Wrap Text
Interim Financial Results for the period ended 30 September 2016
RECM and Calibre Limited
Incorporated in the Republic of South Africa
(Registration number 2009/012403/06)
Preference share code: RACP
ISIN: ZAE000145041
(“RAC” or “the Company”)
UNAUDITED UNREVIEWED CONDENSED INTERIM FINANCIAL RESULTS
for the six months ended 30 September 2016
COMMENTARY
During the period under review, RAC's NAV per share (ordinary and
preference) increased by 14% to R22,42. This compares to a gain
of 1% for the All Share index for the same period.
As at 30 September 2016, the make-up of our NAV on a look-through
basis consists of:
Direc-
tors’ Direc-
fair tors'
value fair
30 Sep- value
% tember 31 March
owner- Cost 2016 2016
ship Rm Rm Rm
Gaming 431,7 740,6 446,8
Goldrush # 55,2 431,7 740,6 446,8
Mining and Engineering 231,3 289,0 281,1
West Coast Resources 27,2 39,1 108,9 112,4
Trans Hex 25,0 94,2 100,2 94,6
JB Private Equity Investors
Partnership 90,0 69,6 64,7 60,9
ELB Group 2,5 28,4 15,2 13,2
Retail 72,5 209,7 224,6
Fledge Holdings 50,0 30,5 148,9 167,7
Safari and Outdoor 28,3 42,0 60,8 56,9
Food and Beverage 49,5 72,4 86,2
Sovereign Food 2,7 11,4 17,9 57,5
KWV 5,1 32,3 42,1 19,3
KLK Landbou 6,0 5,8 12,4 9,4
Other investments 64,0 106,4 93,2
Conduit Capital 7,0 20,9 44,6 44,6
Excellerate Holdings 5,5 14,7 33,4 26,3
College SA 84,7 28,4 28,4 22,3
Non-core investments 35,3 27,9 22,3
Cash and receivables 99,0 3,3
Liabilities (payables and
contingent consideration) (143,4) (47,9)
Capital Gains Tax –
deferred taxation (80,8) (76,5)
Preference shares issued
to ABSA (150,6) (50,0)
Net asset value 1 170,2 983,1
Total shares (preference
and ordinary) (“million”)* 52,2 50,0
NAV per share (“R”) 22,42 19,66
# The 55,2% ownership is made up of a 52,2% direct holding and
3% indirect holding through a management and staff funding
structure which is not controlled by RAC.
* The total number of shares used to calculate the NAV per share
includes the shares issued on 21 October 2016. Please refer to
notes 6 and 11 for further information.
INCREASE IN NAV
The NAV per share growth of 14% for the 6 months equates to an
increase of R187,1m. The composition of the increase on a look-
through basis is as follows:
Unaudited Unaudited
Six months Six months
ended ended
30 September 30 September
2016 2015
R R
Interest and dividends 4 984 797 11 022 642
Realised profits on sale of assets 4 314 384 990 175
Adjustments to fair value of
assets net of tax 144 879 152 60 930 419
Less: Financing expenses (7 857 640) –
Less: Operating expenses (10 180 135) (7 058 377)
Total comprehensive income 136 140 558 65 884 859
Other equity reserve 50 996 000 –
Net increase in NAV 187 136 558 65 884 859
We have not changed our valuation method. All listed assets are
held at market price, while unlisted assets are either held at
their OTC price – where one exists – or at fair value. For assets
where there is no visible market price, we perform a valuation
exercise, which culminates in a range of fair values, as required
by IFRS. Due to the inherent uncertainty of valuing large stakes
in unlisted, untraded assets, this range is necessarily quite
wide. For some of our unlisted investments, this range includes
the original cost price. Where we have purchased the investment
in the last 12 months and believe the cost price to still
approximate fair value, we continue to carry the investment at
cost.
Where we have held the investment for longer than 12 months, we
tend to value the investment towards the lower end of our fair
value range.
We explicitly take account of the impact of capital gains tax,
where applicable. We properly account for, and disclose this very
real reduction in net realisable value in our intrinsic value
calculation.
Investors should also take our fee structure into account when
considering RAC’s intrinsic value. RAC pays 1,14% (including VAT)
p.a. of the portfolio value for investment management services.
There are many views in the marketplace as to the capital value
of such a contractual payment. We suggest you deduct your opinion
of this value from our stated intrinsic value.
GAMING
Revenue growth at Goldrush continues unabated. Year-on-year
growth in underlying profit exceeded 20% and was driven mainly by
strong growth in existing stores in the Bingo segment, with new
stores also starting to contribute more meaningfully in the
period. During the period, Goldrush was awarded a further 4 Bingo
licenses in Northwest, Mpumalanga and Limpopo, bringing to 35 the
total number of licenses in the group, post the Boss Gaming
Transaction.
The Limited Pay-out Machine (“LPM”) division had a slow period as
regulatory complications held back the roll-out of more machines.
Of the 4 800 LPM machines licensed to the group, about 1 100 have
been rolled out.
The Sports Betting segment opened two physical stores in the
period to complement the online sports betting business,
www.gbets.co.za, and our existing retail business. The Group now
operates 18 sports betting outlets, of which a further 2 were
rolled out in this period and a further 6 are under construction
for opening in the second half of the year. The initial sports
betting stores confirmed the investment thesis and the group is
increasing the pace of roll-out in this area. The group has a
total of 36 licenses for physical sports betting stores in
addition to the online license.
Both the Crazy Slots and Boss Gaming transactions have been
approved by the Competition Commission and now only remain
subject to final regulatory approvals, which at this stage have
become a matter of administration. We expect the approval process
to be completed in the near future.
