Wrap Text
Consolidated audited financial results for the year ended 31 March 2016 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
CONSOLIDATED AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31 MARCH 2016 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 2016.
Key financial data
• Net asset value at 31 March 2016: EUR 5 221 million, an increase of EUR 144 million or 3 per cent from EUR 5 077 million at 31 March 2015
• Growth in net asset value reflects a compound return of 16 per cent per annum, in euro terms, since March 2009, including dividends paid
• Net asset value per share at 31 March 2016: EUR 26.65 (31 March 2015: EUR 25.91)
• New investments with overall funding commitments of EUR 201 million closed during the year
• Dividends received from British American Tobacco during the year amounted to EUR 149 million
• Sale of 6.25 million British American Tobacco shares in the year realised proceeds of EUR 307 million
• Dividend of some EUR 31 million, or EUR 0.157 per share, paid during the year
• Proposed dividend of EUR 0.161 per share payable after the 2016 annual general meeting
• Subsequent to the year-end Reinet committed to invest up to an additional EUR 177 million (GBP 140 million) in Pension Insurance Corporation Group Limited
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'), 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 on the Johannesburg Stock Exchange, the secondary listing. The Company's shares are included in the 'LuxX' index of the principal shares traded on the Luxembourg Stock Exchange. The Company and Reinet Fund together with Reinet 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 this document 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 2016 amounted to EUR 5 221 million, an increase of 3 per cent above last year's figure of EUR 5 077 million. This reflects principally significant increases in the value of Reinet's investments in British American Tobacco and Pension Corporation. However, Reinet's net asset value was negatively impacted by the weakening of the pound sterling and the US dollar against the euro in the latter part of the year.
Business developments
Continuing our policy of diversifying out of the British American Tobacco position as and when funds are required to invest in other opportunities, 6.25 million shares were sold during the year under review. As a result, Reinet's interest in British American Tobacco represented some 67.3 per cent of the net asset value at 31 March 2016, compared to 70.5 per cent a year ago. Nevertheless, the value of the remaining holding of 68.1 million shares in British American Tobacco increased in value to EUR 3 512 million at 31 March 2016. We remain confident in the future prospects for this global business.
At 31 March, the proceeds of these sales were held to fund a further investment in Pension Corporation, which is expected to close in June this year. Reinet has committed to co-invest alongside current and new investors in a recently announced capital increase by Pension Corporation in order to support the continued growth of this business. Pension Corporation has had an excellent year, writing significant new business and insuring a record number of pension fund members. The additional capital will support Pension Corporation and allow it to take advantage of the increasing demand from companies wishing to exit or de-risk their defined contribution pension plans, whilst remaining fully compliant with its regulatory requirements, which – for good reason – are increasingly stringent.
Reinet continues to pursue the planned diversification of its investment portfolio and during the year committed USD 100 million to Snow Phipps III, a US fund investing in the US middle-market private equity space. Reinet has been an investor since 2011 in the predecessor to this fund. Snow Phipps III expects to make its first investments in the summer of 2016. Reinet has continued to make investments in line with its commitments to other investee companies during the year and new commitments were entered into amounting in total to EUR 201 million.
Dividend
The Board of Reinet Investments Manager S.A. proposes an increase in the annual dividend to EUR 0.161 per share. This represents an increase of 2.5 per cent over the dividend paid last year.
Changes to the Board of Overseers
The role of the Board of Overseers is to oversee and control the activities of both Reinet Investments and Reinet Fund. In addition, the Board acts as the audit committee of both Reinet Investments and Reinet Fund. During the year under review, Mr John Li, a former senior partner in the Luxembourg office of an international accounting firm, was appointed to the Board.
I am sorry to report, towards the end of the financial year, the death of Dr Peter Kaul, who had been a member of the Board since 2009 and whose connections with the Company and its predecessors went back to before the formation of Richemont in 1988. We will miss his insight and understanding of Reinet and its underlying interests and send our deepest condolences to his family. We are in the process of identifying a new member for the Board of Overseers.
I would also like to take this opportunity to thank our management and advisory teams and our partners in the investee companies for their contribution to Reinet's performance during the year.
Outlook
The global economic situation has not improved significantly over the last twelve months. Cash and government bonds attract negative interest rates in Europe and the economic situation in the United States and in China is unsettled. In addition, the geopolitical situation has, if anything, worsened. This calls for prudence.
Our goal remains that of looking to maintain a pattern of long-term growth in shareholders' capital; we will continue to seek investment opportunities where funds can be deployed with a high degree of security and where we believe Reinet can add value.
Johann Rupert
Chairman
Reinet Investments Manager S.A.
Luxembourg, 25 May 2016
BUSINESS OVERVIEW
The Company has determined that it meets the definition of an investment entity in terms of the amended International Financial Reporting Standards ('IFRS') 10. The consolidated net asset value, the consolidated income statement and the consolidated cash flow statement included in this business overview have however been presented in a more comprehensive format than required by IFRS in order to provide readers with detailed information relating to the underlying assets and liabilities.
Consolidated net asset value
The consolidated net asset value ('NAV') at 31 March 2016 comprised:
+---------------------+-------------+------+----------------+------+
| |31 March 2016| |31 March 2015(1)| |
+---------------------+-------------+------+----------------+------+
| | EUR m| %| EUR m| %|
+---------------------+-------------+------+----------------+------+
|Listed investments | | | | |
+---------------------+-------------+------+----------------+------+
|British American | 3 512| 67.3| 3 579| 70.5|
|Tobacco p.l.c. | | | | |
+---------------------+-------------+------+----------------+------+
|SPDR Gold shares | 24| 0.5| -| -|
+---------------------+-------------+------+----------------+------+
|Unlisted investments | | | | |
+---------------------+-------------+------+----------------+------+
|Pension Insurance | 920| 17.6| 907| 17.9|
|Corporation Group | | | | |
|Limited | | | | |
+---------------------+-------------+------+----------------+------+
| | | | | |
+---------------------+-------------+------+----------------+------+
|Private equity and | 671| 12.8| 878| 17.3|
|related partnerships | | | | |
+---------------------+-------------+------+----------------+------+
|Trilantic Capital | 143| 2.7| 231| 4.6|
|Partners | | | | |
+---------------------+-------------+------+----------------+------+
|Fund IV, Fund | | | | |
|V, TEP, related | | | | |
|general partners and | | | | |
|management companies | | | | |
+---------------------+-------------+------+----------------+------+
|Renshaw Bay and | 178| 3.4| 223| 4.4|
|related investments | | | | |
+---------------------+-------------+------+----------------+------+
|Renshaw Bay | 11| | 33| |
|advisory and | | | | |
|investment management| | | | |
|company | | | | |
+---------------------+-------------+------+----------------+------+
|JPS Credit | 84| | 85| |
|Opportunities Fund | | | | |
+---------------------+-------------+------+----------------+------+
|Renshaw Bay Real | 83| | 55| |
|Estate Finance Fund | | | | |
+---------------------+-------------+------+----------------+------+
|Renshaw Bay | -| | 50| |
|Structured Finance | | | | |
|Opportunity L.P. | | | | |
+---------------------+-------------+------+----------------+------+
| | | | | |
+---------------------+-------------+------+----------------+------+
|36 South | 62| 1.2| 77| 1.5|
|macro/volatility | | | | |
|funds | | | | |
+---------------------+-------------+------+----------------+------+
| | | | | |
+---------------------+-------------+------+----------------+------+
|Asian private equity | 155| 3.0| 164| 3.2|
|and portfolio funds | | | | |
+---------------------+-------------+------+----------------+------+
|Milestone China | 113| | 116| |
|Opportunities funds, | | | | |
|investment holdings | | | | |
|and management | | | | |
|company participation| | | | |
+---------------------+-------------+------+----------------+------+
|Prescient China | 42| | 48| |
|Balanced Fund | | | | |
|and investment | | | | |
|management company | | | | |
+---------------------+-------------+------+----------------+------+
| | | | | |
+---------------------+-------------+------+----------------+------+
|Specialised private | 133| 2.5| 183| 3.6|
|equity funds | | | | |
+---------------------+-------------+------+----------------+------+
|Vanterra Flex | 30| | 53| |
|Investments | | | | |
+---------------------+-------------+------+----------------+------+
|Vanterra C Change TEM| 23| | 30| |
+---------------------+-------------+------+----------------+------+
|NanoDimension funds | 48| | 56| |
|and co-investment | | | | |
|opportunities | | | | |
+---------------------+-------------+------+----------------+------+
|Fountainhead Expert | 19| | 30| |
|Fund | | | | |
+---------------------+-------------+------+----------------+------+
|Other fund | 13| | 14| |
|investments | | | | |
+---------------------+-------------+------+----------------+------+
| | | | | |
+---------------------+-------------+------+----------------+------+
|United States land | 164| 3.1| 207| 4.1|
|development and | | | | |
|mortgages | | | | |
+---------------------+-------------+------+----------------+------+
|Diamond interests | 59| 1.1| 92| 1.8|
+---------------------+-------------+------+----------------+------+
|Other investments | 66| 1.3| 11| 0.2|
+---------------------+-------------+------+----------------+------+
|Total investments | 5 416| 103.7| 5 674| 111.8|
+---------------------+-------------+------+----------------+------+
|Cash and liquid funds| 380| 7.3| 76| 1.5|
+---------------------+-------------+------+----------------+------+
|Bank borrowings and | | | | |
|collar financing | | | | |
+---------------------+-------------+------+----------------+------+
|Borrowings | (417)| (8.0)| (474)| (9.4)|
+---------------------+-------------+------+----------------+------+
|Net derivative | (78)| (1.5)| (32)| (0.6)|
|assets/(liabilities) | | | | |
+---------------------+-------------+------+----------------+------+
|Other liabilities | | | | |
+---------------------+-------------+------+----------------+------+
|Minority interest, | (80)| (1.5)| (167)| (3.3)|
|fees payable | | | | |
|and other | | | | |
|liabilities, net | | | | |
|of other assets (2) | | | | |
+---------------------+-------------+------+----------------+------+
|Consolidated net | 5 221| 100.0| 5 077| 100.0|
|asset value | | | | |
+---------------------+-------------+------+----------------+------+
(1) The investment in GEMS is now included in 'Other fund investments'.
