the year.
The fair value of the collar financing derivative liability increased by EUR 9 million during the year reflecting the increase in the price of the BAT shares underlying the put and call options and the strengthening of sterling against the euro. The fair value of the forward exchange contracts decreased by EUR 10 million. In total these items increased the derivative liabilities by EUR 19 million in the year under review.
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 loss of EUR 4 million arose in respect of the rand borrowing due to the strengthening of that currency during the year. An unrealised loss of EUR 58 million arose in respect of the sterling borrowing. Of this, a loss of EUR 55 million is due to the strengthening of the sterling/euro exchange rate during the year and a loss of EUR 3 million arose due to the effect of lower interest rates used in discounting future cash flows.
MINORITY INTEREST
The minority interest expense arises in respect of the minority partners' shares in the earnings of the Reinet entities which hold the Trilantic and Unites States land development and mortgages interests, respectively.
+------------------------------+-------------+-----+-------------+-----+
|CONSOLIDATED CASH | | | | |
|FLOW STATEMENT | | | | |
+------------------------------+-------------+-----+-------------+-----+
| | | | | |
+------------------------------+-------------+-----+-------------+-----+
| | Year ended| Year ended|
+------------------------------+-------------+-----+-------------+-----+
| | 31 March 2015| 31 March 2014|
+------------------------------+-------------+-----+-------------+-----+
| | EUR m|EUR m| EUR m|EUR m|
+------------------------------+-------------+-----+-------------+-----+
|Investing activities | | | | |
+------------------------------+-------------+-----+-------------+-----+
|Purchase of investments, | (216)| | (380)| |
|net of repayments | | | | |
+------------------------------+-------------+-----+-------------+-----+
|Proceeds from sales | 36|(180)| 230|(150)|
|of investments | | | | |
+------------------------------+-------------+-----+-------------+-----+
| | | | | |
+------------------------------+-------------+-----+-------------+-----+
|Financing activities | | | | |
+------------------------------+-------------+-----+-------------+-----+
|Dividend paid | (30)| | -| |
+------------------------------+-------------+-----+-------------+-----+
|Repayment of funding | (14)| | (2)| |
|to minority partners | | | | |
+------------------------------+-------------+-----+-------------+-----+
|Proceeds from settlement | -| | 9| |
|of derivative assets | | | | |
+------------------------------+-------------+-----+-------------+-----+
|Movements in bank borrowings | (8)| (52)| (10)| (3)|
+------------------------------+-------------+-----+-------------+-----+
| | | | | |
+------------------------------+-------------+-----+-------------+-----+
|Operating activities | | | | |
+------------------------------+-------------+-----+-------------+-----+
|Dividends, interest and | 133| | 128| |
|other income received | | | | |
+------------------------------+-------------+-----+-------------+-----+
|Carried interest earned | 3| | 2| |
|on investments | | | | |
+------------------------------+-------------+-----+-------------+-----+
|Interest expense | (12)| | (9)| |
+------------------------------+-------------+-----+-------------+-----+
|Operating and related expenses| (45)| | (45)| |
+------------------------------+-------------+-----+-------------+-----+
|Performance fee paid | (12)| | (32)| |
+------------------------------+-------------+-----+-------------+-----+
|Taxation refunded/(paid) | 4| 71| 9| 53|
+------------------------------+-------------+-----+-------------+-----+
| | | | | |
+------------------------------+-------------+-----+-------------+-----+
|Net cash outflow | |(161)| |(100)|
+------------------------------+-------------+-----+-------------+-----+
|Opening liquid funds position | | 223| | 326|
+------------------------------+-------------+-----+-------------+-----+
|Effects of exchange rate | | 14| | (3)|
|changes on cash balances | | | | |
+------------------------------+-------------+-----+-------------+-----+
|Closing liquid funds position | | 76| | 223|
+------------------------------+-------------+-----+-------------+-----+
| | | | | |
+------------------------------+-------------+-----+-------------+-----+
INVESTING ACTIVITIES
Investments totalling EUR 216 million were made during the year, including Pension Corporation, United States land development and mortgages, Trilantic, Milestone, Renshaw Bay and Renshaw Bay funds. Amounts invested were partially offset by repayments of EUR 10 million in respect of loans and interest received from Jagersfontein and Rooipoort.
Proceeds from the sale of investments include EUR 27 million realised through Trilantic and EUR 9 million on the sale of other investments.
FINANCING ACTIVITIES
A dividend of EUR 30 million was paid to shareholders in September 2014.
Funding is received from minority partners in respect of investments made in Trilantic and United States land development and mortgages. The appropriate share of distributions received from the same investments are repaid to minority partners.
OPERATING ACTIVITIES
Dividends received from BAT increased by 6 per cent from EUR 126 million (GBP 106 million) to EUR 133 million (GBP 107 million) during the year under review. The increase is due to an increase of GBP 0.07 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 2013 dividend, paid in May 2014, as well as the interim 2014 dividend paid in September 2014.