As reported in our year-end results, RAC had entered into a
transaction with the founders of Goldrush (the Hipkin family) to
acquire control of Goldrush. The transaction became effective on
25 July 2016. As at 30 September, the transaction was partially
implemented. The portion of the payment that is settled through
the issue of 2 200 000 RAC Participating Preference Shares was
done on 21 October 2016.
The valuation for Goldrush does not include earnings from either
Crazy Slots or Boss Gaming as these will be included only once
the transactions have become unconditional.
As the Group is able to re-invest cash flows from operations at
exceptional rates of return, Goldrush at this stage continues to
invest aggressively in expanding its business through acquiring
new licenses, opening new stores and optimising existing stores.
MINING AND ENGINEERING
Trans Hex (TSX) returned to profitability in the period,
generating net profits of R32,5m for the 6 months. Both the Lower
Orange River and Angolan operations contributed to this profit,
while West Coast Resources (WCR) made a further small loss. Over
the past 6 months TSX’s NAV per share increased by 34 cents per
share to R5,40 per share.
Results from WCR continue to be below our initial expectations,
but it is still early days. Alluvial diamond mining generates
lumpy income streams, and WCR is no different. We maintain our
view that the project will deliver good cash flows over time. To
reflect the current operating environment, we have reduced the
valuation of this investment by a small amount.
Trans Hex published their interim results in early November.
Please refer to these for more detail.
RAC, in concert with entities aligned to Dr Christo Wiese, have
made an offer to buy out the minorities of TSX, at a price of
R3,94 per share. Subsequent to the offer, it is possible that we
will delist the company from the stock exchange. As we have
stated in the past, we prefer to invest in private companies,
where management can get on with the job of running the business,
and not be influenced by market noise. This is especially true
for a business with lumpy earnings such as alluvial diamond
mining.
The JB Private Equity Investors Partnership (of which RAC owns
90%) owns 36,2% of Sentula as its only asset. Sentula remains on
track to complete an aggressive restructuring exercise, which has
included closing, merging, recapitalising and expanding affected
businesses in its portfolio. Market conditions remain difficult
but management is confident that the turnaround is progressing
according to plan.
For the year ended June 2016, the ELB Group generated a loss of
R148m. This was as a result of low growth, delayed and cancelled
contracts and a litigious operating environment. Fortunately, the
business has managed its financial affairs conservatively over
the years, and is thus able to withstand current adversity. As
the cycle eventually turns for the better, the group will be a
beneficiary. It has budgeted for a return to profitability in the
current financial year. Over the past 6 months, the market price
has stabilised at a significant discount to its own NAV. RAC has
increased its holding in the group during the period under
review.
RETAIL
Outdoor Investment Holdings (OIH) wholly owns the retailer Safari
& Outdoor, as well as the wholesalers Formalito and Inyathi. OIH
has had a stable year in an otherwise challenged industry. In
line with its ambitious growth strategy, OIH acquired Formalito
for cash during the last calendar year. This fifty-one year old
wholesaling business is now fully integrated into the group and
will contribute significantly to a healthy and stable growth
trajectory.
Safari & Outdoor’s expansion plans include the opening of a
fourth mega store in early 2017.
As at 30 September we valued our indirect stake in Dischem to
take account of profit growth over the period, as well as
dividend payments to Fledge Holdings, the leveraged structure
through which we own our stake. This methodology is the same as
that applied in our year-end results.
Subsequent to the date of the interim results, the founders of
Dischem announced their intention to list their business. As part
of the process, Dischem bought back its shares held in the Fledge
structure in order to place these shares in the listing.
FOOD AND BEVERAGE
Sovereign Foods has been embroiled in a protracted take-over
battle with unlisted Country Bird holdings. Given RAC’s
transaction pipeline, we decided to sell 75% of our shareholding
to Country Bird for cash, at R8,75 per share in September.
As discussed in our year-end results, effective 1 October 2015,
KWV has sold its operating assets for R16,91 per share. In
addition, it still retains some valuable non-operating assets.
RAC carries KWV at its last traded price of R12,00 per share. On
17 October, KWV changed its name to La Concorde Holdings (LCH).
Niveus Holdings is the controlling shareholder of LCH. In turn,
Niveus is controlled by the investment entity HCI. Over time
HCI/Niveus have earned a reputation of being good allocators of
capital. We await guidance on their future plans with this cash
rich structure with interest.
Profit at KLK Landbou has not been immune to the constrained
economic environment, and declined by 5% over the
6-month period to end August. However, its over-the-counter share
price, which we use to value our interest in the company, has
increased by 22% over the same period. At the current R12 per
share, KLK is trading on a P/E of less than 4, and a 25% discount
to book value. We have a high regard for management, and
increased our holding in this company during the period under
review.
OTHER INVESTMENTS
Conduit Capital is in the process of acquiring two significant
investment entities, in a transaction funded by issuing new
shares. As such, our interest will be diluted. We think the
transactions create value for Conduit, as it adds scale to the
business. Although the acquired entities are related parties to
Conduits’ management, shareholders are being fairly treated.
Excellerate Holdings is in the process of buying back 20% of its
shares from certain shareholders. This transaction is being done
at R2,80 per share, which is the price at which we now value our
holding in Excellerate. This represents a P/E ratio of around 6,
and equates to a 27% increase in value from year-end.
We rate the management team of Excellerate highly. Under their
leadership and since delisting, the business has transformed from
an investment holding company to a focused property management
company. Over this 5-year period it has grown earnings per share
by over 20% p.a. We think they are well positioned to continue
growing. This underlines RAC’s preference for investing in
private, unlisted businesses.
College SA (CSA): Our education focused investments now
incorporate three major brands for our students in 2017: College
SA, Tabaldi Online Accounting Classroom and IASeminars. College
SA currently serves a student base of over 9 000 active students.