(2) Includes fees payable and other liabilities, net of other assets, funding by minority partners and minority interests, previously disclosed separately.
All investments are held, either directly or indirectly, by Reinet Fund.
INFORMATION RELATING TO CURRENT KEY INVESTMENTS
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
| | |Committed |Remaining |Invested |Realised |Current |Total value|
| | |Amount (1)|Committed |Amount(2)|Proceeds(2) |fair |In |
| | |In |Amount(1) |In |In millions |Value(1) In|millions |
| | |millions |In millions|millions | |millions | |
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Listed investments | | | | | | | |
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|British American Tobacco p.l.c. |EUR | -| -| 1 739| 1 565| 3 512| 5 077|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
| |GBP | -| -| 1 418| 1 280| 2 783| 4 063|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|SPDR Gold shares |EUR | 22| -| 22| -| 24| 24|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
| |USD | 25| -| 25| -| 27| 27|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Unlisted investments | | | | | | | |
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Pension Insurance |EUR | 505| -| 477| -| 920| 920|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Corporation Group Limited |GBP | 400| -| 400| -| 729| 729|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Trilantic Capital Partners |EUR | 328| 125| 192| 253| 143| 396|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Euro investment |EUR | 86| 20| 66| 108| 70| 178|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|US dollar investment(3) |USD | 275| 119| 166| 183| 84| 267|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Renshaw Bay and | | | | | | | |
|related investments | | | | | | | |
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Renshaw Bay advisory and | | | | | | | |
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|investment management |EUR | 32| 2| 29| -| 11| 11|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|company |GBP | 25| 1| 24| -| 9| 9|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|JPS Credit Opportunities |EUR | 62| | 54| -| 84| 84|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Fund |USD | 70| | 70| -| 96| 96|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Renshaw Bay Real Estate |EUR | 126| 45| 77| 2| 83| 85|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Finance Fund |GBP | 100| 36| 64| 2| 66| 68|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Renshaw Bay Structured |EUR | 132| -| 46| 47| -| 47|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Finance Opportunity L.P. |USD | 150| -| 60| 52| -| 52|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|36 South macro/volatility | | | | | | | |
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|funds |EUR | 88| -| 88| 5| 62| 67|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Asian private equity | | | | | | | |
|and portfolio funds | | | | | | | |
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Milestone China Opportunities | | | | | | | |
|funds, investment holdings | | | | | | | |
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|and management company |EUR | 149| 10| 122| 16| 113| 129|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|participation |USD | 169| 11| 158| 20| 129| 149|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Prescient China Balanced | | | | | | | |
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Fund and investment |EUR | 28| -| 25| -| 42| 42|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|management company |USD | 32| -| 32| -| 48| 48|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Specialised private equity funds| | | | | | | |
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Vanterra Flex Investments |EUR | 91| 35| 49| 23| 30| 53|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
| |USD | 104| 40| 64| 27| 34| 61|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Vanterra C Change TEM |EUR | 57| 5| 43| 1| 23| 24|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
| |USD | 65| 6| 59| 1| 26| 27|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Nano Dimension Funds and | | | | | | | |
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|co-investment opportunities |EUR | 53| 12| 38| 1| 48| 49|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Euro investment |EUR | 4| -| 4| 1| 5| 6|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|US dollar investment |USD | 56| 14| 42| -| 49| 49|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Fountainhead Expert Fund |EUR | 35| 18| 15| -| 19| 19|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
| |USD | 40| 20| 20| -| 22| 22|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|United States land | | | | | | | |
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|development and |EUR | 178| 5| 150| -| 164| 164|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|mortgages |USD | 203| 6| 197| -| 187| 187|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
|Diamond interests (4) |EUR | 73| 2| 116| 55| 59| 114|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
| |ZAR | 1 230| 40| 1 190| 780| 985| 1 765|
+--------------------------------+----+----------+-----------+---------+------------+-----------+-----------+
(1) Calculated using year end foreign exchange rate.
(2) Calculated using actual foreign exchange rates.
(3) The invested amount for Trilantic Capital Partners includes an initial payment of USD 10 million.
(4) The exposure to the South African rand has been partially hedged by a forward exchange contract and borrowings in this currency.
PERFORMANCE
NET ASSET VALUE
The increase in the NAV of EUR 144 million during the year is influenced by the receipt of dividends from British American Tobacco p.l.c. ('BAT'), the sale of 6.25 million BAT shares, realisations of investments, in particular by Trilantic Capital Partners, increases in the estimated fair value of certain investments, including BAT and Pension Insurance Corporation Group Limited and decreases in the estimated fair value of loans payable. Offsetting these increases are decreases in the estimated fair value of investments in United States land development and mortgages and Renshaw Bay, together with the effect of the weakening of sterling and the US dollar against the euro in the year.
The Company records its assets and liabilities in euros; the depreciation of other currencies against the euro has resulted in a decrease in the value of certain assets and liabilities in euro terms. Applying current year exchange rates to the March 2015 assets and liabilities would have resulted in a decrease in value of some EUR 404 million.
LISTED INVESTMENTS
BRITISH AMERICAN
TOBACCO P.L.C.
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.
Nicardo Durante, Chief Executive of BAT, writing in its annual report for 2015 commented:
'We delivered outstanding results in 2015, against a very challenging external environment and with significant adverse transactional foreign exchange rate movements. Driven by a very strong second half of the year, with cigarette volume higher by 1.7%, total Group cigarette volume for the full year was down only 0.5%, to 663 billion. This was significantly better than the overall estimated industry decline of 2.3%. After excluding the impact of the TDR acquisition, organic cigarette volume decline was still ahead of the market at 0.8%.
Market share in our Key Markets increased by over 40 bps. This was driven by an excellent performance from our Global Drive Brands, which grew volume by an exceptional 8.5% and increased market share by 120 bps. At constant rates of exchange, we grew revenue by 5.4%, adjusted profit from operations by 4.0% and adjusted diluted earnings per share by 10.1%. Excluding the significant transactional effect of foreign exchange on the cost of raw materials and leaf, adjusted profit from operations would have grown by approximately 10%.
Price mix of 5.9% was up from 4.2% in 2014. Underlying operating margin grew by around 160 bps, although on a reported basis it was down by 60 bps to 38.1%. This was largely due to the adverse transactional impact of unfavourable foreign exchange described above. These excellent results in 2015 are once again proof of the strength of our strategy. They were achieved despite unprecedented adverse exchange rate movements and continuing pressure on consumers' disposable income.'
During the year under review, Reinet sold 6.25 million BAT shares at an average price of GBP 38.585 per share; the aggregate proceeds amounting to EUR 307 million.
Reinet received dividends from BAT during the year amounting to EUR 149 million (GBP 110 million), being BAT's final 2014 dividend and interim 2015 dividend. In May 2016, after the end of the financial year, Reinet received BAT's final dividend in respect of its 2015 financial year; this amounted to EUR 88 million (GBP 70 million)and is not included in the current reported year-end results.
