Wrap Text
Consolidated audited financial results for the year ended 31 March 2017 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 2017 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 2017.
Key financial data
* Reinet's net asset value exceeds EUR 6 billion, reflecting a compound return of 16 per cent per annum in euro terms, since March 2009, including dividends paid
* Net asset value at 31 March 2017: EUR 6 002 million, an increase of EUR 781 million or 15 per cent from EUR 5 221 million at 31 March 2016
* Net asset value per share at 31 March 2017: EUR 30.63 (31 March 2016: EUR 26.65)
* Commitments totalling EUR 213 million in respect of new and existing investments were made during the year, including EUR 179 million in respect of Pension Insurance Corporation Group Limited
* Dividends received from British American Tobacco during the year amounted to EUR 127 million
* GBP 500 million loan refinancing completed during the year
* Reinet dividend of some EUR 32 million, or EUR 0.161 per share, paid during the year
* Proposed Reinet dividend of EUR 0.165 per share payable after the 2017 annual general meeting
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 ordinary shares are listed on the Luxembourg Stock Exchange, the primary listing, and the depository receipts issued by Reinet Securities SA in respect of the Company's ordinary shares are listed on the Johannesburg Stock Exchange, the secondary listing. The Company's ordinary 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 the Management Report is text attributed to the management of investee entities. While no facts have come to our attention that lead us to conclude that any such information is inaccurate, we have not independently verified such information and do not assume any responsibility for the accuracy or completeness of such information.
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
CHAIRMAN'S COMMENTARY
Dear Shareholder,
Overview of results
During the course of the year under review, the Company's net asset value increased by 15 per cent to some EUR 6 billion at 31 March 2017. This increase reflects significant increases in the value of Reinet's investments in British American Tobacco and Pension Corporation, offset to some degree by the weakening of sterling against the euro during the year.
Business developments
The investment in British American Tobacco represented some 70.8 per cent of Reinet's net asset value at 31 March 2017, compared to 67.3 per cent a year ago. This increase reflects the significant increase in the British American Tobacco share price from GBP 40.90 to GBP 53.00, the value of the holding of 68.1 million shares increasing to EUR 4 249 million at 31 March 2017. In 2016, British American Tobacco made a proposal to acquire the 57.8 per cent of Reynolds American which it did not already own. This, along with strong earnings, excellent growth across all business metrics and sterling depreciation, contributed to the significant increase in its share price. Reinet's investment in British American Tobacco is closely monitored and, although we have sold some shares in recent years to diversify Reinet's portfolio, the decision to maintain the position during the year under review has proved to be the correct one.
In June 2016, Reinet contributed GBP 139 million to a GBP 250 million capital increase by Pension Corporation and, in November 2016, the company raised a further GBP 250 million through the issuance of subordinated debt. The proceeds of these initiatives will support Pension Corporation in writing new business, as trustees of defined benefit pension funds and corporate decision makers continue to turn to wholesale insurance annuity products to de-risk pension fund and company balance sheets. Pension Corporation wrote some GBP 2.6 billion of new business in 2016 and continues to be well placed to benefit from this expanding market.
In the year under review, Reinet increased its total commitments by EUR 213 million and invested a total of EUR 290 million in new and existing portfolio assets.
Dividend
The Board of Reinet Investments Manager S.A. proposes a dividend of EUR 0.165 per share, payable in September 2017. 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 monitor the activities of both the Company and Reinet Fund. In addition, the Board acts as the audit committee of both the Company and Reinet Fund. Following the death of Dr Peter Kaul towards the end of the previous financial year, shareholders approved the appointment of Mr Stuart Rowlands at the 2016 annual general meeting. Mr Rowlands is Head of Financial Risk at the European Investment Bank, the development bank of the European Union, based in Luxembourg.
Outlook
The past twelve months have seen considerable upheaval in the global political environment, introducing further elements of uncertainty. The overall economic situation in the United States, Europe and Asia does, however, seem to be improving. Together with our partners, we see opportunities in the markets that we invest in and Reinet will continue to invest for the long-term, maintaining a prudent approach.
I would like to take this opportunity to thank the members of our boards, management, the advisory team and our partners in the investee companies for their contribution to Reinet's performance during the year.
Johann Rupert
Chairman
Reinet Investments Manager S.A.
Luxembourg, 23 May 2017
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 net asset value, the income statement and the 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.
+----------------------------------------------------------------------+
|Net asset value |
|The net asset value ('NAV') at 31 March 2017 comprised: |
+----------------------------------------------------------------------+
| | 31 March 2017 | 31 March 2016 |
+----------------------------+----------+---------+----------+---------+
| | EUR m| %| EUR m| %|
+----------------------------+----------+---------+----------+---------+
|Listed investments | | | | |
+----------------------------+----------+---------+----------+---------+
|British American | 4 249| 70.8| 3 512| 67.3|
|Tobacco p.l.c. | | | | |
+----------------------------+----------+---------+----------+---------+
|SPDR Gold shares | 26| 0.4| 24| 0.5|
+----------------------------+----------+---------+----------+---------+
|Selecta Biosciences, Inc. | 5| -| -| -|
+----------------------------+----------+---------+----------+---------+
|Unlisted investments | | | | |
+----------------------------+----------+---------+----------+---------+
|Pension Insurance | 1 175| 19.6| 920| 17.6|
|Corporation Group Limited | | | | |
+----------------------------+----------+---------+----------+---------+
| | | | | |
+----------------------------+----------+---------+----------+---------+
|Private equity and | 780| 13.0| 660| 12.6|
|related partnerships | | | | |
+----------------------------+----------+---------+----------+---------+
|Trilantic Capital | 202| 3.4| 143| 2.7|
|Partners | | | | |
+----------------------------+----------+---------+----------+---------+
|Fund IV, Fund | | | | |
|V, TEP, related | | | | |
|general partners and | | | | |
|management companies | | | | |
+----------------------------+----------+---------+----------+---------+
|36 South | 49| 0.8| 62| 1.2|
|macro/volatility funds | | | | |
+----------------------------+----------+---------+----------+---------+
|Asian private equity | 182| 3.0| 155| 3.0|
|and portfolio funds | | | | |
+----------------------------+----------+---------+----------+---------+
|Milestone China | 135| | 113| |
|Opportunities funds, | | | | |
|investment holdings and | | | | |
|management company | | | | |
|participation | | | | |
+----------------------------+----------+---------+----------+---------+
|Prescient China | 47| | 42| |
|Balanced Fund | | | | |
|and investment | | | | |
|management company | | | | |
+----------------------------+----------+---------+----------+---------+
|Specialised investment | 347| 5.8| 300| 5.7|
|funds(1) | | | | |
+----------------------------+----------+---------+----------+---------+
|Vanterra Flex Investments | 30| | 30| |
+----------------------------+----------+---------+----------+---------+
|Vanterra C Change TEM | 23| | 23| |
+----------------------------+----------+---------+----------+---------+
|NanoDimension funds and | 44| | 48| |
|co-investment | | | | |
|opportunities | | | | |
+----------------------------+----------+---------+----------+---------+
|Fountainhead Expert Fund | 29| | 19| |
+----------------------------+----------+---------+----------+---------+
|Snow Phipps funds | 48| | 8| |
|and co-investment | | | | |
|opportunities | | | | |
+----------------------------+----------+---------+----------+---------+
|JPS Credit | 94| | 84| |
|Opportunities Fund(1) | | | | |
+----------------------------+----------+---------+----------+---------+
|GAM Real Estate | 75| | 83| |
|Finance Fund(1) | | | | |
+----------------------------+----------+---------+----------+---------+
|Other fund investments | 4| | 5| |
+----------------------------+----------+---------+----------+---------+
|United States land | 154| 2.6| 164| 3.1|
|development and mortgages | | | | |
+----------------------------+----------+---------+----------+---------+
|Diamond interests | 56| 0.9| 59| 1.1|
+----------------------------+----------+---------+----------+---------+
|Other investments(1) | 64| 1.1| 77| 1.5|
+----------------------------+----------+---------+----------+---------+
|Total investments | 6 509| 108.4| 5 416| 103.7|
+----------------------------+----------+---------+----------+---------+
|Cash and liquid funds | 360| 6.0| 380| 7.3|
+----------------------------+----------+---------+----------+---------+
|Bank borrowings | | | | |
|and derivatives | | | | |
+----------------------------+----------+---------+----------+---------+
|Borrowings | (813)| (13.5)| (417)| (8.0)|
+----------------------------+----------+---------+----------+---------+
|Net derivative | 26| 0.4| (78)| (1.5)|
|assets/(liabilities) | | | | |
+----------------------------+----------+---------+----------+---------+
|Other liabilities | | | | |
+----------------------------+----------+---------+----------+---------+
|Minority interest, fees | (80)| (1.3)| (80)| (1.5)|
|payable and | | | | |
|other liabilities, net | | | | |
|of other assets | | | | |
+----------------------------+----------+---------+----------+---------+
|Net asset value | 6 002| 100.0| 5 221| 100.0|
+----------------------------+----------+---------+----------+---------+
(1) The investment in Renshaw Bay advisory and management company is now included in 'Other investments'; the investments in JPS Credit Opportunities Fund and GAM Real Estate Finance Fund are now included in 'Specialised investment funds'. Comparative figures have been updated accordingly.