We stepped up our investment during the period under review. The
business expanded its management team in order to build capacity
for further streams of education. It is in the final stages of
acquiring UK-based IASeminars, which focuses primarily on
international training and continuous professional development of
senior financial professionals, large international corporates
and regulators in different countries. RAC provided the funding
for this acquisition, through subscribing for new shares. We
continue to value the equity of this business at our cost.
In the aftermath of the student riots at major public
universities, College SA, through its subsidiary Tabaldi
Education, has been able to facilitate online access to the final
parts of syllabus for some of these institutions – all prepared
on very short notice and delivered electronically. We are
encouraged that the tangible benefit of online education has been
proven in this way to the existing education system.
Our management team will continue expanding its capacity with
further investment in teaching technologies, academic staff,
content development and accreditation of programs in relationship
with different professional bodies.
Student funding remains a major hurdle, not only in South Africa,
but globally. Whichever party solves this issue, will unlock a
major benefit to society.
NON-CORE INVESTMENTS
This grouping consists of investments we are exiting, such as
American Homes and Gooderson, or of holdings that we are in the
process of building up. We do not think it is in shareholders
best interests that we disclose these separately.
UPDATE ON NET ASSET VALUE (“NAV”)
As at close of business on 18 November, the NAV per share of RAC
has increased to R26,52.
The sale of our indirect stake in Dischem marked a significant
milestone for RAC. This concludes one of our investments and we
thought it instructive to highlight the extent of the benefit to
our shareholders.
The net proceeds of the transaction is R327m, which is R188m more
than our valuation on 30 September. This represents an increase
in NAV of R3,61 per share, as our non-controlling interest in an
unlisted, illiquid structure has been realised – for cash – at
the market value of a liquid, listed asset.
As with KWV earlier in the year, this is another transaction
where significant value accrued to our shareholders. The source
of value is predominantly from buying at the right price, while
partnering with the right management. The only value RAC added
was the ability to be a patient shareholder. We are of the firm
belief that our current portfolio of businesses contains a few
more gems, and that our ability to find more gems grows with each
passing year.
This NAV per share, taking into account all subsequent events and
movements in the price of listed investments changed as follows:
R
NAV as at 30 September 2016 1 170 237 874
Increase in NAV due to sale of Dischem shares
at market value 188 182 189
Increase in NAV due to mark-to-market of
listed shares 25 816 767
NAV as at 18 November 2016 1 384 236 830
Preference shares in issue as at
18 November 2016 47 200 000
Ordinary shares in issue as at
18 November 2016 5 000 000
Total shares in issue as at 18 November 2016 52 200 000
NAV per share (ordinary and
participating preference) 26,52
After the realisation of our Dischem investment, available cash
has increased to R372m. However, in terms of the Hipkin
transaction for control of Goldrush, a further net R80m has
to be paid in due course. Net of this liability, our cash
available for investing amounts to over R290m.
CHANGE IN DIRECTORS’ RESPONSIBILITIES
When RAC was established in 2010, it was set up as a
collaborative effort between Regarding Capital Management
(“RECM”) and Calibre Capital (“Calibre”). The ordinary shares
were held in equal parts by Calibre and RECM.
During 2011, the group of companies controlled by the principals
of both RECM and Calibre were restructured. This culminated with
the introduction of Jan van Niekerk as a partner in the various
businesses. To facilitate this, the ordinary shares in RAC were
unbundled to the various shareholders after which further
transactions led to the current structure with Piet Viljoen,
Theunis de Bruyn and Jan van Niekerk effectively controlling 100%
of the ordinary shares in RAC.
At the time of the restructuring, Theunis de Bruyn committed to
remaining involved with RAC in an executive capacity until such
time that RAC was fully invested, at which time he would review
his position. RAC has now reached that milestone. At a board
meeting held on 18 November 2016, Theunis confirmed to the board
of RAC that he wishes to return to Calibre in a full-time
executive capacity at the end of the current financial year.
Theunis will remain on the board of RAC, as a non-executive
director as from 1 April 2017. There are no other changes to the
board.
It has been agreed that RAC will be a natural first port of call
for Calibre when seeking an investment partner.
Piet, Theunis and Jan remain partners in all of their businesses,
however, with a clearer designation of control and responsibility
in the various companies.
The board of RAC thanks Theunis for his contributions as an
executive of the company, and looks forward to continuing the
relationship with him, in a non-executive role.
PROSPECTS
Our external investment pipeline looks interesting, although we
execute on only a very few out of the possible transactions we
are presented with. Our hurdle rate, which was high to start off
with, has increased even further in line with the quality of our
existing investments. Fortunately, these are generating healthy
internal cash flows, which they can use to make acquisitions to
help them grow further. If we are lucky, they will find targets
which are too big and then RAC can step in and help with
financing.
Our investment strategy remains simple. We aim to buy good
businesses, managed by good people, at good prices. If you are
involved in any business that meets these criteria, and needs
expansion or replacement capital, please give us a call. We can’t
promise to add management expertise to your business (we most
likely have none) but we can promise to be solid partners. And,
if the phone were to ring, we definitely can promise a quick
answer.