Reinet holds 68.1 million shares in BAT, representing some 3.7 per cent of BAT's issued share capital. The value of Reinet's investment in BAT amounted to EUR 3 512 million at 31 March 2016, being 67 per cent of Reinet's NAV. The BAT share price on the London Stock Exchange increased from GBP 34.885 at 31 March 2015 to GBP 40.900 at 31 March 2016. This increase in value is offset to some extent by the weakening of sterling against the euro during the year.
Further information on BAT is available at www.bat.com/annualreport.
SPDR GOLD SHARES
During the year under review, Reinet invested EUR 22 million in SPDR Gold shares ('GLD'), the largest physically backed gold exchange traded fund in the world. Over the long term gold can provide a hedge against inflation and offer some protection against value changes in turbulent economic and political times.
Reinet holds 230 000 shares with a market value of EUR 24 million as at 31 March 2016.
Further information on GLD can be found at www.spdrgoldshares.com.
UNLISTED INVESTMENTS
Reinet seeks, through a range of investment structures, to build partnerships with other investors, specialised fund managers and entrepreneurs to find and develop opportunities for long-term value creation for its shareholders.
Since its formation in 2008, Reinet has invested over EUR 1 750 million and at 31 March 2016 committed to provide further funding of EUR 348 million to its current investments. Details of the funding commitments outstanding are given in the table below. The increase in commitments during the year under review amounted to EUR 201 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.
PENSION INSURANCE CORPORATION
GROUP LIMITED
Pension Insurance Corporation Group Limited's ('Pension Corporation') wholly owned subsidiary, Pension Insurance Corporation plc ('Pension Insurance Corporation') is one of the UK's leading providers of risk management solutions to defined benefit pension funds. Pension Insurance Corporation provides tailored pension insurance buyouts and buy-ins to the trustees and sponsors of UK defined benefit pension funds. Pension Insurance Corporation brings safety and security to scheme members' benefits through innovative, bespoke insurance solutions, which include deferred premiums and the use of company assets as part payment. In 2015, Pension Insurance Corporation wrote new pension insurance business of GBP 3.8 billion of premiums including a GBP 2.4 billion pension insurance buyout with the trustees of the Philips UK pension fund. This transaction covers the pension benefits of around 26 000 UK pension scheme members. At 31 December 2015 Pension Insurance Corporation had GBP 16.6 billion in assets (31 December 2014: GBP 13.8 billion) and had insured more than 132 000 pension fund members (31 December 2014: 103 600). Clients include FTSE 100 companies, multinationals and the public sector.
Tracy Blackwell, Chief Executive Officer of Pension Insurance Corporation commented:
'2015 was a landmark year for Pension Insurance Corporation. We insured a record GBP 3.8 billion of liabilities, which just pipped the GBP 3.7 billion of liabilities we insured in 2013, we were one of only nineteen UK insurers to have our Internal Model approved by the Regulator as part of our Solvency II transition, and we attained recognition by a key industry body for our excellence in customer service. As a consequence, the overall value of the company grew 20% year-on-year.
In each of the past couple of years we have seen more than GBP 10 billion per annum of pension fund liabilities secured through insurance. With the markets having such a poor start to 2015, we were slightly concerned that pension funds would be put off transacting. However, the pipeline quickly filled up and we had a very busy year. Our conclusion was that those pension funds with a long-term plan, which includes aligning assets and liabilities as well as putting the right structures and processes in place to facilitate a buyout, can still transact despite market gyrations. In terms of context, GBP 10 billion is only about 0.5% of the total universe of defined benefit pension fund liabilities, which currently total more than GBP 2 trillion. An increase in the percentage of the total pension fund liabilities that transacts from 0.5% to between 1% and 2% per year is not implausible. Should that happen, trustees and their advisers want to know that there is capacity in the market. They will also want to be confident they are getting a fair price. Healthy competition helps bring confidence, but at the same time there remain high barriers to entry into this market.
We have become a leading insurer in our sector because our customers value innovative thinking, flexibility in delivery, high levels of customer service and our rigorous approach to pension risk management.'
Reinet's investment in Pension Corporation is carried at an estimated fair value of EUR 920 million at 31 March 2016 (31 March 2015: EUR 907 million), this value takes into account Pension Corporation's audited embedded value at 31 December 2015 of GBP 1 873 million (31 December 2014: GBP 1 624 million) and valuation multiples drawn from industry data.
The increase in estimated fair value is due to the increase in Pension Corporation's embedded value which reflects the expected release of margins, return on surplus assets and new business written, offset by the effect of changing economic variables during the year ended 31 December 2015; this increase in estimated fair value is offset by decreases in comparable valuation multiples being applied by the market in valuing listed companies in the UK insurance sector. These comparable market multiples are 15 per cent lower than those applied at 31 March 2015, reflecting the market movements relative to embedded value of the sector during the year. The change in estimated fair value also reflects the reduction of a discount applied by the Fund Manager from 20 per cent at 31 March 2015 to 10 per cent at 31 March 2016; the reduction reflects the increased maturity of the business. The increase in estimated fair value is further reduced by the weakening of sterling against the euro in the year.
In May 2016, subsequent to the Company's year-end, Pension Corporation announced its intention to raise capital of GBP 250 million (EUR 315 million). Reinet Fund has committed to invest up to GBP 140 million (EUR 177 million).
Further information on 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 Capital Partners, 36 South Capital Advisors, Milestone Capital, Prescient Investment Management China, Renshaw Bay and Vanterra Capital. 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. Trilantic primarily targets investments in the consumer, energy, industrials, technology, media and telecommunications, healthcare, financial and business services sectors, and currently manages six private equity funds with aggregate capital commitments of USD 7.4 billion.
Reinet and its minority partners invest in the Trilantic general partnerships and management companies (together 'Trilantic Management') and four of the six current funds under Trilantic's management. The terms of investment applicable to Reinet's investment in Trilantic Capital Partners IV L.P., Trilantic Capital Partners IV (Europe) L.P., Trilantic Capital Partners V (North America) L.P. and Trilantic Energy Partners (North America) L.P. provide that Reinet will not pay any management fees or carried interest. In addition, Reinet receives a share of the carried interest payable on the realisation of investments held in the funds, once a hurdle rate has been achieved.
Trilantic Capital Partners IV L.P. is in the process of realising value from underlying investments. In the year under review, distributions of some EUR 30 million were received.
In 2013 and 2014, Reinet committed to invest in Trilantic Capital Partners V (North America) L.P., Trilantic Energy Partners (North America) L.P., and their respective general partners. These US based funds are focused on North American opportunities with Trilantic Energy Partners (North America) L.P. being especially focused on the oil and gas sector. These funds continue to build their portfolios at a steady pace.
Charlie Ayres, Chairman of Trilantic North America and the Executive Committee of Trilantic Capital Partners, commented:
'We remain cautiously optimistic regarding the outlook of US domestic companies in general and believe that patience and duration are necessary to battle the continued headwinds on the energy front. We will continue adhering to our investment discipline, which we believe has been critical in protecting capital, enhancing value and maximising returns. We have both fully monetised and strategically partially monetised companies that have reached maturity, while methodically putting capital to work where we find attractive investment opportunities that can drive appropriate risk-adjusted returns. Patience and flexibility will be essential in our deployment of capital. We continue to strive to build value in our existing portfolio and focus on having our mature companies exit-ready to take advantage of attractive market dynamics.'
Trilantic Capital Partners IV (Europe) L.P.is also in the process of realising value from underlying investments. In the year under review, distributions of some EUR 69 million were received.
Vittorio Pignatti-Morano, Chairman of Trilantic Europe, commented:
'2015 has been characterised by a number of key developments in the world economy that have had and will have a lasting influence on currency movements, economic growth and asset prices. Among the economic trends that emerged in 2015 which we believe are relevant for Trilantic Europe's investment strategy are (i) the divergence of monetary policy between the US and Europe; (ii) the reversal of a six-year trend of growth and stability in developing economies, caused by a slowdown in global trade; (iii) the challenges facing the European banking system; (iv) the low economic growth in Europe which has, however, not been an impediment to asset prices growth and (v) a tumultuous period in European politics in 2015 with populist parties gaining traction in Spain, France, Germany and to some extent the UK with the Brexit referendum. Despite being rather alarming, these trends can present opportunities for value-oriented investors like Trilantic Europe but require in-depth analysis and actions – both in terms of decisions concerning existing portfolio companies and of selecting new investment opportunities that are compatible with the challenging scenario outlined above. Consequently, 2015 has been an important year for Trilantic Europe, which have seen positive developments in several fronts by (i) closing the fundraising of Trilantic Europe V at EUR 900 million; (ii) executing three successful exits from Trilantic Europe IV which resulted in distributions of c. 88% of invested capital by the fund and (iii) signing the first three investments of Trilantic Europe V on transactions that tick all the boxes of what we define as a "Trilantic Europe deal” - value investing in proprietary transactions sourced through our network in primary transactions partnering with the entrepreneurs and founding family.'