All investments are held, either directly or indirectly, by Reinet Fund.
INFORMATION RELATING TO CURRENT KEY INVESTMENTS
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
| | |Committed |Remaining |Invested |Realised |Current |Total |
| | |amount(1) |committed |amount(2) |proceeds(2) |fair |realised |
| | |in |amount(1) |in |in millions |value(1) in|and |
| | |millions |in millions |millions | |millions |unrealised |
| | | | | | | |value(3) in |
| | | | | | | |millions |
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Listed investments | | | | | | | |
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|British American Tobacco p.l.c. |EUR| -| -| 1 739| 1 692| 4 249| 5 941|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
| |GBP| -| -| 1 418| 1 383| 3 607| 4 990|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|SPDR Gold shares |EUR| 23| -| 22| -| 26| 26|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
| |USD| 25| -| 25| -| 27| 27|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Selecta Biosciences, Inc. |EUR| 5| -| 4| -| 5| 5|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
| |USD| 5| -| 5| -| 5| 5|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Unlisted investments | | | | | | | |
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Pension Insurance | | | | | | | |
|Corporation Group |EUR| 635| -| 656| -| 1 175| 1 175|
|Limited |GBP| 539| -| 539| -| 997| 997|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Trilantic Capital Partners |EUR| 345| 97| 244| 273| 202| 475|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Euro investment |EUR| 86| 20| 66| 110| 70| 180|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|US dollar investment(4) |USD| 275| 82| 203| 203| 141| 344|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|36 South macro/volatility | | | | | | | |
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|funds |EUR| 88| -| 88| 6| 49| 55|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Asian private equity | | | | | | | |
|and portfolio funds | | | | | | | |
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Milestone China | | | | | | | |
|Opportunities funds, investment | | | | | | | |
|holdings and | | | | | | | |
|management company participation |EUR| 158| 8| 124| 18| 135| 153|
| |USD| 169| 9| 160| 22| 144| 166|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Prescient China Balanced | | | | | | | |
|Fund and investment |EUR| 30| -| 25| -| 47| 47|
|management company |USD| 32| -| 32| -| 51| 51|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Specialised investment funds | | | | | | | |
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Vanterra Flex |EUR| 98| 37| 49| 23| 30| 53|
|Investments |USD| 104| 40| 64| 27| 32| 59|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Vanterra C Change TEM |EUR| 61| 5| 43| 1| 23| 24|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
| |USD| 65| 6| 59| 1| 24| 25|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|NanoDimension funds | | | | | | | |
|and co-investment | | | | | | | |
|opportunities |EUR| 56| 10| 41| 1| 44| 45|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Euro investment |EUR| 4| -| 4| 1| 4| 5|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|US dollar investment |USD| 56| 10| 46| -| 43| 43|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Fountainhead Expert |EUR| 38| 19| 15| -| 29| 29|
|Fund |USD| 40| 20| 20| -| 30| 30|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Snow Phipps funds | | | | | | | |
|and co-investment |EUR| 122| 73| 47| 4| 48| 52|
|opportunities |USD| 130| 77| 53| 5| 51| 56|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|JPS Credit Opportunities |EUR| 66| -| 54| -| 94| 94|
|Fund |USD| 70| -| 70| -| 100| 100|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|GAM Real Estate |EUR| 118| 35| 84| 16| 75| 91|
|Finance Fund |GBP| 100| 30| 70| 13| 63| 76|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|United States land | | | | | | | |
|development and |EUR| 200| 1| 161| -| 154| 154|
|mortgages |USD| 213| 1| 212| -| 164| 164|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
|Diamond interests(5) |EUR| 86| 3| 116| 67| 56| 123|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
| |ZAR| 1 230| 40| 1 190| 938| 807| 1 745|
+---------------------------------+---+----------+------------+----------+------------+-----------+------------+
(1) Calculated using year end foreign exchange rates.
(2) Calculated using actual foreign exchange rates at transaction date.
(3) Total of realised proceeds and current fair value.
(4) The invested amount for Trilantic Capital Partners includes an initial payment of USD 10 million.
(5) 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 net asset value of EUR 781 million during the year is influenced by the receipt of dividends from British American Tobacco p.l.c. ('BAT') and increases in the estimated fair value of certain investments, including BAT and Pension Insurance Corporation Group Limited. The increase in net asset value was offset by the payment of a dividend and expenses, together with decreases in the estimated fair values of certain investments, including 36 South and United States land development and mortgages, the settlement of derivative contracts associated with financing agreements and a decrease in value of certain derivative assets.
The Company records its assets and liabilities in euro; the depreciation of sterling against the euro offset by the appreciation of the US dollar against the euro has resulted in an overall decrease in the value of certain assets and liabilities in euro terms. Applying the current year end exchange rates to the March 2016 assets and liabilities would have resulted in a decrease in the March 2016 net asset value of some EUR 243 million.
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 2 billion and at 31 March 2017 has committed to provide further funding of EUR 288 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 213 million, and a total of EUR 290 million was funded during the year.
LISTED INVESTMENTS
BRITISH AMERICAN TOBACCO P.L.C.
The investment in British American Tobacco p.l.c. ('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.
Nicandro Durante, Chief Executive of BAT, writing in its annual report for 2016 commented:
'Group revenue was up by 6.9% at constant rates of exchange, driven by good pricing. Reported revenue was 12.6% higher reflecting the transitional tailwind resulting from the relative weakness of sterling. On an organic basis, Group revenue was up by 5.3% at constant rates.
I am very pleased that we reached an agreement with the Board of Reynolds American in relation to the acquisition of the remaining 57.8% of Reynolds American that the Group does not currently own.
Our combustible tobacco business continues to perform extremely well and I am very pleased with the progress we are making with the Next Generation Products. Both would be made stronger by our proposed acquisition of Reynolds American, creating what will become a truly global tobacco and Next Generation Products company, delivering sustained long-term profit growth and returns.'
During the year under review, Reinet received dividends from BAT amounting to EUR 127 million (GBP 103 million), being BAT's final 2015 dividend and interim 2016 dividend. In May 2017, after the end of the financial year, Reinet received BAT's final dividend in respect of its 2016 financial year; this amounted to EUR 95 million (GBP 80 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 4 249 million at 31 March 2017, being some 71 per cent of Reinet's NAV. The BAT share price on the London Stock Exchange increased from GBP 40.90 at 31 March 2016 to GBP 53.00 at 31 March 2017. 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
In 2015, 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 26 million as at 31 March 2017.