Signed on behalf of the board
Piet Viljoen Jan van Niekerk
Cape Town
21 November 2016
DIRECTORS:
PG Viljoen (Chairman), T de Bruyn, Z Matlala, T Rossini, JG
Swiegers, JC van Niekerk
COMPANY SECRETARY: G Simpson
FINANCIAL RESULTS PREPARER: D Schweizer CA(SA)
REGISTERED OFFICE:
6th Floor Claremont Central, 8 Vineyard Road, Claremont, 7700
South Africa
TRANSFER SECRETARIES:
Link Market Services South Africa (Pty) Ltd, 13th Floor, Rennie
House, 19 Ameshoff Street, Braamfontein, 2004
SPONSOR:
Questco (Pty) Ltd, First Floor, Yellowwood House, Ballywoods
Office Park, 33 Ballyclare Drive, Bryanston
STATEMENT OF FINANCIAL POSITION
Unaudited Audited Unaudited
30 September 31 March 30 September
2016 2016 2015
Notes R R R
ASSETS
Non-current
assets 1 168 035 386 983 290 784 995 630 978
Investments 2 1 168 035 386 983 290 784 995 630 978
Current assets 2 861 324 1 381 153 2 661 441
Investments 2 2 704 177 – –
Loans and other
receivables 75 530 – 2 241
Cash and cash
equivalents 81 617 1 381 153 2 659 200
Total assets 1 170 896 710 984 671 937 998 292 419
EQUITY AND
LIABILITIES
EQUITY
Share capital
– ordinary
shareholders 4 50 000 000 50 000 000 50 000 000
Share capital
– preference
shareholders 4 450 000 000 450 000 000 450 000 000
Other equity
reserve 11 50 996 000 – –
Retained income 619 241 874 483 101 316 492 858 304
Total equity 1 170 237 874 983 101 316 992 858 304
LIABILITIES
Current
liabilities 658 836 1 570 621 5 434 115
Trade and
other payables 658 836 1 504 352 568 045
Current tax
payable – 66 269 4 866 070
Total equity
and
liabilities 1 170 896 710 984 671 937 998 292 419
NET ASSET VALUE
Net asset value
attributable
to ordinary
shareholders 112 091 750 98 310 132 99 285 830
Net asset value
attributable
to preference
shareholders 1 058 146 124 884 791 184 893 572 474
Net asset value
per ordinary
share (cents) 6 2 242 1 966 1 986
Net asset value
per preference
share (cents) 6 2 242 1 966 1 986
STATEMENT OF COMPREHENSIVE INCOME
Unaudited Audited Unaudited
Six months Twelve months Six months
ended ended ended
30 September 31 March 30 September
2016 2016 2015
Notes R R R
Revenue 3 568 701 6 601 449 48 838
Operating
expenses (1 144 154) (1 401 609) (950 656)
Operating
(loss)/
profit 2 424 547 5 199 840 (901 818)
Other income – 93 094 588 93 094 588
Fair value
gains on
subsidiaries
and
associates 133 748 602 29 505 129 42 174 311
Profit before
taxation 136 173 149 127 799 557 134 367 081
Taxation 5 (32 591) 8 278 565 11 468 029
Profit after
taxation 136 140 558 136 078 122 145 835 110
Other
comprehensive
income:
Items that may
be reclassified
subsequently
to profit
or loss:
Realised gain
on sale of
available-
for-sale
investments
recycled to
profit or loss – (93 094 588) (93 094 588)
Taxation related
to components
of other
comprehensive
income – 13 144 337 13 144 337
Other
comprehensive
income for the
period net
of taxation – (79 950 251) (79 950 251)
Total
comprehensive
income 136 140 558 56 127 871 65 884 859
Earnings and
headline
earnings
per share
Per share
information
(ordinary
and preference)
Basic and
diluted
earnings per
share (cents) 7 271 272 292
Headline and
diluted
headline
earnings per
share (cents) 7 271 86 105
STATEMENT OF CHANGES IN EQUITY
Fair value
adjustment
assets
Preference Ordinary available-
share share for-sale
capital capital reserve
R R R
Balance at
31 March 2015 450 000 000 50 000 000 79 950 251
Profit – – –
Other comprehensive
income – – (79 950 251)
Balance at
30 September 2015 450 000 000 50 000 000 –
Loss – – –
Other comprehensive
income – – –
Balance at
31 March 2016 450 000 000 50 000 000 –
Profit – – –
Other comprehensive
income – – –
Equity reserve – – –
Balance at
30 September 2016 450 000 000 50 000 000 –
Notes 4 4
STATEMENT OF CHANGES IN EQUITY (continued)
Other Total
equity Retained shareholders’
reserve income equity
R R R
Balance at
31 March 2015 – 347 023 194 926 973 445
Profit – 145 835 110 145 835 110
Other comprehensive
income – – (79 950 251)
Balance at
30 September 2015 – 492 858 304 992 858 304
Loss – (9 756 988) (9 756 988)
Other comprehensive
income – – –
Balance at
31 March 2016 – 483 101 316 983 101 316
Profit – 136 140 558 136 140 558
Other comprehensive
income – – –
Equity reserve 50 996 000 – 50 996 000
Balance at
30 September 2016 50 996 000 619 241 874 1 170 237 874
Notes 11
STATEMENT OF CASH FLOWS
Unaudited Audited Unaudited
Six months Twelve months Six months
ended ended ended
30 September 31 March 30 September
2016 2016 2015
R R R
Cash flows from
operating activities
Cash utilised in
operations (1 989 670) (728 983) (737 350)
Interest income 68 701 106 824 46 597
Dividends received 3 500 000 6 500 000 –
Tax paid (174 390) (7 846 641) –
Net cash inflow/
(outflow) from
operating
activities 1 404 641 (1 968 800) (690 753)
Cash flows from
investing activities
Purchase of
investments (2 704 177) – –
Net cash outflow
from investing
activities (2 704 177) – –
Total cash movement
for the period (1 299 536) (1 968 800) (690 753)
Cash at beginning
of period 1 381 153 3 349 953 3 349 953
Total cash and
cash equivalents at
end of period 81 617 1 381 153 2 659 200
NOTES TO THE CONDENSED INTERIM RESULTS for the period ended 30 September 2016
GROUP STRUCTURE
RECM and Calibre Limited (“RAC”) was established in 2009 as a
closed-end investment entity that makes long-term investments,
with the objective of generating high real returns. Investments
can be listed or unlisted, public or private, and there are no
limits as to the geographic location.