Reinet's and its minority partners' investment in Trilantic Management and all the above funds is carried at the estimated fair value of EUR 143 million at 31 March 2016 (31 March 2015: EUR 231 million) of which EUR 10 million (31 March 2015: EUR 20 million) is attributable to minority partners. The estimated fair value is based on audited and unaudited valuation data provided by Trilantic Management at 31 December 2015 adjusted for changes in the value of listed investments included in the portfolios. The decrease in the valuation is due to distributions of EUR 99 million together with the weakening of the US dollar against the euro in the year, offset by additional capital invested.
During the year under review, carried interest of EUR 6 million was received (31 March 2015: EUR 3 million).
Further information on Trilantic is available at www.trilantic.com.
RENSHAW BAY AND RELATED INVESTMENTS
Renshaw Bay advisory
and investment
management company
In 2011, Reinet co-invested with Mr William T. Winters, RIT Capital Partners plc and Renshaw Bay's management team in an advisory and investment management business, known as Renshaw Bay.
Following the departure of Mr Winters, Renshaw Bay completed the transfer of its Real Estate Finance business to entities in the group headed by GAM Holding AG and in December 2015 the Renshaw Bay Structured Finance Opportunity L.P. was dissolved. As a result of these developments, Reinet re-evaluated the expected cash flows from the business and accordingly adjusted the value of its investment in Renshaw Bay.
Richard Berliand, Chairman of the Management Committee of Renshaw Bay, commented:
'In August 2015, Renshaw Bay agreed the sale of the principal assets of its real estate finance business to companies in the independent asset management group headed by GAM Holding AG. The sale to GAM was completed on 2 October 2015 and, in the context of senior management changes at Renshaw Bay in 2015, provided an excellent opportunity for the preservation and development of the value of the real estate finance business for Renshaw Bay's investors and shareholders.
Although Renshaw Bay's structured finance business had made significant progress since its first fund was launched in late 2013, the decision was made in 2015 to reduce that aspect of the business, some structured finance-related activities are continuing. The number of Renshaw Bay's personnel was reduced substantially in the second half of 2015, commensurate with these changes.'
The investment in Renshaw Bay is carried at the estimated fair value of EUR 11 million at 31 March 2016 based on future cash flow information provided by Renshaw Bay's management team (31 March 2015: EUR 33 million).
Following its investment in Renshaw Bay, Reinet also invested in JPS Credit Opportunities Fund (Cayman) Ltd, Renshaw Bay Real Estate Finance Fund and Renshaw Bay Structured Finance Opportunity L.P. These investments are described below.
Further information on Renshaw Bay may be found at www.renshawbay.com.
JPS Credit Opportunities
Fund (Cayman) Ltd.
The investment in JPS Credit Opportunities Fund (Cayman) Ltd ('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.
The investment is carried at the estimated fair value of EUR 84 million at 31 March 2016 (31 March 2015: EUR 85 million) based on the valuation at that date provided by the fund manager.
The decrease in estimated fair value during the year is due to increases in the value of underlying investments offset by the weakening of the US dollar against the euro during the year.
Renshaw Bay Real
Estate Finance Fund
In October 2015, Renshaw Bay completed the transfer of its Real Estate Finance business to entities in the group headed by GAM Holding AG.
The Renshaw Bay Real Estate Finance Fund ("REFF”) 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. Its real estate strategy focuses on the origination of commercial real estate loans primarily in Western Europe, and with a focus on the UK. REFF held its successful final closing at the end of February 2015 with committed capital of GBP 258 million. At December 2015, REFF held eighteen investments, in addition, there are six investments in progress which will be financed over the current year.
The investment is carried at the estimated fair value of EUR 83 million at 31 March 2016 (31 March 2015: EUR 55 million) based on audited valuation data provided by the fund manager at 31 December 2015.
The increase in estimated fair value is mainly due to Reinet's capital contributions in the year.
Renshaw Bay Structured
Finance Opportunity L.P.
During the year under review, Renshaw Bay Structured Finance Opportunity L.P. was dissolved with all cash and remaining assets returned to its limited partners.
Reinet had invested a total of EUR 46 million in the fund; in connection with the dissolution it received cash distributions amounting to EUR 38 million and a distribution of assets with an estimated fair value of EUR 9 million.
The assets received are included in 'Other investments'.
36 SOUTH GLOBAL
MACRO/VOLATILITY
FUNDS
36 South Capital Advisors LLP ('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 following 36 South funds:
The 36 South Black Eyrar Fund which is a left tail-risk protection strategy investing in volatility across all asset classes and geographical areas. The fund is designed to deliver significant returns should some or all financial asset markets suffer a lower tail risk event, ie an asset price move of greater than 3 standard deviations towards lower equity markets, lower bond yields, lower commodities and higher currency volatility. The fund invests up to 95 per cent in options and investment levels will be decided upon based on these opportunities.
The Kohinoor Core Fund which was launched in March 2011 and is the 'high octane' offering within the Kohinoor Strategy. Up to 95 per cent of initial capital is invested in the options portfolio and it aims to achieve significant returns with commensurate risk over a medium- to long-term investment period.
Richard Haworth, Chief Executive Officer of 36 South, commented as follows:
'36 South was established in 2001 and specialises in finding cheap convexity, principally in long-dated options, across all asset classes. Our global volatility strategies are designed to perform well in most market environments, but substantially outperform in periods of extreme market movement and volatility.
Markets experienced volatility in both August and January which was reflected in the strongly positive performance in those months. These gains were given back however as Central Banks seemed determined to dampen down volatility and institute measures which reverse negative market direction whenever these moves start to get meaningful. This has the result of not only dampening down our positive performance, but has resulted in losses on the portfolio of some 20% over the financial year. These results are within expectations given the market environment. Whilst these may persist in the short term, we believe the net effect will be an outsize volatility/market move in the medium- to long-term resulting in commensurate returns to the portfolio. Assets under management increased however by some 7% reflecting continual support from the investment community for our product offering.'
The investment in the funds is carried at an estimated fair value of EUR 54 million, based on unaudited financial information received from the fund manager as at 31 March 2016 (31 March 2015: EUR 69 million). The estimated fair value of the investment in the fund management and distribution companies amounted to EUR 8 million (31 March 2015: EUR 8 million). The investments in total have an estimated fair value of EUR 62 million (31 March 2015: EUR 77 million). The change in valuation reflects the movement in the value of the underlying investments held by the funds.
Further information on 36 South may be found at www.36south.com.
ASIAN PRIVATE EQUITY AND PORTFOLIO FUNDS
Milestone China Opportunities
funds, investment holdings and
management company
participation
Reinet has invested along with Milestone Capital in a management company based in Shanghai, and has also invested in certain funds and investment companies managed by Milestone Capital (together 'Milestone').
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; retail pharmacies and online education.
Yunli Lou, Managing Partner of Milestone Capital, commented:
'2015 was a productive year for Milestone. Throughout the year, we deployed USD 45.3 million to five investments in consumer, healthcare and internet / new economy sectors, including four follow-on investments into existing portfolio companies to support further growth. We continued to work closely with our portfolio companies to drive operational excellence and help with various strategic initiatives. During 2015, one of our portfolio companies completed its listing on the Taiwan Emerging Stock Board, and two portfolio companies completed new rounds of equity financing. We also fully exited from our investment in a men's apparel company with total proceeds of USD 36.6 million, or an IRR of 58.3% over a 19-month period.
China's GDP growth in 2015 decelerated to 6.9% from 7.3% in 2014, the lowest since 1991, in line with market expectations. The growth continued to be largely driven by the consumer and services sectors (the tertiary industry), accounting for 50.5% of GDP, 2.4% higher than the previous year, the fourth consecutive year as the largest part and the first year in history to account for over 50% of China's GDP. Consumption remained strong and contributed 66.4% of GDP growth in 2015, while manufacturing and construction further weakened. We believe that the Chinese economy's rebalancing towards a more-consumption, less-investment and less-export driven structure will continue, where retail is expected to continue its double-digit growth while old growth engines such as heavy industries and infrastructure construction will continue to lose steam. While slowdown is inevitable, this rebalancing will create a healthier structure for long-term growth.'