Further information on GLD is available at www.spdrgoldshares.com.
SELECTA BIOSCIENCES, INC.
In June 2016, Reinet invested EUR 4 million in Selecta Biosciences, Inc. ('Selecta') acquiring 350 000 shares in its initial public offering on the NASDAQ.
Selecta is a clinical-stage biopharmaceutical company using proprietary synthetic vaccine particle technology to discover and develop targeted therapies that are designed to modulate the immune system to effectively and safely treat rare and serious diseases.
Selecta is also a portfolio company of NanoDimension funds, pre and post the initial public offering.
Reinet holds 350 000 shares with a market value of EUR 5 million as at 31 March 2017.
Further information on Selecta is available at www.selectabio.com.
UNLISTED INVESTMENTS
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 reports and valuations provided by third-party experts. Valuation methodologies applied include the net asset value of investment funds, discounted cash flow models and comparable valuation multiples, 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 June 2016, Pension Corporation raised GBP 250 million in additional capital; of this amount Reinet subscribed for an amount of EUR 179 million (GBP 139 million).
In November 2016, Pension Insurance Corporation raised a further GBP 250 million by the issuance of subordinated debt capital with an annual coupon of 8 per cent and a maturity of 10 years. The proceeds are to be used to meet projected demand from trustees of defined benefit pension funds for wholesale insurance annuity products. The bonds have been admitted to trading on the London Stock Exchange's regulated market.
In 2016, Pension Insurance Corporation wrote new pension insurance business with premiums of GBP 2.6 billion. The result of the UK's referendum in June 2016 resulted in sharp falls in interest rates and increased currency and equity market volatility. Pension Insurance Corporation has been operating under the Solvency II framework of governance since 1 January 2016 and has effectively dealt with the continued volatility caused by the UK's referendum.
At 31 December 2016, Pension Insurance Corporation had GBP 22.6 billion in assets (31 December 2015: GBP 16.6 billion) and had insured more than 134 000 pension fund members (31 December 2015: 132 000). Clients include FTSE 100 companies, multinationals and the public sector.
Tracy Blackwell, Chief Executive Officer of Pension Insurance Corporation commented:
'As a specialist insurer our purpose is straightforward to define: it is to pay the pensions of our policyholders, both now and for the full term of their policies with us. Our expertise and specialisation has allowed us to develop a deep understanding of the factors that could prevent us fulfilling this purpose, as well as a robust, sophisticated approach to managing risk. So we were well positioned to meet the challenges of 2016, including the implementation of Solvency II, significant market volatility caused by political risk, and the poor funding position of many defined benefit pension funds, and therefore to take the opportunities that arose to continue building the business.
I am therefore delighted, but not at all surprised, that the company continued to perform very well through the year. Pension Insurance Corporation insured GBP 2.6 billion of pension liabilities in 2016 on terms consistent with our long-term IRR targets, and maintained our long-term market share of about 26 per cent. Our solvency ratio increased to 164 per cent at the year end, due to capital raised during 2016, but also the effectiveness of our hedging strategies. Pension Insurance Corporation is very much in a growth phase, building an asset pool which will throw off increasingly large cash flows for very many years. As a result of this our underlying operating profit was GBP 177 million, up from GBP 133 million last year, reflecting our continued growth and store of long-term future profits.
Alongside our exceptional customer service track record, the company has an enviable financial track record, demonstrating consistent growth and significant value generation over many years.'
Reinet's investment in Pension Corporation is carried at an estimated fair value of EUR 1 175 million at 31 March 2017 (31 March 2016: EUR 920 million). This value takes into account Pension Corporation's audited embedded value at 31 December 2016 of GBP 2.6 billion (31 December 2015: GBP 1.9 billion), valuation multiples drawn from industry data and a discount of 10 per cent which takes into account the illiquid nature of Reinet's investment.
The increase in estimated fair value is due to the increase in Pension Corporation's embedded value which reflects new business written in the year and the effect of changing economic variables, together with the capital increase in the year ended 31 December 2016; this increase in estimated fair value is offset by a 2 per cent decrease in comparable company valuation multiples derived from public information relating to listed companies in the UK insurance sector. The increase in estimated fair value is further reduced by the weakening of sterling against the euro in the year.
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 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, financial and business services sectors, and currently manages six private equity funds with aggregate capital commitments of USD 7.7 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 7 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 with Reinet making capital contributions of some EUR 33 million and receiving capital repayments of some EUR 4 million in the year under review.
Charlie Ayres, Chairman of Trilantic North America and the Executive Committee of Trilantic Capital Partners, commented:
'We remain cautiously optimistic regarding the outlook of U.S. 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 maximizing returns. We have both fully monetized and strategically partially monetized 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 remain 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 3 million were received.
Vittorio Pignatti-Morano, Chairman of Trilantic Europe, commented:
'2016 was a year where, globally, politics had a major role in valuations, both in public and private equity markets. The perception of an improving global macro environment in investors' minds became partially clouded by, in sequence, Brexit, then Donald Trump's unexpected victory, followed by the failed Italian referendum. The volatility of the first two quarters was overcome by positive momentum even in the aftermath of these truly unexpected political outcomes. It therefore appears that the markets are attracted more by low interest rates and abundant liquidity than scared by the prospects of a new world political landscape. Over the last 12 months, in addition to actively managing the portfolio, we made two new transactions for Trilantic Europe V, both being true to Trilantic Europe's strategy of making primary investments by acquiring directly from the founders and achieving transactions that are negotiated on a bilateral basis, outside of a competitive auction process.'
Reinet's and its minority partners' investment in Trilantic Management and all the above funds is carried at the estimated fair value of EUR 202 million at 31 March 2017 (31 March 2016: EUR 143 million) of which EUR 10 million (31 March 2016: EUR 10 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 2016 adjusted for changes in the value of listed investments included in the portfolios. The increase in the valuation is due to additional capital invested, increases in estimated fair values of underlying investments and the strengthening of the US dollar against the euro in the year, offset by distributions of EUR 14 million.
During the year under review, gains of EUR 13 million and carried interest of EUR 4 million were received.
Further information on Trilantic is available at www.trilantic.com.
36 SOUTH 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; 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 three 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; a global macro/long volatility strategy which aims to achieve significant returns with commensurate risk over a medium to long term investment period. It is designed to generate performance in a variety of market environments as the fund managers have extensive experience in identifying mis-valued assets whilst maintaining a mix of bullish and bearish positions. The fund invests up to 95 per cent in options and is a more concentrated version of the highly successful Kohinoor Series Funds.
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. Consequently our funds are positioned in client portfolios with diversification and capital protection in mind.
Our funds main profit driver is volatility. Volatility in financial markets has been dampened significantly by Central Bank action and low interest rates. Consequently volatility is at multiyear lows which affects our performance negatively in the short term. However, longer term this ”drought” in volatility presents us with opportunities to populate our funds with cheap convexity which, if and when volatility returns, will result in significant outperformance. This outperformance generally comes at a time when our clients need it i.e. risk aversion periods, which makes the contribution all the more valuable.
Total 36 South assets under management have decreased from USD 941 million as at 31 March 2016 to USD 718 million as at 31 March 2017.
We continue to believe that volatility will experience some mean reversion given the current global macro environment.'
The investment in the funds is carried at an estimated fair value of EUR 42 million, based on unaudited financial information received from the fund manager as at 31 March 2017 (31 March 2016: EUR 54 million). The estimated fair value of the investment in the fund management and distribution companies amounted to EUR 7 million (31 March 2016: EUR 8 million). The investments in total have an estimated fair value of EUR 49 million (31 March 2016: EUR 62 million). The change in valuation reflects the movement in the value of the underlying investments held by the funds.