Given that the investment infrastructure of RAC has been set up
to facilitate investments and funding in the most efficient
manner, investments are made either through a fully owned
subsidiary incorporated in South Africa, RAC Investment Holdings
(Pty) Ltd (“RIH”), or directly.
During the year ended 31 March 2016, all the investments
(including the related loans and receivables) to the value of
R723 549 474 held by RAC were transferred to the wholly-owned
subsidiary RIH for an additional 190 shares in RIH. The loan to
RIH in the prior year of R114 059 440 was converted to share
capital by RIH issuing an additional 10 shares to RAC. The
transfer was primarily to facilitate funding. The transfer had no
impact on the NAV of RAC. Given this structure, RAC has provided
the fair value disclosure in two parts in note 2. Note 2.1
discloses the investment in RIH as required by IFRS as well as
additional disclosures that the directors deem useful by looking
through RIH to the underlying investments at the directors fair
values. The transfer of the investments (previously held as
available-for-sale) to RIH has resulted in unrealised gains of
R93 094 558, previously recognised in other comprehensive income,
being reclassified to profit or loss during the year ended 31
March 2016. All fair value movements on the investment in RIH are
recognised in profit or loss.
1. ACCOUNTING POLICIES – PRESENTATION OF CONDENSED INTERIM FINANCIAL STATEMENTS
BASIS OF ACCOUNTING PREPARATION
The accounting policies applied for the six months are
consistent, in all material respects, with those used in the
Annual Financial Statements for the year ended 31 March 2016
and are in accordance with the recognition and measurement
criteria of International Financial Reporting Standards
(IFRS) and the SAICA Financial Reporting Guides as issued by
the Accounting Practices Committee and Financial
Pronouncements as issued by the Financial Reporting Standards
Council. In addition, these interim results have been
prepared in accordance with the presentation and disclosure
requirements of International Accounting Standard 34, Interim
Financial Reporting, as well as the Listings Requirements of
the JSE and the Companies Act of South Africa.
The interim results have been prepared in accordance with the
IFRS and IFRIC interpretations at the time of the preparation
of the information. As these standards and interpretations
are the subject of ongoing review, they may be amended
between the date of this report and the finalisation of the
annual financial statements for the year ending 31 March
2017.
ASSESSMENT AS INVESTMENT ENTITY
Entities that meet the definition of an investment entity
within IFRS 10 are required to measure their subsidiaries at
fair value rather than consolidate them. The criteria which
define an investment entity are, as follows:
– An entity that obtains funds from one or more investors
for the purpose of providing those investors with
investment services;
– An entity that commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income or both; and
– An entity that measures and evaluates the performance of
substantially all of its investments on a fair value basis
(refer to note 2 for additional disclosures relating to
fair value).
Based on the above, the Company is considered to meet all
three conditions of the definition and, hence, qualifies as
an investment entity. Consolidated Financial Statements are
therefore not prepared.
In line with RAC carrying its investment in RIH at fair
value, RAC has also elected the exemption in IAS 28 to carry
any interests in associates and joint ventures at fair value
through profit or loss. Such election is applied consistently
due to the fact that the Company is an investment entity and
evaluates its investments on a fair value basis. The Company
reports to its investors via annual and semi-annual results
and to its management, via internal management reports, on a
fair value basis. All investments are reported at fair value
to the extent allowed by IFRS in the Company’s annual
reports.
The Board has also concluded that the Company meets the
additional characteristics of an investment entity, in that
it has exposure, directly or indirectly, to more than one
investment; the investments are predominantly in the form of
equities and similar securities; and its investors are not
related parties. These conclusions will be reassessed on an
annual basis, if any of these criteria or characteristics
change.
SEGMENTAL ANALYSIS
The directors considered the implications of IFRS 8 Operating
Segments and are of the opinion that the operations of the
company are substantially similar and that the risks and
returns of these operations are likewise similar. Resource
allocation and the management of the operations are performed
on an aggregated basis, and as such the company is considered
to be a single aggregated business and therefore there is no
additional reporting requirements in terms of IFRS 8.
Unaudited Audited Unaudited
Six months Twelve months Six months
ended ended ended
30 September 31 March 30 September
2016 2016 2015
R R R
2. INVESTMENTS
Fair value
hierarchy of
financial assets
Level 2
Class 3 – Unit
trusts – money
market fund 2 704 177 – –
2 704 177 – –
Level 3
Class 5 – Unlisted
shares –
Unquoted –
fair value
through profit
and loss – RIH 1 168 035 386 983 290 784 995 630 978
1 168 035 386 983 290 784 995 630 978
Total financial
assets at fair
value 1 170 739 563 983 290 784 995 630 978
Non-current
assets 1 168 035 386 983 290 784 995 630 978
Current assets 2 704 177 – –
Total
investments 1 170 739 563 983 290 784 995 630 978
AVAILABLE CASH
Cash within the Group is held both directly and indirectly on
call, along with indirectly through a money market unit trust
investment.
The cash holdings are reflected in Class 3 above, where
applicable.
Unaudited Audited Unaudited
Six months Twelve months Six months
ended ended ended
30 September 31 March 30 September
2016 2016 2015
R R R
LEVEL 3
RECONCILIATION
Opening balance 983 290 784 441 731 147 441 731 147
Acquisitions
(including
capital
contribution
in current
period to RIH) 50 996 000 836 735 038 837 680 226
Assets
transferred
to RIH – (324 680 530) (325 954 706)
Gains on
investments
recognised in
profit and loss 133 748 602 29 505 129 42 174 311
Closing
balance 1 168 035 386 983 290 784 995 630 978
Please refer to the group structure note above which explains
the transfer of investments to RIH.
LEVEL 2
Class 3 financial assets are are valued at the net asset
value of the unit trust.