The investment in Milestone is held at the estimated fair value of EUR 113 million (31 March 2015: EUR 116 million) based on audited financial information provided by Milestone Capital at 31 December 2015 adjusted for movements in listed investments and cash movements up to 31 March 2016. The change in estimated fair value reflects the decrease due to the repayment of capital, decreases in the value of listed investments and the weakening of the US dollar against the euro.
Further information on Milestone Capital and Milestone funds may be found at www.mcmchina.com.
Prescient China Balanced
Fund and investment
management company
Prescient China Balanced Fund ('Prescient China') is a fund managed by a subsidiary of Prescient Limited, a South African-listed fund manager. The 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.
Liang Du, Portfolio Manager of Prescient China, commented:
'2015 was a volatile year, with the equity market rising in the first half before decreasing in the second half and continuing into the first quarter of 2016. Under a volatile market the fund performed well, outperforming the benchmark as well as market based indices in 2015. This resulted in the fund being the best performing unit trust in South Africa for a second year running for the 2015 calendar year. At the end of March 2016 the fund will have been in operation for three years. Since inception the fund has comfortably beaten its benchmark of Chinese Inflation + 3% by around 13% and when compared to a market based benchmark of 65% equity 35% cash, the fund is ahead by 7%. With the market falling in the second half the operating environment became much harder, as China once again became an unfashionable investment destination.'
Reinet invests in Prescient China and in the management company. These investments are carried at the estimated fair value of EUR 42 million based on unaudited financial information provided by the fund manager at 31 March 2016 (31 March 2015: EUR 48 million). The decrease in estimated fair value over the year under review is the result of decreases in the value of underlying listed investments and the weakening of the US dollar against the euro in the year.
Further information on Prescient China may be found at www.prescient.co.za.
SPECIALISED PRIVATE EQUITY FUNDS
Vanterra Flex
Investments L.P.
Vanterra Flex Investments L.P. ('Vanterra') was established in 2010 to invest in privately issued securities and to make direct investments in the US 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, the United States land development and mortgages, Vanterra C Change Transformative Energy and Materials I, L.P. and Vanterra C Change Transformative Energy and Materials AIV-A, L.P. Vanterra also has investments in established platforms in US healthcare, small business credit, distressed general partner secondaries and Brazil.
Shad Azimi, Managing Partner of Vanterra Capital, commented:
'In 2015, the private equity markets enjoyed another strong year of capital distributions despite public market volatility and increasing economic uncertainty. A large amount of dry capital remaining in funds continued to fuel competition for deals and push investment multiples to new highs.
We began to achieve meaningful exits in 2015 as we shifted our focus from investing to harvesting the portfolio and generating liquidity. The majority of our geographic exposure is in the US, which has benefited from a strong sellers' market. This was evidenced by impressive portfolio company exits in Trilantic Capital Partners Fund IV and Cressey and Company Health Care Fund IV. We achieved significant milestones for several portfolio companies in Vanterra Transformative Energy and Materials. Our exposure to Brazil through BTG Pactual Brazil Investment Fund I was negatively impacted by foreign currency depreciation and continued economic headwinds in the country, and therefore we anticipate longer hold periods in Brazil.
In 2016, Vanterra will look to realise 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.'
Reinet is an investor in both Vanterra and in its general partner.
Vanterra is in the process of disinvesting and distributing assets. During the year under review distributions amounting to EUR 15 million were received.
This investment is carried at the estimated fair value of EUR 30 million at 31 March 2016, based on unaudited financial information as at 31 December 2015, adjusted for cash movements and changes in prices of listed investments (31 March 2015: EUR 53 million). The decrease in estimated fair value is due mainly to the distributions received, decreases in the value of listed investments and the weakening of the US dollar against the euro.
Further information on Vanterra may be found at www.vanterra.com.
Vanterra C Change
Transformative Energy
and Materials
Vanterra C Change Transformative Energy and Materials ('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.
Dan Matloff, Chief Financial Officer of TEM Capital, commented:
'Over the past year, Vanterra C Change TEM narrowed its focus to the portfolio companies with the highest upside potential, while recovering as much capital as possible from other investments. The IPO of Talgo, S.A., provided Vanterra C Change TEM with a 3.3x multiple of invested capital (in US dollar terms), for the 45% of our holding that we sold. Also, we sold one of the remaining two businesses in our building materials platform, to generate cash and focus our efforts on the one with greater upside potential. Our 76%-owned alternative cement portfolio company has a patent-issued technology product that displaces ordinary Portland cement, the second-most consumed commodity in the world. Over the past year, the company made meaningful progress, building the operational team, growing revenues, and entering 2016 with a significantly improved feedstock supply situation that enables ongoing improvements to operating results. The Vanterra C Change TEM fund continues to focus on limiting further commitments, while maximising returns on our existing investments.'
Reinet is an investor in Vanterra C Change TEM and in its general partner.
In the year under review, Reinet received a distribution of EUR 7 million from Vanterra C Change TEM and its general partner, following the partial sale of its holding in Talgo, S.A. Of this distribution EUR 6 million represents a recallable return of capital and EUR 1 million represents capital returned.
The investment is carried at the estimated fair value of EUR 23 million at 31 March 2016, based on audited financial information as at 31 December 2015, adjusted for cash movements and changes in prices of listed investments (31 March 2015: EUR 30 million). The decrease in estimated fair value is due mainly to the repayment of capital, decreases in value of listed investments and the weakening of the US dollar against the euro.
Further information on Vanterra C Change TEM may be found at www.temcapital.com.
NanoDimension funds
and co-investment
opportunities
NanoDimension Management Ltd 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. Areas of investment by the funds include: pharmaceuticals and drug delivery structures; optical and electronic switches; and thin film photo-chromatic coatings.
Aymeric Sallin, Founder of NanoDimension Management Ltd, commented:
'2015 was in line with the previous years: nanotechnology is on a steady, healthy growth trajectory.
It was an exciting year for the portfolio, with existing and new companies making significant progress on technology development and commercialisation. View will equip with its Dynamic Glass the new headquarters of major Silicon Valley companies. ARMO Therapeutics has enrolled almost three hundred patients in their Phase 1 clinical programs for five different cancers. Twist Bioscience is finalising its DNA foundry scale up and has already sold several months of its capacity for 2016.
We continue to believe that the convergence of biology, chemistry, and physics enables breakthrough technologies with broad applications across all industries. Portfolio companies like Emulate, Twist Bioscience, and Click Diagnostics have built products that sit at the intersection of the life and physical sciences.
We are seeing the convergence of industries, where major global companies are broadly expanding their scope. Companies like Alphabet, Apple, Microsoft and Samsung are moving into healthcare; companies like Dow, DuPont, and Exxon are using biological tools to solve problems in the chemical and oil industries. This convergence of industries increases the number of potential buyers that should impact positively the exit valuations.'
At 31 March 2016, the estimated fair value of Reinet's investment in the two funds and a co-investment amounted to EUR 48 million (31 March 2015: EUR 56 million). The estimated fair value is based on audited valuation data received from the fund manager as at 31 December 2015, together with an independent valuation of the co-investment. The decrease in estimated fair value reflects decreases in the value of underlying investments and the weakening of the US dollar against the euro in the year.
Further information on NanoDimension may be found at www.nanodimension.com.
Fountainhead Expert
Fund
Fountainhead Expert Fund ('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.
Andre Cillie, Managing Partner of Andre Cillie Capital Management (Pty) Limited, manager of Fountainhead, commented:
'2015 was a disappointing year for us from a return perspective. In fact the last two years have been very difficult for all value investors as the age of free money drove premiums of fashionable growth stocks over value stocks to extremes last seen in the late 90's. The underperformance of old economy or bricks and mortar companies has been specifically acute.
The last two years have been very painful as our view of US financials being by far the cheapest part of the market has been frustrated by a very dovish federal reserve. The banks are in better shape than ever, yet the market is pricing them as if the US is already in a deep recession, allocating the banks no credit for the tremendous transformation they have undertaken since the great recession. Valuations of the big US financials are providing terrific value and we believe that return of capital via buybacks at a time when they trade at significant (>30%) discount to book value and near record discount to the overall market cannot come at a better time.'
At 31 March 2016, the estimated fair value of the investment was EUR 19 million based on the unaudited valuation at that date provided by the fund manager (31 March 2015: EUR 30 million). The decrease in estimated fair value is the result of decreases in the value of underlying listed investments and the weakening of the US dollar against the euro.
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 estimated fair value of EUR 13 million at 31 March 2016 based on valuation statements received from the fund managers (31 March 2015: EUR 14 million).