Further information on 36 South is available 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; biopharmaceutical 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:
'During the full year of 2016, Milestone deployed USD 12.0 million to three investments in healthcare and internet / new economy sectors, including two follow-on investments into existing portfolio companies to support their further growth. We continued to work closely with our portfolio companies on key strategic initiatives. During 2016, three of our portfolio companies completed new rounds of equity financing at valuations significantly higher than when we invested, and two companies filed for IPOs. We also fully exited from our investment in an online travel company with total proceeds of USD 10.7 million, or an IRR of 9.2 per cent over the investment period.
At a macro level, China's GDP growth further slowed down to 6.7 per cent, the lowest in 26 years. The consumer and services sectors continued to drive the growth, with an increase of 7.8 per cent compared to 3.3 per cent of the primary industry and 6.1 per cent of the secondary industry. During the past year, China continued its economic ”new normal state” with more moderate, consumer and services-driven growth. While the growth rate has decelerated from the double-digit golden era to the lowest in over a quarter of a century, the significant size and structural shift of the Chinese economy still provides abundant opportunities for investments, especially in consumer related areas such as consumption upgrade, healthcare, education, as well as supporting infrastructure such as e-commerce and big data.'
The investment in Milestone is held at the estimated fair value of EUR 135 million (31 March 2016: EUR 113 million) based on audited financial information provided by Milestone Capital at 31 December 2016 adjusted for movements in listed investments and cash movements up to 31 March 2017. The change in estimated fair value reflects increases in the value of listed investments and the strengthening of the US dollar against the euro.
Further information on Milestone Capital and Milestone funds is available 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 instruments listed on the Shanghai and Shenzhen Stock Exchanges.
Liang Du, Portfolio Manager of Prescient China, commented:
'The financial year ending March 2017 was a tough year for Chinese assets, with a 65 per cent equity, 35 per cent cash benchmark delivering 0 per cent return in US dollar terms. The fund, through good asset allocation as well as securities selections, was up 7.2 per cent in US dollar terms. This reflects the continued success of our models. Over the longer term, the fund continues to deliver very strong returns, up 22.7 per cent p.a. over the past 3 years and 14 per cent p.a. since inception. The fund continues to be very competitive vs. its peers ranking in the top 1 per cent of Asia focussed dynamic allocation funds in Bloomberg since inception.
The Chinese economy itself is showing some of the strongest economic numbers over the past eighteen months, moving out of deflation into mild inflation. Growth has started to surprise on the upside, with both manufacturing as well as services Purchasing Managers Indices in strong positive territory.
Asset raising for Chinese funds remains challenging in the current environment. AUM in the financial year remain similar to the start of the year.'
Reinet invests in Prescient China and in the management company. These investments are carried at the estimated fair value of EUR 47 million based on unaudited financial information provided by the fund manager at 31 March 2017 (31 March 2016: EUR 42 million). The increase in estimated fair value over the year under review is the result of increases in the value of underlying listed investments and the strengthening of the US dollar against the euro in the year.
Further information on Prescient China is available at www.prescient.co.za.
SPECIALISED INVESTMENT 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 Capital Partners IV L.P., United States land development and mortgages, and Vanterra C Change Transformative Energy and Materials. Vanterra also has investments in established platforms in US healthcare, small business credit, distressed general partner secondaries and Brazil.
Reinet is an investor in both Vanterra and in its general partner.
This investment is carried at the estimated fair value of EUR 30 million at 31 March 2017, based on unaudited financial information as at 31 December 2016, adjusted for cash movements and changes in prices of listed investments (31 March 2016: EUR 30 million).
In April 2017, Reinet reached agreement in principle with Vanterra and its general partner that Vanterra will be unwound, resulting in the underlying assets being transferred to and held directly by Reinet.
Further information on Vanterra is available 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.
Reinet is a direct and indirect investor in Vanterra C Change TEM and in its general partner.
The investment is carried at the estimated fair value of EUR 23 million at 31 March 2017, based on audited financial information as at 31 December 2016, adjusted for cash movements and changes in prices of listed investments (31 March 2016: EUR 23 million).
Further information on Vanterra C Change TEM is available at www.temcapital.com.
NanoDimension funds and co-investment opportunities
Reinet is a limited partner in NanoDimension I and II Limited Partnerships. The focus of each fund is to invest in and support the establishment, technology development and scale up, growth and commercialisation of companies leveraging the advancement of new atomic and molecular structures. Product applications range from molecular diagnostics, immuno-oncology, immuno-tolerance, organs on chip, DNA synthesis to energy storage and electrochromic glass.
Aymeric Sallin, Founder of NanoDimension Management Ltd, commented:
'2016 was a record year for NanoDimension in terms of investment activity with 6 new investments. This acceleration reflects the increased quality of our deal flow, the culmination of over 10 years of work together as a team and the fact that talented and experienced teams are now leveraging the technological building blocks developed over the last decade to engineer disruptive products and rapidly bring them to market. For example, Twist moved from concept to selling genes through an e-commerce platform in less than 4 years. In line with this maturity, we are seeing many companies moving away from components or materials towards building full systems and products. Data generated by those systems and products is becoming more important and valuable thanks to machine learning and artificial intelligence. Combined with innovative business models the potential additional value could be significant. Investing at the convergence of the technologies that organized atoms and molecules is a pillar of the 4th industrial revolution and we are thrilled to contribute to its success.'
At 31 March 2017, the estimated fair value of Reinet's investment in the two funds and a co-investment amounted to EUR 44 million (31 March 2016: EUR 48 million). The estimated fair value is based on audited valuation data received from the fund manager as at 31 December 2016, together with an independent valuation of the co-investment. The decrease in estimated fair value reflects decreases in the value of underlying investments offset by the strengthening of the US dollar against the euro in the year.
Further information on NanoDimension is available 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:
'The fund has rebounded significantly over the last year in terms of performance but we remain very constructive about the return prospects for the fund over the next few years. Markets overall are not cheap and finding new investment ideas with a significant margin of safety is proving difficult. We believe the investment environment for the next few years, unlike what we have experienced since the financial crisis, will reward bottom up concentrated stock picking.
While the last two years have been painful, at no stage did we fall in the trap of buying stocks above intrinsic value, in fact we added to the most undervalued companies as prices collapsed. While we bought early, the fact that stocks declined significantly below even the discounted levels we bought does not change the value proposition. In fact, in many instances given that management has been aggressively buying back shares at ever greater discounts has simply amplified the future returns we would have expected. This rebound has now started and we are once again outperforming, but we believe the move is very much in its infancy.'
At 31 March 2017, the estimated fair value of the investment was EUR 29 million based on the unaudited valuation at that date provided by the fund manager (31 March 2016: EUR 19 million). The increase in estimated fair value is the result of increases in the value of underlying listed investments and the strengthening of the US dollar against the euro in the year.
Further information on Fountainhead is available at www.fountainheadpartners.co.za.
Snow Phipps funds and co-investment opportunities
Snow Phipps Group ('Snow Phipps') is a private equity firm focused on lower middle-market control investments. Snow Phipps seeks to invest USD 50 million to USD 150 million of equity in market-leading companies primarily headquartered in North America with enterprise values between USD 100 million and USD 500 million. Snow Phipps implements a strategy of creating long-term capital appreciation through active operational management of its portfolio companies. By utilising its engaged operational approach, Snow Phipps is able to execute transactions involving corporate carve-outs, generational and management change, and add-on acquisition strategies. Snow Phipps primarily targets investments in the industrial, consumer and business services sectors, and currently manages three private equity funds with aggregate capital commitments of USD 2.4 billion.