LEVEL 3
Class 5 financial assets are valued using a number of
valuation techniques based on the following unobservable
market data for each investment:
– Net profit of investee;
– Equity and net debt of investee;
– Return on capital;
– Price/Earnings ratio;
– Expected cash flows; and
– NAV of the investee if it recognises its assets and
liabilities at fair value.
Management uses the above information in multiple valuation
techniques by comparing the investee information to similar
type entities in the listed market. The nature of the fair
value calculations means that fair values range greatly and
are sensitive to indirect and direct quantifiable and
unquantifiable inputs.
There have been no significant changes to the inputs to the
fair valuation calculations of the investments to which RAC
is exposed. RIH has continued to be valued based on its NAV
which is driven by the valuation of the underlying
investments.
In terms of IFRS, RAC is an Investment Entity, and therefore
no consolidated results are required to be prepared. IFRS
requires the fair value disclosure to be prepared at the Unit
of Account Level (i.e. at the level of shares that RAC owns
and those are shown above). The Board of Directors has
decided to provide the following voluntary disclosures
looking through the 100% held subsidiary, RIH, to the
underlying investments. In addition, a summary of the NAV of
RIH as well as the underlying valuation techniques and
sensitivities have been provided.
Unaudited Audited Unaudited
Six months Twelve months Six months
ended ended ended
30 September 31 March 30 September
2016 2016 2015
R R R
Fair value
hierarchy of
financial assets
held by RIH
LEVEL 1
Class 1 – Listed
shares – Quoted 193 708 663 218 701 832 221 304 327
Class 2 –
Unlisted shares
– Quoted 68 046 300 28 723 525 29 842 286
261 754 963 247 425 357 251 146 613
LEVEL 2
Class 3 –
Unit Trust –
money market
fund 44 291 111 63 715 –
44 291 111 63 715 –
LEVEL 3
Class 5 –
Unlisted shares
– Unquoted –
available-for-
sale 45 081 286 71 393 813 60 640 115
Class 5 –
Unlisted shares
– Unquoted –
fair value
through profit
and loss 1 082 827 457 753 455 736 641 530 525
1 127 908 743 824 849 549 702 170 640
Total financial
assets at
fair value 1 433 954 817 1 072 338 621 953 317 253
Non-current
assets 1 250 889 389 1 042 743 917 953 317 253
Current
assets 183 065 428 29 594 704 –
Total
investments 1 433 954 817 1 072 338 621 953 317 253
SUMMARY OF NET ASSET VALUE OF RIH
Total investments
from above 1 433 954 817 1 072 338 621 953 317 253
Loans and
receivables 103 802 715 82 037 280 81 660 481
Cash and
cash
equivalents 4 767 304 1 798 625 67 158 526
Deferred tax (80 807 975) (76 469 122) (65 297 813)
Accruals and
contingent
consideration (143 063 047) (19 129 854) (41 207 469)
Loans and
payables (150 618 428) (77 284 766) –
Net asset value
of RIH 1 168 035 386 983 290 784 995 630 978
DESCRIPTION OF SIGNIFICANT UNOBSERVABLE INPUTS AND THEIR SENSITIVITIES
30 September 2016
2.1 DESCRIPTION OF SIGNIFICANT UNOBSERVABLE INPUTS AND
SENSITIVITIES OF RAC (LEVEL 3 INVESTMENT)
Signifi-
Valua- cant
tion Fair unobser-
tech- value vable
nique R’m inputs Range Sensitivity
RAC NAV 1 168 EBITDAR 5 – 7 A change in the
Investment of sub- EBITDAR
Holdings stantial multiple of
(“RIH”) under- the underlying
lying investment by 1
invest- would result in
ments an increase or
in RIH decrease in
fair value of
approximately
R110m.
The below table shows the sensitivities per underlying investment
as if these were held directly by RAC (level 3 investment)
Retail: Multiples 188,6 EBITDA 4 – 8 A change in
multiple up by
Safari and 1 would result
Outdoor; in an increase
Fledge in fair value
(excluding of approx-
non-equity imately R35m.
investments)
Discount 35% – A change in
for lack 45% discount rate
of marketa- of 10% would
bility and result in a
liquidity change in fair
to listed value of
entity approximately
R41m.
Goldrush Multi- 740,6 EBITDAR 5 – 7 A change in the
Group ples EBITDAR
multiple by 1
would result in
an increase or
decrease in
fair value of
approximately
R100m.
Excelle- Last 33,4 n/a 280
rate obser- cents
vable
price
P/E Multi- 6 – 8,5 Using a
ple, as multiple of 6
check on to 8.5 would
last traded result in a
price price of 222
to 314 cents
per share,
before applying
a discount for
liquidity.
Discount 25% – A change in
for lack 30% discount rate
of market- of 10% would
ability result in a
and liqui- a change in
dity on P/E fair value of
Multiple approximately
as a check R3,2m. A 25%
on last discount is
traded price currently being
applied for
lack of
liquidity.
JB Private NAV 64,7 n/a n/a The NAV of the
Equity JB Private
Investors Equity
Partnership Investors
Partnership is
directly linked
to the
underlying
investment in
Sentula Mining
Limited which
is listed on
the JSE and is
not currently
significantly
impacted by any
fair value
adjustment to
trade and other
payables and
therefore NAV
of the JB
Private Equity
Investors
Partnership is
considered to
be fair value.
A 10% movement
in the Sentula
share price
would have a
R7,2m impact on
the Partnership
NAV.
Mining: NAV 69,8 Valuation 10% A multi-period
West Coast of mining excess earnings
resources rights method was used
(excluding to calculate
non-equity the mining
investments) rights in WCR.
There are
numerous unseen
inputs into
this calcu-
lation. A
change in the
value of the
mining rights
by 10% would
result in a
R14m change in
the NAV of WCR.
Education: Multi- 26,9 EBITDA 4 – 6 A change in
SA College ples multiple up by
(excluding 1 would result
non-equity in an increase
investments) in fair value
of approxi-
mately
R4 million.