UNITED STATES LAND
DEVELOPMENT AND
MORTGAGES
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. Reinet has also purchased mortgage debt linked to such developments from financial institutions, usually at significant discounts to face value.
In addition, Reinet has invested in residential golf communities, owning the land for sale to future homeowners together with infrastructure assets. This latter investment is known as Arendale.
John Kunkel, Chief Executive Officer of Arendale Holdings Corporation, commented:
'Investments in this portfolio concentrate on two segments of the US residential markets: 1) Community housing for the populous; and, 2) high-end country club "lifestyle” communities which includes club operations for various country clubs within the communities. Operating results have been mixed. On the one hand, real estate sales for the calendar year ended 2015 have increased 12% and club operations have posted 7% revenue gains from the prior year. Both are ahead of industry averages. On the other hand, however, asset values have reduced, primarily related to club related assets due to longer lead times to get clubs to a stable membership base.
Specific to the portfolio of properties managed, our communities managed are primarily located in the Southeastern US, which has in the past led the nation in housing starts. Secondly, the two segments of the population which have recently been experiencing the biggest increases in household creations, and thus new home purchases, are the millennial generation and the retiring generation. Our community offerings cater primarily to both ends of the spectrum. Thirdly, many of our communities are widely recognised as premier communities within their respective market segments. This is important as we should outperform the competition in a continued housing recovery.'
During the year under review, Reinet purchased certain minority interests and repaid funding provided by a minority partner for the total amount of EUR 9 million.
The investment is carried at the estimated fair value of EUR 164 million (31 March 2015: EUR 207 million), of which EUR 2 million is attributable to minority partners (31 March 2015: EUR 8 million).
The current valuation is based on audited financial statements as at 31 December 2015 adjusted for cash movements up to 31 March 2016. The decrease in the valuation reflects decreases in land values, changes in the expected rate of lot sales, changes in forecast management expenses and the weakening of the US dollar against the euro during the year.
Further information on Arendale may be found at www.arendale.com.
DIAMOND INTERESTS
Reinet has invested in two projects in South Africa. Firstly 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. In addition, Reinet has an interest in a separate project, which has acquired rights to source diamonds on a previously unexploited site at Rooipoort near Kimberley in South Africa. Both entities are fully operational and continue to repay loans to Reinet.
Henk van Zuydam, Chief Financial Officer of both projects, commented as follows:
'Jagersfontein and Rooipoort achieved positive trading results during the past financial year. This is attributed to good production levels, effective cost management and the derived benefit of the depreciation of the South African rand against the US dollar. During the year the companies implemented various new technologies in the recovery of diamonds which has enhanced the companies' recovery capabilities and also increased efficiencies.
The benefits of the above were diluted by the softer world rough diamond pricing experienced during the course of the year due to the continued slowdown in the global economy. The general decline in rough prices notwithstanding, Jagersfontein and Rooipoort goods enjoyed strong demand at their tenders evidenced by continued high attendances which resulted in competitive bidding. From November 2015 there were tentative signs that rough diamond prices in the market were recovering, a trend that has continued into 2016.'
In total these projects are carried at their estimated fair value of EUR 59 million at 31 March 2016 (31 March 2015: EUR 92 million) based on discounted cash flow projections. The decrease in estimated fair value reflects repayment of loans and interest in the year amounting to EUR 13 million along with the decrease in market prices of rough diamonds and the weakening of the South African rand against the euro in the year, offset by a decrease in the discount rate applied to the cash flow projections.
Reinet has borrowed ZAR 443 million to fund its investments in these projects and entered into a forward exchange contract to sell ZAR 550 million (31 March 2015: ZAR 715 million).
OTHER INVESTMENTS
The increase in other investments relates to two new investments in the year, the first is a venture in the digital music industry with an estimated fair value of EUR 25 million and the second, a 3D manufacturing initiative with an estimated fair value of EUR 22 million. In addition, as noted above, the remaining assets distributed from the Renshaw Bay Structured Finance Opportunity L.P. are included in this caption with an estimated fair value of EUR 10 million.
There were no significant changes in value during the year in respect of other investments either as a result of movements in the valuation of underlying investments, further amounts invested or returns of capital.
COMMITTED FUNDS
Funding commitments are entered into in various currencies including sterling, US dollar and South African rand and are converted into euro using 31 March 2016 exchange rates.
The table below summarises Reinet's outstanding investment commitments at 31 March 2016.
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
| | | Exchange| Committed| Funded| | |
| | 31 March| rate| during the| during the| 31 March|31 March|
| | 2015(1)| effects(2)| year(3)| year(3)| 2016(3)| 2016|
| | EUR m| EUR m| EUR m| EUR m| EUR m| %|
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|SPDR Gold shares | -| -| 22| (22)| -| -|
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Pension Corporation | -| -| -| -| -| -|
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Private equity and related partnerships | | | | | | |
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Trilantic Capital Partners | | | | | | |
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Fund IV, Fund V, TEP | 123| (6)| 14| (11)| 120| 34.5|
|and related management companies(4) | | | | | | |
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Renshaw Bay and related investments | | | | | | |
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Renshaw Bay advisory and | 2| -| -| -| 2| 0.6|
|investment management company | | | | | | |
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|JPS Credit Opportunities Fund | -| -| -| -| -| -|
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Renshaw Bay Real Estate Finance Fund(5) | 83| (7)| -| (31)| 45| 12.9|
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Renshaw Bay Structured | 84| (5)| (79)| -| -| -|
|Finance Opportunity L.P. | | | | | | |
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|36 South macro/volatility funds | -| -| -| -| -| -|
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Asian private equity and portfolio funds| | | | | | |
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Milestone China Opportunities | 22| (1)| -| (11)| 10| 2.9|
|funds, investment holdings and | | | | | | |
|management company participation | | | | | | |
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Prescient China Balanced Fund | -| -| -| -| -| -|
|and investment management company | | | | | | |
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Specialised private equity funds | | | | | | |
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Vanterra Flex Investments | 42| (3)| -| (4)| 35| 10.1|
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Vanterra C Change TEM(5) | 1| -| -| 4| 5| 1.4|
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|NanoDimension funds and | 16| (1)| -| (3)| 12| 3.4|
|co-investment opportunities | | | | | | |
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Fountainhead Expert Fund | 19| (1)| -| -| 18| 5.2|
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Other fund investments(6) | 3| -| 88| (1)| 90| 25.9|
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|United States land | -| -| 17| (12)| 5| 1.4|
|development and mortgages(4) | | | | | | |
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Diamond interests | 3| (1)| -| -| 2| 0.6|
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
|Other investments | 7| -| 60| (63)| 4| 1.1|
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
| | 405| (25)| 122| (154)| 348| 100.0|
+----------------------------------------+-----------+--------------+-------------+--------------+--------------+--------+
(1) Commitments calculated using 31 March 2015 exchange rates.
(2) Reflects exchange rate movements between 31 March 2015 and 31 March 2016.
(3) Amounts calculated using 31 March 2016 exchange rates.
(4) Commitments noted represent only Reinet's share of the investments at 31 March 2016; additional commitments payable by minority partners amount to EUR 5 million in respect of Trilantic and EUR nil in respect of United States land development and mortgages.
(5) Certain repayments of capital increased the outstanding commitment.
(6) Includes Snow Phipps III.
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 380 m
Undrawn borrowing facilities EUR 379 m
Cash required for unfunded commitments (refer to table above) ( EUR 348 m )
Cash required to meet ZAR borrowing obligations (refer to note below) ( EUR 26 m )
Existing bank borrowings of EUR 391 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 Bank N.A. of GBP 150 million, in total GBP 300 million (EUR 379 million). At 31 March 2016, 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 2016, the estimated fair value of the borrowing was EUR 380 million (31 March 2015: EUR 415 million). The decrease in estimated fair value reflects the weakening of sterling against the euro, offset by a decrease in interest rates 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 estimated fair value of EUR 11 million as at 31 March 2016 (31 March 2015: EUR 25 million). Some 1 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 2016, the estimated fair value of the borrowing was EUR 26 million (31 March 2015: EUR 34 million); the decrease in estimated fair value is due to the weakening of the South African rand against the euro 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 estimated fair values at the balance sheet date. The net derivative liability is carried at its estimated fair value of EUR 80 million at 31 March 2016 (31 March 2015: EUR 26 million). The increase in the value of the liability is due to the increase in the BAT share price of over GBP 6 in the year.
Reinet has entered into a forward exchange contract to sell ZAR 550 million (31 March 2015: ZAR 715 million). The derivative asset in respect of the forward exchange contract is carried at its estimated fair value of EUR 2 million at 31 March 2016 (31 March 2015: liability of EUR 6 million). The change in value reflects the weakening of the South African rand against the euro in the year.