In 2011, Reinet committed to invest in Snow Phipps II, L.P. In the year ended 31 March 2016, Reinet made a commitment to Snow Phipps III, L.P. the successor fund to Snow Phipps II, L.P. In addition, in the current year, Reinet committed to invest in two co-investment opportunities.
Ian K. Snow, CEO and Partner of Snow Phipps, commented:
'Since our inception in 2005, Snow Phipps has focused on the same operationally driven strategy of investing in companies with attractive growth dynamics and defensible market positions. Our latest fund, Snow Phipps III, L.P., is a continuation of a decade-long history of successfully partnering with retained senior executives (our Operating Partners) and strong management teams to deliver superior returns for investors. Despite a competitive deal-making environment, in 2016 we already began executing this investment strategy in Fund III, completing two new platform investments, as well as several add-on acquisitions. In June 2016, Snow Phipps acquired Electric Guard Dog, a market leader in electric fences in the United States, and subsequently completed the add-on of Perimeter Security Systems. Also in June 2016, Snow Phipps acquired Winchester Electronics, a leading provider of custom engineered interconnect solutions for high reliability applications, and has subsequently completed two add-on acquisitions. In addition, for Snow Phipps II, L.P., we completed our final platform investment in June 2016 of ECRM, a business services provider of sourcing solutions for retailers and product manufacturers. In 2016, we deployed over USD 230 million in Fund II and Fund III equity commitments combined. In addition, we continue to build value in the existing Snow Phipps portfolio and are also focusing on preparing our mature companies to be exit-ready.'
Reinet's investment in the two funds and associated co-investments is carried at an estimated fair value of EUR 48 million at 31 March 2017 (31 March 2016: EUR 8 million), the increase in value being mainly due to additional capital invested in the year.
Further information on Snow Phipps is available at www.snowphipps.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 94 million at 31 March 2017 (31 March 2016: EUR 84 million) based on the valuation at that date provided by the fund manager.
The increase in estimated fair value during the year is due to increases in the value of underlying investments together with the strengthening of the US dollar against the euro during the year.
GAM Real Estate Finance Fund
The GAM 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 investment strategy focuses on the origination of commercial real estate loans primarily in Western Europe, and with primary focus on the UK. At December 2016, REFF held 21 investments.
Jon Rickert, Investment Director of GAM, commented:
'The Real Estate Finance Fund invested in a diversified portfolio of 25 self-originated, private loans secured by commercial and residential real estate in Western Europe. The fund's investment objectives are to generate a dividend yield of 6 to 8 per cent per annum and a total net return of circa. 10 per cent while protecting against a material, downward adjustment in real estate values. The fund's last investment was completed in the second quarter of 2016, and income and principal are being distributed on a regular basis consistent with the fund's objectives. Through the end of 2016, four of the fund's 25 investments had been fully realised generating a gross IRR above 15 per cent. The fund's remaining investments had an average loan-to-value ratio under 70 per cent at year-end 2016.
The result of the UK's referendum in June 2016 initially impacted UK property prices, however this has been followed by relatively stable performance of the UK economy and commercial real estate market. Management of the fund expect the uncertainty created by Brexit negotiations to begin to weigh on the UK economy over the next couple of years; Europe will not be unaffected either. However, due to active performance monitoring, management remains confident about the performance of the fund.'
The investment is carried at the estimated fair value of EUR 75 million at 31 March 2017 (31 March 2016: EUR 83 million) based on audited valuation data provided by the fund manager at 31 December 2016.
The decrease in estimated fair value is mainly due to repayments of capital in the year, mostly owing to early settlement of loans, together with the weakening of sterling against the euro.
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 4 million at 31 March 2017 based on valuation statements received from the fund managers (31 March 2016: EUR 5 million).
UNITED STATES LAND DEVELOPMENT AND MORTGAGES
Reinet has 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:
'United States land development and mortgages is opportunistically invested in numerous real estate and hospitality assets throughout the United States through two distinct property portfolios.
The Arendale portfolio includes several premier golf course communities that are positioned in the luxury segment of the market. Arendale acquired these properties as distressed assets and continues to employ a patient approach to value realization. Although revenues for our most recent fiscal year (for both real estate sales and club operations) increased by 21 per cent while operating expenses decreased by 9 per cent, we still have a way to go to break even.
The Legacy portfolio is comprised of properties primarily located in metropolitan areas and sold to production-oriented builders for construction of homes at prices that appeal to the general public. During the past year, we generated substantial cash flow from the sale of Legacy assets and continued to create value in others through the land development and entitlement process.'
The investment is carried at the estimated fair value of EUR 154 million (31 March 2016: EUR 164 million), of which EUR 3 million is attributable to minority partners (31 March 2016: EUR 2 million).
The current valuation is based on audited financial statements as at 31 December 2016 adjusted for cash movements up to 31 March 2017. The decrease in the estimated fair value primarily reflects reductions in the expected rate of lot sales along with increases in discount rates used to calculate fair value, offset by the strengthening of the US dollar against the euro during the year.
Further information on Arendale is available 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 at Jagersfontein in South Africa. Developments in extraction technology since Jagersfontein was first mined, now allow the waste tailings to be reprocessed to recover gemstones. In addition, Reinet has an interest in a separate project, which has acquired rights to mine 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:
'The rough diamond market experienced a tough trading year as the industry had to deal with a number of disruptive exogenous factors. Arguably the most significant event impacting on the industry was the decision by the Indian authorities to demonetise the large denomination Rupee notes. In the short term it had a significant effect on the Indian buyers, specifically on the smaller goods. However, based on the most recent tender held, the short-term negative effect of the demonetisation has started to normalise.
The rough diamond market has remained resilient in demand, which is evident in the continued high attendance of buyers throughout the Companies' sales channels both in South Africa and in Antwerp.
Jagersfontein achieved solid financial results for the financial year. This was realised through the continued drive for operational efficiencies in conjunction with the recovery of a number of higher value diamonds, which resulted in increased revenue.
Rooipoort experienced a tough year, with a number of operational challenges including a prolonged period of labour unrest and lower than expected revenue due to the yield of diamonds being lower than expected in the area that is currently being mined.'
In total, these projects are carried at their estimated fair value of EUR 56 million at 31 March 2017 (31 March 2016: EUR 59 million) based on discounted cash flow projections. The decrease in estimated fair value mainly reflects repayment of loans and interest in the year amounting to EUR 8 million, offset by the strengthening of the South African rand against the euro in the year.
Reinet has borrowed ZAR 443 million to fund its investments in these projects and entered into a forward exchange contract to sell ZAR 480 million (31 March 2016: ZAR 550 million) in order to mitigate currency risk.
OTHER INVESTMENTS
The decrease in the estimated fair value of other investments relates mostly to the investment in a digital music industry initiative with an estimated fair value of EUR 15 million at 31 March 2017 (31 March 2016: EUR 25 million), reflecting start-up costs and intellectual property development expenditure.
There were no other significant changes in value 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 2017 exchange rates.
The table below summarises Reinet's outstanding investment commitments at 31 March 2017.