Other level 3
investments 3,9
Total 1 127,9
31 March 2016
2.2 DESCRIPTION OF SIGNIFICANT UNOBSERVABLE INPUTS AND
SENSITIVITIES OF RAC (LEVEL 3 INVESTMENT)
Signifi-
Valua- cant
tion Fair unobser-
tech- value vable
nique R’m inputs Range Sensitivity
RAC NAV 983,3 Fair
Investment values n/a A 10% increase/
Holdings of the decrease in the
(“RIH”) underlying fair value of
invest- the underlying
ments investments
(refer to would result in
breakdown an increase/
below). decrease in
value of R98m.
The below table shows the sensitivities per underlying investment
as if these were held directly by RAC (level 3 investment)
Retail: Multiples 192,1 EBITDA 4 – 8 A change in multiple up by
Safari and 1 would result
Outdoor; in an increase
Fledge in fair value
(excluding of approxi-
non-equity mately R35m.
investments) Discount 35% – A change in
for lack 45% discount rate
of market- of 10% would
ability result in a
and liqui- change in fair
dity to value of
listed approximately
entity R66m.
Goldrush Multi- 446,8 EBITDAR 5 – 7 A decrease in
Group ples the EBITDAR
multiple by 1
would result in
a decrease in
fair value of
approximately
R56m and an
increase in the
EBITDAR
multiple by 1
would result in
an increase
fair value of
approximately
R94m.
Excelle- Last 26,3 n/a 220
rate obser- cents
vable
price
Discount 1,50% A change in
for lack discount rate
of market- to 10% would
ability result in a
and liqui- change in fair
dity on value of
latest approximately
available R2,3m.
NAV as a
check on
last traded
price
JB NAV 61 n/a n/a The NAV of the
Private JB Private
Equity Equity
Investors Investors
Partnership Partnership is
directly
linked to the
underlying
investment in
Sentula Mining
Limited which
is listed on
the JSE and is
not currently
significantly
impacted by
any fair value
adjustment to
trade and
other payables
and therefore
NAV of the JB
Private Equity
Investors
Partnership is
considered to
be fair value.
A 10% movement
in the Sentula
share price
would have a
R6,7m impact
on the
Partnership
NAV.
Mining: NAV 73,5 Valuation 10% A multi-period
West Coast of mining excess
resources rights earnings
(excluding method was
non-equity used to
investments) calculate the
mining rights
in WCR. There
are numerous
unseen inputs
into this
calculation. A
change in the
value of the
mining rights
by 10% would
result in a
R14m change in
the NAV of
WCR.
Edu- Multi- 21,2 EBITDA 4 – 6 A change in
cation: ples multiple up by
SA 1 would result
College in an increase
in fair value
of approxi-
mately R4m.
Other level 3 3,9
investments
Total 824,8
Factors that were taken into account by management in all
valuations include the current market conditions, the invested
market segment and interest rate certainty. The market for these
instruments often has significant barriers to entry, making the
comparison pool of similar entities very shallow. Specifically,
the retail pharmaceutical industry and hunting equipment industry
have few market entrants with little reliable comparative data.
The nature of the fair value calculations means that the
calculated fair values could range greatly and are sensitive to
indirect and direct quantifiable and unquantifiable inputs. Where
we have influence over our investee companies we plan to play an
active role in the long term strategy of the company, ensuring
that our interests are aligned.
3. RELATED PARTY TRANSACTIONS
– During the current reporting period, the company received
dividend income totalling R3,5m from RIH.
– Apart from the above, there were no other significant
changes to related parties or related party transactions
since the year ended 31 March 2016.
Unaudited Audited Unaudited
Six months Twelve months Six months
ended ended ended
30 September 31 March 30 September
2016 2016 2015
R R R
4. SHARE CAPITAL
Authorised
5 000 000 ordinary
shares of
R0,01 each 50 000 50 000 50 000
200 000 000 non-
cumulative
redeemable
participating
preference
shares of no
par value – – –
250 000 000
redeemable
preference
shares of no
par value – – –
1 500 000 000
perpetual
preference
shares of
no par value – – –
50 000 50 000 50 000
The 250 000 000 redeemable preference shares will have
the rights and privileges, restrictions and conditions as
determined by the Directors upon issue thereof, but which
are intended to rank in priority to the participating
preference shares, the perpetual preference shares and
ordinary shares in respect of dividends and on winding up.
The 1 500 000 000 perpetual preference shares will have
the rights and privileges, restrictions and conditions as
determined by the Directors upon issue thereof, but which
are intended to rank in priority to the participating
preference shares and ordinary shares in respect of
dividends and on winding up.
Unaudited Audited Unaudited
Six months Twelve months Six months
ended ended ended
30 September 31 March 30 September
2016 2016 2015
R R R
Issued
5 000 000
ordinary shares
of R0,01 each 50 000 50 000 50 000
Share premium 49 950 000 49 950 000 49 950 000
50 000 000 50 000 000 50 000 000
45 000 000 non-
cumulative
redeemable
participating
preference
shares 450 000 000 450 000 000 450 000 000
450 000 000 450 000 000 450 000 000
5. CURRENT AND DEFERRED TAXATION
Unaudited Audited Unaudited
Six months Twelve months Six months
ended ended ended
30 September 31 March 30 September
2016 2016 2015
R R R
Taxation expense
Current taxation (32 591) (27 923) –
Current taxation
- prior year
under accrual
and interest – (7 745 795) (4 726 878)
Deferred taxation – 16 052 283 16 194 907
Taxation expense (32 591) 8 278 565 11 468 029
Reconciliation of
deferred tax
liability
At beginning of year – 29 196 620 29 196 620
Temporary
difference on
receivables
and payables – 71 312 71 312
Temporary
difference on
fair value
gains through
profit and loss – (16 123 595) (16 123 595)
Temporary difference
on available-
for-sale
instruments
through other
comprehensive income – (13 144 337) (13 144 337)
– – –
Deferred tax has not been recognised on the fair value
gains on the investment in RIH as the manner of expected
recovery of the investment is unlikely to result in future
tax consequences. Temporary differences not recognised in
terms of IAS 12 amount to R279 410 472 (March 2016:
R145 661 870; September 2015: R199 508 498). Deferred tax has
been recognised in RIH on the investments that it expects to
incur taxes on when realising their value.