OTHER LIABILITIES
MINORITY INTEREST, FEES PAYABLE AND OTHER LIABILITIES, NET OF OTHER ASSETS
The minority interest liability amounts to EUR 15 million (31 March 2015: EUR 23 million) and is in respect of minority partners' share in the gains and losses not yet distributed to them arising from the fair value movement of investments in which they have interests.
Fees payable and other liabilities comprise principally an accrual of EUR 5 million in respect of the performance fee payable as at 31 March 2016 (31 March 2015: EUR 78 million), together with the half-yearly management fee payable of EUR 22 million (31 March 2015: EUR 18 million), a provision for deferred taxes of EUR 10 million (31 March 2015: EUR 24 million) relating to gains arising from the investments in Trilantic and withholding and corporate taxes of EUR 18 million (31 March 2015: EUR 14 million) relating to the investment in United States land development and mortgages. Accruals and other payables amount to some EUR 10 million (31 March 2015: EUR 4 million).
The performance fee and management fee are payable to the Investment Advisor.
+-----------------------+---------------+-----+-------------------+-----+
|SUMMARISED | Year ended 31| | Year ended 31| |
|CONSOLIDATED INCOME | March 2016| | March 2015| |
|STATEMENT | | | | |
+-----------------------+---------------+-----+-------------------+-----+
| | EUR m|EUR m| EUR m|EUR m|
+-----------------------+---------------+-----+-------------------+-----+
|Income | | | | |
+-----------------------+---------------+-----+-------------------+-----+
|BAT dividends | 149| | 133| |
+-----------------------+---------------+-----+-------------------+-----+
|Interest and other | 35| | 21| |
|investment income | | | | |
+-----------------------+---------------+-----+-------------------+-----+
|Realised gains on | 178| | 20| |
|investments - BAT | | | | |
+-----------------------+---------------+-----+-------------------+-----+
|- others | 73| | -| |
+-----------------------+---------------+-----+-------------------+-----+
|Realised gains on | 1| | -| |
|foreign exchange | | | | |
|contracts | | | | |
+-----------------------+---------------+-----+-------------------+-----+
|Carried interest | 6| 442| 3| 177|
|earned on investments | | | | |
+-----------------------+---------------+-----+-------------------+-----+
| | | | | |
+-----------------------+---------------+-----+-------------------+-----+
|Expenses | | | | |
+-----------------------+---------------+-----+-------------------+-----+
|Management fee | (46)| | (39)| |
+-----------------------+---------------+-----+-------------------+-----+
|Performance fee | (5)| | (78)| |
+-----------------------+---------------+-----+-------------------+-----+
|Operating expenses, | (7)| | (7)| |
|foreign exchange and | | | | |
|transaction-related | | | | |
|costs | | | | |
+-----------------------+---------------+-----+-------------------+-----+
|Interest expense | (12)| | (12)| |
+-----------------------+---------------+-----+-------------------+-----+
|Tax income/(expense) | 5| (65)| (6)|(142)|
+-----------------------+---------------+-----+-------------------+-----+
|Realised investment | | 377| | 35|
|income, net | | | | |
|of expenses | | | | |
+-----------------------+---------------+-----+-------------------+-----+
|Fair value adjustments | | | | |
+-----------------------+---------------+-----+-------------------+-----+
|BAT - unrealised | 234| | 582| |
|gain on shares held | | | | |
+-----------------------+---------------+-----+-------------------+-----+
|- reversal of | (172)| | -| |
|unrealised gain on | | | | |
|shares sold (1) | | | | |
+-----------------------+---------------+-----+-------------------+-----+
|Other investments | (253)| | 448| |
+-----------------------+---------------+-----+-------------------+-----+
|Derivative instruments | (46)| | (19)| |
+-----------------------+---------------+-----+-------------------+-----+
|Borrowings | 47|(190)| (62)| 949|
+-----------------------+---------------+-----+-------------------+-----+
| | | 187| | 984|
+-----------------------+---------------+-----+-------------------+-----+
|Effect of exchange rate| | (10)| | 14|
|changes on | | | | |
|cash balances | | | | |
+-----------------------+---------------+-----+-------------------+-----+
|Net profit | | 177| | 998|
+-----------------------+---------------+-----+-------------------+-----+
|Minority interest | | (2)| | (6)|
+-----------------------+---------------+-----+-------------------+-----+
|Profit attributable | | 175| | 992|
|to the shareholders of | | | | |
|the Company | | | | |
+-----------------------+---------------+-----+-------------------+-----+
(1) The reversal of the unrealised gain on shares sold represents the unrealised gain as at 1 April 2015 on the 6.25 million BAT shares sold during the year ended 31 March 2016.
INCOME
Dividends received from BAT increased from EUR 133 million (GBP 107 million) during the year under review to EUR 149 million (GBP 110 million). The increase is due to the increase of GBP 0.05 in the dividend per BAT share and the strengthening of the sterling/euro exchange rate at the time of the dividend payments. The dividends received from BAT represent the final 2014 dividend paid in May 2015, as well as the interim 2015 dividend paid in September 2015.
Interest income is earned on bank deposits and loans made to underlying investments.
Total realised gains on investments of EUR 251 million includes EUR 178 million in respect of the sale of 6.25 million BAT shares calculated by reference to the cost of the investment when the BAT shares were first carried at fair value when Reinet was established in 2008. Other gains comprise EUR 75 million in respect of investments realised by the Trilantic funds and net realised losses of EUR 2 million in respect of other investments. Reinet's share of the Trilantic gains amounts to EUR 68 million with a further EUR 7 million being attributable to the minority partner.
Gains of EUR 1 million were realised on the settlement of the euro/South African rand foreign exchange contracts during the year.
Carried interest of EUR 6 million was attributable to Reinet in respect of investments realised by the Trilantic funds.
EXPENSES
The performance fee payable for the year ended 31 March 2016 amounts to EUR 5 million (31 March 2015: EUR 78 million). The performance fee is calculated as 10 per cent of the Cumulative Total Shareholder Return as defined in the Company's Prospectus, published on 10 October 2008 (the 'Prospectus'), including dividends paid, over the period since completion of the rights issue in December 2008 up to 31 March 2016, less the sum of all performance fees paid in respect of previous periods.
The management fee for the year ended 31 March 2016 amounts to EUR 46 million (31 March 2015: EUR 39 million). Operating expenses of EUR 7 million include 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 South African rand denominated borrowings.
The net tax income of EUR 5 million includes corporate and withholding taxes payable in respect of gains realised on Trilantic investments, offset by a reduction in the deferred tax provision related to unrealised gains, expected distributions and accrued interest in respect of the Trilantic funds and other US investments.
FAIR VALUE ADJUSTMENTS
The investment in 68.1 million BAT shares increased in value by EUR 234 million during the year under review. Of this, EUR 565 million was attributable to the increase in value of the underlying BAT shares in sterling terms offset by EUR 331 million due to the weakening of sterling against the euro during the year under review.
The unrealised fair value adjustment of EUR 253 million in respect of other investments includes an increase in the estimated fair value of the investment in Pension Corporation of EUR 13 million, a decrease in the estimated fair value of the Trilantic funds of EUR 77 million, decreases in the estimated fair value of the investment in United States land development and mortgages of EUR 78 million, decreases in the estimated fair value of the investment in Diamond interests of EUR 26 million together with decreases of EUR 85 million in respect of certain other investments. The above amounts include the negative effect of changes in foreign exchange rates due to the depreciation of other currencies against the euro in the year under review.
The estimated fair value of the collar financing derivative liability increased by EUR 54 million during the year, reflecting the increase in the price of the BAT shares underlying the put and call options. The estimated fair value of the forward exchange contracts increased by EUR 8 million, thereby changing from a liability at the beginning of the year to an asset at the end of the year, reflecting the weakening of the South African rand against the euro. In total, these items increased the derivative liabilities by EUR 46 million in the year under review.
Borrowings are carried at estimated fair value reflecting the discounted cash flow value of future principal and interest payments taking into account prevailing interest rates. An unrealised gain of EUR 8 million arose in respect of the South African rand borrowing due to the weakening of the South African rand against the euro during the year. An unrealised gain of EUR 39 million arose in respect of the sterling borrowing. Of this, a gain of EUR 37 million is due to the weakening of the sterling/euro exchange rate during the year.
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 United States land development and mortgages interests, respectively.