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
| | |Exchange |Committed |Funded | | |
| |31 March |rate |during the |during the |31 March |31 March |
| |2016(1) |effects(2) |year(3) |year(3) |2017(3) |2017 |
| |EUR m |EUR m |EUR m |EUR m |EUR m |% |
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Selecta Biosciences, Inc. | -| -| 4| (4)| -| -|
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Pension Corporation(4) | -| -| 179| (179)| -| -|
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Private equity and related partnerships | | | | | | |
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Trilantic Capital Partners | | | | | | |
|Fund IV, Fund V, TEP, related | 120| 7| -| (34)| 93| 32.3|
|general partners and | | | | | | |
|management companies(5) | | | | | | |
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|36 South macro/volatility funds | -| -| -| -| -| -|
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Asian private equity and portfolio funds | | | | | | |
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Milestone China Opportunities | 10| 1| -| (3)| 8| 2.8|
|funds, investment holdings and | | | | | | |
|management company participation | | | | | | |
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Prescient China Balanced Fund | -| -| -| -| -| -|
|and investment management company | | | | | | |
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Specialised investment funds(6) | | | | | | |
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Vanterra Flex Investments | 35| 3| -| (1)| 37| 12.9|
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Vanterra C Change TEM | 5| -| -| -| 5| 1.7|
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|NanoDimension funds and | 12| 1| -| (3)| 10| 3.5|
|co-investment opportunities | | | | | | |
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Fountainhead Expert Fund | 18| 1| -| -| 19| 6.6|
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Snow Phipps funds | 89| 6| 18| (40)| 73| 25.3|
|and co-investment opportunities | | | | | | |
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|JPS Credit Opportunities Fund(6) | -| -| -| -| -| -|
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|GAM Real Estate Finance Fund(6) | 45| (3)| -| (7)| 35| 12.2|
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Other fund investments | 1| -| -| (1)| -| -|
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|United States land | 5| -| 10| (14)| 1| 0.3|
|development and mortgages(5) | | | | | | |
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Diamond interests | 2| 1| -| -| 3| 1.0|
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
|Other investments(6) | 6| -| 2| (4)| 4| 1.4|
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
| | | 17| 213| (290)| 288| 100.0|
+-----------------------------------------+---------+-----------+-----------+-----------+---------+---------+
(1) Commitments calculated using 31 March 2017 exchange rates.
(2) Reflects exchange rate movements between 31 March 2016 and 31 March 2017.
(3) Amounts calculated using 31 March 2017 exchange rates, except for Pension Corporation.
(4) The amount paid to Pension Corporation in the year amounts to EUR 179 million using the actual exchange rate at the date of payment.
(5) Commitments noted represent only Reinet's share of the investments at 31 March 2017, additional commitments payable by minority partners amount to EUR 4 million in respect of Trilantic and EUR nil in respect of United States land development and mortgages.
(6) The investment in Renshaw Bay advisory and management company is now included in 'Other investments'; the investments in JPS Credit Opportunities Fund and GAM Real Estate Finance Fund are now included in 'Specialised investment funds'. Comparative figures have been updated accordingly.
CASH AND LIQUID FUNDS
Reinet holds cash on deposit principally in European-based banks and in a liquidity fund holding highly rated short-term commercial paper.
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 and liquid funds EUR 360 m
Undrawn borrowing facility EUR 194 m
Cash required for unfunded commitments (refer to table above) (EUR 288 m)
Cash required to meet short-term sterling borrowing obligations (EUR 101 m)
Cash required to meet ZAR borrowing obligations (EUR 31 m)
The borrowing facility comprises a revolving facility with Bank of America, N.A. of GBP 250 million. At 31 March 2017, EUR 101 million (GBP 85 million) of this facility had been drawn and is repayable within six months. Some 3.2 million BAT shares have been pledged to collateralise the amount borrowed as at 31 March 2017.
Medium-term bank borrowings of EUR 681 million will be settled by the exercise of put options over BAT shares or the proceeds of the sale of BAT shares, or may be rolled over or replaced by other borrowings or settled by available cash.
Reinet may sell further BAT shares or use such shares to secure additional financing facilities from time to time.
BANK BORROWINGS AND DERIVATIVES
BORROWINGS
In 2012, Reinet entered into a GBP 300 million, medium-term collar financing arrangement; in accordance with the loan repayment terms, this loan was repaid between December 2016 and March 2017.
During 2017, Reinet entered into a GBP 500 million, medium-term financing arrangement with Merrill Lynch International, which runs to 2022. At 31 March 2017, the estimated fair value of the borrowing was EUR 591 million (GBP 502 million). The transaction includes the purchase by Reinet of put options over approximately 15.5 million BAT shares for a premium of some EUR 92 million (GBP 79 million) payable over the life of the transaction. The premium loan is carried as a liability at an estimated fair value of EUR 90 million (GBP 77 million). Some 4.5 million BAT shares have also been pledged to collateralise the premium loan and future interest payments. As part of this agreement a portion of BAT shares are on loan to Merrill Lynch International. The Company retains the economic benefit of all shares on loan.
Reinet has also borrowed ZAR 443 million to fund its investments in South African projects. At 31 March 2017, the estimated fair value of the borrowing was EUR 31 million (31 March 2016: EUR 26 million); the increase in estimated fair value is due to the strengthening of the South African rand against the euro during the year.
DERIVATIVE ASSETS/(LIABILITIES) – OPTIONS AND FORWARD EXCHANGE CONTRACTS
As part of the aforementioned GBP 500 million medium-term financing arrangement, Reinet purchased put options which provide protection should the value of the BAT shares used to secure the borrowings fall below a certain amount. Proceeds received as a result of the put options being exercised could be used to repay the amounts borrowed in full. The put options are carried at their estimated fair value of EUR 29 million at the balance sheet date. The cost of the put options is considered as part of the overall cost of financing and is included in the fair value adjustment on outstanding contracts in the income statement below.
Along with its repayment of the aforementioned GBP 300 million borrowing, Reinet cash settled associated call options in an amount of EUR 131 million (GBP 112 million) in the year. The estimated fair value of these options at 31 March 2016 was EUR 80 million (GBP 63 million); the fair value of these options increased during the period before settlement in line with the increase in the BAT share price. These settlement costs are considered as part of the overall cost of financing and are reflected as other financing expenses in the income statement.
In 2012, Reinet chose to borrow GBP 300 million as opposed to selling approximately 9.6 million BAT shares and by doing so has retained the appreciation and dividend income on these BAT shares. The costs noted above are offset by dividends received of some GBP 63 million over the last five years and appreciation of the BAT shares of some GBP 208 million between February 2012 and 31 March 2017.
Reinet has entered into a forward exchange contract to sell ZAR 480 million (31 March 2016: ZAR 550 million). The derivative liability in respect of the forward exchange contract is carried at its estimated fair value of EUR 3 million at 31 March 2017 (31 March 2016: asset of EUR 2 million). The change in value reflects the strengthening 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 16 million (31 March 2016: EUR 15 million) and is in respect of minority partners' share in the gains and losses not yet distributed to them arising from the estimated fair value movement of investments in which they have interests.
Fees payable and other liabilities comprise principally an accrual of EUR 22 million in respect of the half-yearly management fee payable as at 31 March 2017 (31 March 2016: EUR 22 million), a provision for deferred taxes of EUR 7 million (31 March 2016: EUR 10 million) relating to gains arising from the investments in Trilantic and withholding and corporate taxes of EUR 25 million (31 March 2016: EUR 18 million) relating to the investment in United States land development and mortgages. Accruals and other payables amount to some EUR 10 million (31 March 2016: EUR 10 million).
No provision has been made in respect of a performance fee as at 31 March 2017 (31 March 2016: EUR 5 million) as the conditions required to pay a fee had not been met at that date.
The performance fee (if applicable) and management fee are payable to the Investment Advisor.