Carried interest of EUR 3 million was received in respect of the investment in Trilantic.
Interest of EUR 10 million was paid in respect of the sterling loan and EUR 2 million in respect of the ZAR-denominated loan in the year.
The performance fee of EUR 12 million was paid in respect of the year ending 31 March 2014. The performance fee payable in respect of the current year will be paid in May 2015.
US tax repayments of EUR 4 million were received in the year under review. This amount is net of 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 decreased by EUR 147 million over the year to EUR 76 million as the amounts invested in new investments together with payment of the performance fee and operating expenses exceeded the inflow of dividends received from BAT.
DIVIDEND
Reinet Investments relies on distributions from Reinet Fund as its principal source of income from which it may pay dividends.
A dividend of EUR 0.153 per share totalling EUR 30 million was paid to shareholders in September 2014, following approval at the Annual General Meeting on 9 September 2014.
The Board has proposed a cash dividend of EUR 0.157 per share subject to shareholder approval at the Annual General Meeting, which is scheduled to take place in Luxembourg on Tuesday, 25 August 2015.
There is no Luxembourg withholding tax payable on dividends which may be declared by the Company.
Reinet has sought clarification from the South African Revenue Service ('SARS') as to the treatment of any dividends to be declared by the Company and paid to holders of Reinet Depository Receipts ('DRs'). SARS has confirmed to Reinet that any such dividends will be treated as 'foreign dividends' as defined in the Income Tax Act No. 58 of 1962. Accordingly, any such dividends will be subject to South African dividends withholding tax at 15 per cent in the hands of DR holders unless those holders are otherwise exempt from the tax. Non-resident holders of DRs will be required to fill in the appropriate SARS declaration form, if they wish to be exempted from the tax.
The dividend will be payable in accordance with the following schedule, subject to shareholder approval:
The last day to trade the Company's shares and the Company's DRs cum-dividend will be Friday, 28 August 2015. Both the shares and the DRs will trade ex-dividend from Monday, 31 August 2015. The record date for the Company's shares will be Wednesday, 2 September 2015 and for the Company's DRs will be Friday, 4 September 2015.
The dividend on the Company's shares will be paid on Thursday, 3 September 2015 and is payable in euros.
The dividend in respect of the Company's DRs will be payable on Friday, 11 September 2015. The DR dividend is payable in rand to residents of the South African Common Monetary Area ('CMA') but may, dependent upon residence status, be payable in euros to non-CMA residents. Further details regarding the dividend payable to DR holders may be found in a separate announcement dated 28 May 2015 on SENS, the Johannesburg stock exchange news service.
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 statements at 31 March 2015, on which this announcement is based, have been audited and approved by the Board of the General Partner on 18 May 2015 and are subject to shareholder approval at the annual general meeting to be held in August 2015. The printed Reinet Annual Report and Accounts will be available upon request from mid-July 2015.
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 Stock Exchange.
Secondary Listing
Reinet Investments S.C.A. South African Depository Receipts are traded on the Johannesburg stock exchange under the ISIN number CH 0045793657. Thomson Reuters code REIJ.J and Bloomberg code REI:SJ. One depository receipt issued by Reinet Securities SA represents one tenth of one ordinary share in Reinet Investments S.C.A.
Sponsor
RAND MERCHANT BANK (a division of FirstRand Bank Limited)
Reinet Investments Manager S.A.
General Partner
For and on behalf of Reinet Investments S.C.A.
28 May 2015
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 Reinet's 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 2015 of 13.0229 and a rate of 14.5024 as at 31 March 2014.
31 March 2015 31 March 2014
Net asset value ZAR 66 117 m ZAR 59 677 m
Net asset value per ordinary share ZAR 337.42 ZAR 304.55
Using the average euro/rand exchange rate for the year ended 31 March 2015 of 13.9772 and the average rate of 13.5743 for the year ended 31 March 2014.
31 March 2015 31 March 2014
Profit for the year ZAR 13 865 m ZAR 1 249 m
Headline earnings per share
To comply with the South African practice of providing Headline earnings per share data, the relevant data is as follows:
31 March 2015 31 March 2014
Unadjusted earnings per share EUR 5.06 EUR 0.47
Headline earnings per share* EUR 5.06 EUR 0.47
*There are no dilutive instruments
Subject to approval by the shareholders at the annual general meeting, which is scheduled to take place on 25 August 2015, the dividend will be paid to Reinet Depository Receipt holders on 11 September 2015. The rand dividend amount per Depository Receipt will be calculated by reference to the euro/rand exchange rate prevailing on 21 August 2015, the currency conversion date.
Reinet Securities SA Depository Receipts are issued subject to the terms of the Deposit Agreement entered into on 17 October 2008, most recently amended 15 December 2010. By holding Depository Receipts, investors acknowledge that they are bound by the terms of the Deposit Agreement. Copies of the Deposit Agreement may be obtained by investors from Reinet Securities SA or Computershare Investor Services (Propriety) Limited.
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, www.reinet.com
Date: 28/05/2015 07:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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