+------------------------+-------------+------+-------------+------+
|CONSOLIDATED CASH |Year ended 31| |Year ended 31| |
|FLOW STATEMENT |March 2016 | |March 2015 | |
+------------------------+-------------+------+-------------+------+
| | EUR m| EUR m| EUR m| EUR m|
+------------------------+-------------+------+-------------+------+
|Investing activities | | | | |
+------------------------+-------------+------+-------------+------+
|Purchase of investments,| (116)| | (216)| |
|net of repayments | | | | |
+------------------------+-------------+------+-------------+------+
|Proceeds from sales | 457| 341| 36| (180)|
|of investments | | | | |
+------------------------+-------------+------+-------------+------+
| | | | | |
+------------------------+-------------+------+-------------+------+
|Financing activities | | | | |
+------------------------+-------------+------+-------------+------+
|Dividend paid | (31)| | (30)| |
+------------------------+-------------+------+-------------+------+
|Repayment of funding | (5)| | (14)| |
|to minority partners | | | | |
+------------------------+-------------+------+-------------+------+
|Proceeds from settlement| 1| | -| |
|of derivative assets | | | | |
+------------------------+-------------+------+-------------+------+
|Movements in | (10)| (45)| (8)| (52)|
|bank borrowings | | | | |
+------------------------+-------------+------+-------------+------+
| | | | | |
+------------------------+-------------+------+-------------+------+
|Operating activities | | | | |
+------------------------+-------------+------+-------------+------+
|Dividends, interest and | 149| | 133| |
|other income received | | | | |
+------------------------+-------------+------+-------------+------+
|Carried interest earned | 6| | 3| |
|on investments | | | | |
+------------------------+-------------+------+-------------+------+
|Interest expense | (12)| | (12)| |
+------------------------+-------------+------+-------------+------+
|Operating and | (43)| | (45)| |
|related expenses | | | | |
+------------------------+-------------+------+-------------+------+
|Performance fee paid | (78)| | (12)| |
+------------------------+-------------+------+-------------+------+
|Taxation (paid)/refunded| (4)| 18| 4| 71|
+------------------------+-------------+------+-------------+------+
| | | | | |
+------------------------+-------------+------+-------------+------+
|Net cash | | 314| | (161)|
|Inflow/(outflow) | | | | |
+------------------------+-------------+------+-------------+------+
|Opening liquid | | 76| | 223|
|funds position | | | | |
+------------------------+-------------+------+-------------+------+
|Effects of exchange rate| | (10)| | 14|
|changes on cash balances| | | | |
+------------------------+-------------+------+-------------+------+
|Closing liquid | | 380| | 76|
|funds position | | | | |
+------------------------+-------------+------+-------------+------+
INVESTING ACTIVITIES
Investments totalling EUR 116 million were made during the year, including SPDR Gold shares, United States land development and mortgages, Trilantic, Milestone, Renshaw Bay Real Estate fund and new investments in the digital music industry and 3D manufacturing initiative. Amounts invested were partially offset by repayments in respect of loans and interest received from Jagersfontein and Rooipoort.
Proceeds from the sale of investments include EUR 307 million in respect of the BAT shares sold during the year, EUR 99 million realised through Trilantic, a distribution of EUR 40 million following the dissolution of the Renshaw Bay Structured Finance Opportunity L.P. and EUR 11 million on the sale of other investments.
FINANCING ACTIVITIES
A dividend of some EUR 31 million was paid to shareholders in September 2015 (September 2014: EUR 30 million).
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 12 per cent from EUR 133 million (GBP 107 million) to EUR 149 million (GBP 110 million) during the year under review. The increase is due to an increase of GBP 0.05 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 2014 dividend, paid in May 2015, as well as the interim 2015 dividend paid in September 2015.
Carried interest of EUR 6 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 South African rand-denominated loan in the year.
The performance fee of EUR 78 million was paid in respect of the year ending 31 March 2015. A performance fee of EUR 5 million is payable in respect of the current year.
US tax payments of EUR 4 million were made in the year under review. This amount includes 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 US.
Liquid funds increased by EUR 304 million over the year to EUR 380 million as the proceeds from the sale of investments and BAT dividends received exceeded amounts invested in new investments together with payment of the dividend, performance fee and operating expenses.
DIVIDEND
The Company relies on distributions from Reinet Fund as its principal source of income from which it may pay dividends.
A cash dividend of EUR 0.157 per share totalling some EUR 31 million was paid in September 2015, following approval at the annual general meeting on 25 August 2015.
The General Partner has proposed a cash dividend of EUR 0.161 per share subject to shareholder approval at the annual general meeting, which is scheduled to take place in Luxembourg on Tuesday, 30 August 2016.
There is no Luxembourg withholding tax payable on dividends which may be declared by the Company.
The Company has sought clarification from the South African Revenue Service ('SARS') as to the treatment of any dividends to be declared by and paid to holders of Reinet Depository Receipts ('DRs'). SARS has confirmed 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 Tuesday, 6 September 2016. Both the Company's shares and the Company's DRs will trade ex-dividend from Wednesday, 7 September 2016. The record date for the Company's shares will be Thursday, 8 September 2016 and for the Company's DRs will be Friday, 9 September 2016.
The dividend on the Company's shares will be paid on Friday, 9 September 2016 and is payable in euros.
The dividend in respect of the Company's DRs will be paid on Friday, 16 September 2016. The DR dividend is payable in South African 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 25 May 2016 on 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 audited financial statements at 31 March 2016, on which this announcement is based, have been approved by the Board of the General Partner on 17 May 2016 and are subject to shareholder approval at the annual general meeting to be held in August 2016. The printed Reinet Annual Report and Accounts will be available upon request from mid-July 2016.
SHARE INFORMATION
Primary Listing
Reinet Investments S.C.A. shares are listed on the Luxembourg Stock Exchange with the ISIN number LU0383812293 (symbol 'ReinetInvest'). Thomson Reuters code REIT.LU. Reinet shares are included in the 'LuxX' index of the principal shares traded on the Luxembourg Stock Exchange.
The Company's share price decreased by 6 per cent in the year from EUR 18.50 at 31 March 2015 to EUR 17.31 at 31 March 2016, with the highest trade being at EUR 21.49 during the year. The share price reflects a total shareholder return of 13 per cent per annum compared to the Initial Price (as defined in the Prospectus) together with dividends paid.
Secondary Listing
Reinet Investments S.C.A. South African Depository Receipts are traded on the Johannesburg Stock Exchange under the ISIN number CH0045793657 (symbol 'REI'). Thomson Reuters code REIJ.J. One depository receipt issued by Reinet Securities SA represents one-tenth of one ordinary share in Reinet Investments S.C.A.
The price of South African Depositary Receipts ('DRs') increased from ZAR 24.50 at 31 March 2015 to ZAR 31.74 at 31 March 2016, the increase of almost 30% reflects in part the weakening of the South African rand against the euro in the year.
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.
25 May 2016
Reinet Investments S.C.A.
R.C.S. Luxembourg B 16 576
Registered office: 35, boulevard Prince Henri, L-1724 Luxembourg, Tel. (+352) 22 42 10, Fax (+352) 22 72 53
Email: info@reinet.com, website: www.reinet.com
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 S.C.A. shares are listed on the Luxembourg Stock Exchange, its primary listing, and Reinet Investments S.C.A. South African Depository Receipts are listed on the Johannesburg Stock Exchange, the secondary listing.
Notes for South African editors
One Reinet Depository Receipt represents one-tenth of one ordinary share in Reinet.
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 2016 of 16.8075 and a rate of 13.0229 as at 31 March 2015.
31 March 2016 31 March 2015
Net asset value ZAR 87 752 m ZAR 66 117 m
Net asset value per ordinary share ZAR 447.92 ZAR 337.42
Using the average euro/rand exchange rate for the year ended 31 March 2016 of 15.2217 and the average rate of 13.9772 for the year ended 31 March 2015.
31 March 2016 31 March 2015
Profit for the year ZAR 2 664 m ZAR 13 865 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 2016 31 March 2015
Unadjusted earnings per share EUR 0.89 EUR 5.06
Headline earnings per share * EUR 0.89 EUR 5.06
Unadjusted earnings per share ZAR 13.55 ZAR 70.72
Headline earnings per share * ZAR 13.55 ZAR 70.72
* There are no dilutive instruments
Subject to approval by the shareholders at the annual general meeting, which is scheduled to take place on 30 August 2016, a dividend will be paid to Reinet Depository Receipt holders on 16 September 2016. The rand dividend amount per Reinet Depository Receipt will be calculated by reference to the euro/rand exchange rate prevailing on 30 August 2016, the currency conversion date.
Reinet 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 Reinet 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.
Date: 25/05/2016 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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