+--------------------------------------+---------------+---------------+
|INCOME STATEMENT |Year ended |Year ended |
| |31 March 2017 |31 March 2016 |
| |EUR m EUR m |EUR m EUR m |
+--------------------------------------+-------+-------+-------+-------+
|Income | | | | |
+--------------------------------------+-------+-------+-------+-------+
|BAT dividends | 127| | 149| |
+--------------------------------------+-------+-------+-------+-------+
|Interest and other | 26| | 35| |
|investment income | | | | |
+--------------------------------------+-------+-------+-------+-------+
|Realised gains on | -| | 178| |
|investments – BAT | | | | |
+--------------------------------------+-------+-------+-------+-------+
|– others | 13| | 73| |
+--------------------------------------+-------+-------+-------+-------+
|Realised (losses)/gains | (4)| | 1| |
|on foreign | | | | |
|exchange contracts | | | | |
+--------------------------------------+-------+-------+-------+-------+
|Carried interest earned | 4| | 6| |
|on investments | | | | |
+--------------------------------------+-------+-------+-------+-------+
|Total income | | 166| | 442|
+--------------------------------------+-------+-------+-------+-------+
|Expenses | | | | |
+--------------------------------------+-------+-------+-------+-------+
|Management fee | (48)| | (46)| |
+--------------------------------------+-------+-------+-------+-------+
|Performance fee | -| | (5)| |
+--------------------------------------+-------+-------+-------+-------+
|Operating expenses, | (6)| | (7)| |
|foreign exchange and | | | | |
|transaction-related | | | | |
|costs | | | | |
+--------------------------------------+-------+-------+-------+-------+
|Interest expense | (11)| | (12)| |
+--------------------------------------+-------+-------+-------+-------+
|Other financing | (186)| | -| |
|expenses – loan related | | | | |
|derivative contracts | | | | |
+--------------------------------------+-------+-------+-------+-------+
|Tax (expense)/income | (2)| | 5| |
+--------------------------------------+-------+-------+-------+-------+
|Total expenses | | (253)| | (65)|
+--------------------------------------+-------+-------+-------+-------+
|Realised investment | | (87)| | 377|
|income, net of expenses | | | | |
+--------------------------------------+-------+-------+-------+-------+
|Fair value adjustments | | | | |
+--------------------------------------+-------+-------+-------+-------+
|BAT – unrealised gain on shares held | 737| | 234| |
+--------------------------------------+-------+-------+-------+-------+
|– reversal of unrealised gain on | | | | |
|shares sold (1) | -| | (172)| |
+--------------------------------------+-------+-------+-------+-------+
|Other investments | 77| | (253)| |
+--------------------------------------+-------+-------+-------+-------+
|Derivative instruments – fair value | | | | |
|adjustment on outstanding contracts | (67)| | (46)| |
+--------------------------------------+-------+-------+-------+-------+
|– reversal of unrealised loss on | | | | |
|settled contracts (2) | 135| | -| |
+--------------------------------------+-------+-------+-------+-------+
|Borrowings – unrealised loss on | | | | |
|outstanding loans | (5)| | 47| |
+--------------------------------------+-------+-------+-------+-------+
|– reversal of unrealised loss on | | | | |
|repaid loans(3) | 31| | -| |
+--------------------------------------+-------+-------+-------+-------+
|Total fair | | 908| | (190)|
|value adjustments | | | | |
+--------------------------------------+-------+-------+-------+-------+
| | | 821| | 187|
+--------------------------------------+-------+-------+-------+-------+
|Effect of exchange rate | | (7)| | (10)|
|changes on cash balances | | | | |
+--------------------------------------+-------+-------+-------+-------+
|Net profit | | 814| | 177|
+--------------------------------------+-------+-------+-------+-------+
|Minority interest | | (1)| | (2)|
+--------------------------------------+-------+-------+-------+-------+
|Profit attributable | | 813| | 175|
|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.
(2) The reversal of the unrealised loss on derivative contracts represents the unrealised fair value of EUR 80 million as at 1 April 2016 on loan related derivative contracts settled during the year ended 31 March 2017; along with the original premium cost of EUR 55 million.
(3) The reversal of the unrealised loss on borrowings represents the unrealised loss as at 1 April 2016 on borrowings repaid during the year ended 31 March 2017.
INCOME
Dividends received from BAT decreased from EUR 149 million (GBP 110 million) during the year under review to EUR 127 million (GBP 103 million). The decrease is due to the reduction in the number of BAT shares held following the sales in February and March 2016 together with the weakening of the sterling/euro exchange rate at the time of the dividend payments, offset by an increase of GBP 0.06 in the total dividend per BAT share. The dividends received from BAT during the year represent the final 2015 dividend paid in May 2016, as well as the interim 2016 dividend paid in September 2016.
Interest income is earned on bank deposits and loans made to underlying investments.
Realised gains on investments of EUR 13 million were mainly in respect of investments realised by the Trilantic funds. Reinet's share of the Trilantic gains amounts to EUR 12 million with a further EUR 1 million being attributable to the minority partner.
Losses of EUR 4 million were realised on the settlement of the euro/South African rand foreign exchange contracts during the year.
Carried interest of EUR 4 million was attributable to Reinet in respect of investments realised by the Trilantic funds.
EXPENSES
The management fee for the year ended 31 March 2017 amounts to EUR 48 million (31 March 2016: EUR 46 million).
No performance fee is payable for the year ended 31 March 2017 (31 March 2016: EUR 5 million) as the conditions required to pay a fee had not been met at that date. 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, including dividends paid, over the period since completion of the rights issue in December 2008 up to 31 March 2017, less the sum of all performance fees paid in respect of previous periods.
Operating expenses of EUR 6 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 5 million.
Interest expense relates to sterling and South African rand-denominated borrowings.
Other financing expenses include the cost of settlement of call options in respect of the GBP 300 million medium-term collar financing arrangement which amounted to EUR 131 million (GBP 112 million). Reinet cash settled the liability and in doing so retained the underlying BAT shares, the future BAT dividends and the potential increase in value of the shares. The total expense of the collar over the period of the loan amounted to EUR 186 million (GBP 156 million). Fluctuations in the estimated fair value of the collar have been recorded as fair value adjustments in prior years (see below); these have been reversed following settlement.
In 2012, Reinet chose to borrow GBP 300 million as opposed to selling approximately 9.6 million BAT shares and by doing so has retained the appreciation and dividend income on these BAT shares. The costs noted above are offset by dividends received of some GBP 63 million over the last five years and appreciation of the BAT shares of some GBP 208 million between February 2012 and 31 March 2017.
The net tax expense of EUR 2 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 737 million during the year under review. Of this, EUR 970 million was attributable to the increase in value of the underlying BAT shares in sterling terms offset by EUR 233 million due to the weakening of sterling against the euro during the year under review.
The unrealised fair value adjustment of EUR 77 million in respect of other investments includes an increase in the estimated fair value of the investment in Pension Corporation of EUR 76 million, an increase in the estimated fair value of the Trilantic funds of EUR 29 million, offset by decreases in the estimated fair value of the investments in United States land development and mortgages, 36 South and certain other investments. The above amounts include the effect of changes in foreign exchange rates due to the depreciation of sterling and the appreciation of the US dollar and South African rand against the euro in the year under review.
The collar financing derivative liability was settled in the year, thereby reversing the previously recorded unrealised loss of EUR 135 million. The put options purchased in the year under review decreased in value by EUR 63 million reflecting, in part, the increase in value of BAT shares in the period since the options were issued. The estimated fair value of the forward exchange contracts decreased by EUR 4 million, thereby changing from an asset at the beginning of the year to a liability at the end of the year, reflecting the strengthening of the South African rand against the euro.
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 loss of EUR 5 million arose in respect of the South African rand borrowing due to the strengthening of the South African rand against the euro during the year. An unrealised gain of EUR 31 million arose in respect of the sterling borrowing which was repaid during the year. Of this, EUR 28 million is due to the weakening of sterling against the euro.
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.