6. NET ASSET VALUE
Unaudited Audited Unaudited
Six months Twelve months Six months
ended ended ended
30 September 31 March 30 September
2016 2016 2015
R R R
Net asset value
attributable to
ordinary
shareholders 112 091 750 98 310 132 99 285 830
Net asset value
attributable to
preference
shareholders 1 058 146 124 884 791 184 893 572 474
Number of
shares
Ordinary shares 5 000 000 5 000 000 5 000 000
Preferences
shares* 47 200 000 45 000 000 45 000 000
Net asset value
per ordinary
share (cents) 2 242 1 966 1 986
Net asset value
per preference
share (cents) 2 242 1 966 1 986
* The 2 200 000 preference shares which were issued on 21
October 2016 were no longer subject to any outstanding
conditions as from 31 August 2016. Consistent with IAS 33,
these shares have been taken into account in the number of
shares for NAV purposes (refer to note 11).
7. EARNINGS AND HEADLINE EARNINGS PER SHARE
Earnings and headline earnings per shares are based on the
profit attributable to ordinary and preference shareholders
in issue during the year.
Unaudited Audited Unaudited
Six months Twelve months Six months
ended ended ended
30 September 31 March 30 September
2016 2016 2015
R R R
Number of shares
in issue
Ordinary shares 5 000 000 5 000 000 5 000 000
Preferences
shares# 45 183 333 45 000 000 45 000 000
Earnings
Net profit after
tax 136 140 558 136 078 122 145 835 110
Adjusted to
headline earnings
as follows:
Profit on asset
disposal – (93 094 588) (93 094 588)
Headline
earnings 136 140 558 42 983 534 52 740 522
Basic and
diluted earnings
per ordinary
and preference
shares (cents) 271 272 292
Headline earnings
per ordinary and
preference
shares (cents) 271 86 105
# The 2 200 000 preference shares which were issued on 21
October 2016, were no longer subject to any outstanding
conditions as from 31 August 2016. As a result, IAS 33
requires that they be taken into account on a time weighted
basis as from 31 August 2016.
8. EVENTS AFTER THE REPORTING PERIOD
On 21 October 2016, RAC issued 2 200 000 preference shares to
the Hipkin Family in terms of the call option agreement that
was excercised by RIH. At the same time, RAC was issued
another 50 ordinary shares in RIH in exchange for RAC having
issued the preference shares to the Hipkin Family for the
additional shares that RIH acquired in Goldrush. As the issue
of the preference shares were no longer subject to any
outstanding conditions as from 31 August 2016, as required by
IFRS, they have been recognised as part of equity (refer to
note 11) and treated as issued for earnings per share and net
asset value per share purposes as at 30 September 2016.
The underlying investment in the Fledge Structure, Dischem,
has listed at an enterprise value of R18bn. The listing has
resulted in an increase in the value of our investment in
Fledge Holdings amounting to R188m. For further details,
please refer to the commentary.
Apart from the above, the directors are not aware of any
matter or circumstance arising since the end of the reporting
period.
9. DIVIDENDS
No dividend has been declared
10. GUARANTEE, CESSION AND PLEDGE
During the current period, RIH issued another 100 preference
shares at R1m each to ABSA Bank Limited (“ABSA”). As at 30
September 2016 the capital balance of R150m was outstanding.
A preference dividend is payable on the preference shares on
31 March and 30 September each year at a rate equivalent
to 115% of the prime overdraft rate and they are redeemable
in December 2018 (R50m), May 2019 (R50m) and August 2019
(R50m).
RAC and RIH provided the following securities to ABSA in
terms of the Preference Share Agreement:
– RAC pledged its shares held in RIH to ABSA;
– RAC provided a guarantee in favour of ABSA for the full,
complete and punctual payment and performance by RIH of
all its obligations under the Preference Share Agreement;
and
– RIH pledged its shares held in Goldrush to ABSA.
The securities will remain in full force until such time as
the preference shares issued to ABSA have been fully
redeemed and all payments made.
As at 30 September 2016, both the value of RAC’s pledged
shares in RIH as well as RIH’s pledged shares in Goldrush
exceeded the value of the preference shares issued to ABSA.
The directors of RAC foresee the possibility of RAC needing
to make any payments under the guarantee as being highly
remote.
RIH may not pay any distribution in excess of R1,5m to RAC
without the prior consent of ABSA.
11. OTHER EQUITY RESERVE
The other equity reserve relates to the non-cumulative
redeemable participating preference shares which are to be
issued in terms of the exercise of the call option on the
purchase of the additional Goldrush shares acquired on
31 August 2016. In terms of IAS 32, if the number of equity
instruments to be delivered as well as the consideration for
them is fixed, the instrument should be classified as an
equity instrument. Given that RAC has an obligation to
deliver 2 200 000 non-cumulative redeemable participating
preference shares at a fixed price of 2 318 cents per share,
the requirements for it to be recognised as part of equity
have been met. The 2 200 000 non-cumulative redeemable
participating preference shares have therefore been included
in calculating the NAV per share as at 30 September 2016. As
from 21 October 2016, the reserve has been transferred into
the Preference Share Capital account.
21 November 2016
Sponsor: Questco (Pty) Ltd
Date: 21/11/2016 09:38:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