+---------------------------------------------+--------------+--------------+
|CASH FLOW STATEMENT |Year ended |Year ended |
| |31 March 2017 |31 March 2016 |
| |EUR m EUR m |EUR m EUR m |
+---------------------------------------------+-------+------+-------+------+
|Investing activities | | | | |
+---------------------------------------------+-------+------+-------+------+
|Purchase of investments, net of repayments | (262)| | (116)| |
+---------------------------------------------+-------+------+-------+------+
|Proceeds from sales of investments | 20| | 457| |
+---------------------------------------------+-------+------+-------+------+
|Net cash and liquid funds | | (242)| | 341|
|(used in)/generated by investing activities | | | | |
+---------------------------------------------+-------+------+-------+------+
| | | | | |
+---------------------------------------------+-------+------+-------+------+
|Financing activities | | | | |
+---------------------------------------------+-------+------+-------+------+
|Dividend paid | (32)| | (31)| |
+---------------------------------------------+-------+------+-------+------+
|Repayment of funding to minority partners | -| | (5)| |
+---------------------------------------------+-------+------+-------+------+
|Financing expenses paid | (131)| | -| |
+---------------------------------------------+-------+------+-------+------+
|(Payment for)/proceeds from settlement | (4)| | 1| |
|of derivative contracts | | | | |
+---------------------------------------------+-------+------+-------+------+
|Movements in bank borrowings | 331| | (10)| |
+---------------------------------------------+-------+------+-------+------+
|Net cash and liquid funds | | 164| | (45)|
|generated by/(used in) financing activities | | | | |
+---------------------------------------------+-------+------+-------+------+
| | | | | |
+---------------------------------------------+-------+------+-------+------+
|Operating activities | | | | |
+---------------------------------------------+-------+------+-------+------+
|Dividends, interest and other income received| 127| | 149| |
+---------------------------------------------+-------+------+-------+------+
|Carried interest earned on investments | 4| | 6| |
+---------------------------------------------+-------+------+-------+------+
|Interest expense | (11)| | (12)| |
+---------------------------------------------+-------+------+-------+------+
|Operating and related expenses | (51)| | (43)| |
+---------------------------------------------+-------+------+-------+------+
|Performance fee paid | (5)| | (78)| |
+---------------------------------------------+-------+------+-------+------+
|Taxation refunded/(paid) | 1| | (4)| |
+---------------------------------------------+-------+------+-------+------+
|Net cash and liquid funds | | 65| | 18|
|generated by operating activities | | | | |
+---------------------------------------------+-------+------+-------+------+
| | | | | |
+---------------------------------------------+-------+------+-------+------+
|Net (outflow)/inflow | | (13)| | 314|
+---------------------------------------------+-------+------+-------+------+
|Opening cash and liquid funds position | | 380| | 76|
+---------------------------------------------+-------+------+-------+------+
|Effects of exchange rate | | (7)| | (10)|
|changes on cash balances | | | | |
+---------------------------------------------+-------+------+-------+------+
|Closing cash and liquid funds position(1) | | 360| | 380|
+---------------------------------------------+-------+------+-------+------+
(1) Includes cash and liquid funds held in the Company, Reinet Fund and its subsidiaries.
INVESTING ACTIVITIES
Investments totalling EUR 262 million were made during the year, including Pension Corporation, Selecta, United States land development and mortgages, Trilantic and Snow Phipps. Amounts invested were partially offset by repayments in respect of loans and interest received from Jagersfontein and Rooipoort, and distributions from REFF and other investments.
Proceeds from the sale of investments include EUR 17 million realised through Trilantic, and EUR 3 million on the sale of other investments.
FINANCING ACTIVITIES
A dividend of some EUR 32 million was paid to shareholders in September 2016 (September 2015: EUR 31 million).
Financing expenses for the settlement of call options in respect of the GBP 300 million medium-term collar financing arrangement amounted to GBP 112 million (EUR 131 million).
In addition, EUR 4 million was paid in respect of the settlement of euro/South African rand foreign exchange contracts during the year.
Net bank borrowings amounted to GBP 285 million in the year. The GBP 300 million, medium-term loan was repaid to Deutsche Bank A.G. in accordance with the loan repayment terms and Reinet entered into a GBP 500 million, medium-term financing arrangement with Merrill Lynch International, that runs to 2022. In addition, Reinet borrowed GBP 85 million from Bank of America, N.A. under a revolving facility agreement.
OPERATING ACTIVITIES
Dividends received from BAT decreased from EUR 149 million (GBP 110 million) during the year under review to EUR 127 million (GBP 103 million). The decrease is due to the reduction in the number of BAT shares held following the sales in February and March 2016 together with the weakening of the sterling/euro exchange rate at the time of the dividend payments, offset by an increase of GBP 0.06 in total dividend per share. The dividends received from BAT during the year represent the final 2015 dividend paid in May 2016, as well as the interim 2016 dividend paid in September 2016.
Carried interest of EUR 4 million was received in respect of the investment in Trilantic.
Interest of EUR 8 million was paid in respect of the sterling-denominated loans and EUR 3 million in respect of the South African rand-denominated loan in the year.
The performance fee of EUR 5 million was paid in respect of the year ending 31 March 2016. No performance fee is payable in respect of the current year.
Net US tax repayments of EUR 1 million were received 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.
Cash and liquid funds decreased by EUR 20 million over the year to EUR 360 million as the amounts repaid in respect of bank borrowings and derivative liabilities, together with amounts invested in new investments, payment of the dividend, performance fee and operating expenses exceeded amounts realised from investments and new bank financing received.
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 0.161 per share totalling some EUR 32 million was paid in September 2016, following approval at the annual general meeting on 30 August 2016.
The General Partner has proposed a cash dividend of EUR 0.165 per share subject to shareholder approval at the annual general meeting, which is scheduled to take place in Luxembourg on Tuesday, 29 August 2017.
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 depository receipts issued by Reinet Securities SA in respect of the Company's shares ('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 20 per cent in the hands of DR holders unless those holders are otherwise exempt from the tax. Non-resident DR holders 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 DRs cum-dividend will be Tuesday, 5 September 2017. Both the Company's shares and the DRs will trade ex-dividend from Wednesday, 6 September 2017. The record date for the Company's shares will be Thursday, 7 September 2017 and for the DRs will be Friday, 8 September 2017.
The dividend on the Company's shares will be paid on Friday, 8 September 2017 and is payable in euro.
The dividend in respect of the DRs will be paid on Friday, 15 September 2017. 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 euro to non-CMA residents. Further details regarding the dividend payable to DR holders may be found in a separate announcement dated 23 May 2017 on the Johannesburg Stock Exchange News Service ('SENS').
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 2017, on which this announcement is based, have been approved by the Board of the General Partner on 16 May 2017 and are subject to shareholder approval at the annual general meeting to be held in August 2017. The printed Reinet Annual Report and Accounts will be available upon request from mid-July 2017.
SHARE INFORMATION
Primary Listing
The Company's shares are listed and traded on the Luxembourg Stock Exchange with the ISIN number LU0383812293 (symbol 'ReinetInvest'). Thomson Reuters code REIT.LU. The Company's ordinary shares are included in the 'LuxX' index of the principal shares traded on the Luxembourg Stock Exchange.
The Company's share price increased by 5 per cent in the year from EUR 17.31 at 31 March 2016 to EUR 18.11 at 31 March 2017, with the highest trade being at EUR 23.00 during the year. The total shareholder return since inception (taking into account the Initial Price and including dividends paid) is 14 per cent per annum.
Secondary Listing
The DRs issued by Reinet Securities SA in respect of the Company's ordinary shares are traded on the Johannesburg Stock Exchange under the ISIN number CH0045793657 (symbol 'REI'). Thomson Reuters code REIJ.J. One DR issued by Reinet Securities SA represents one-tenth of one ordinary share in the Company.
The price of DRs issued by Reinet Securities SA in respect of the Company's ordinary shares decreased from ZAR 31.74 at 31 March 2016 to ZAR 29.16 at 31 March 2017. This decrease of almost 8 per cent reflects in part the strengthening of the South African rand against the euro over 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.
23 May 2017
Website: www.reinet.com
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.
Net asset value
Using the closing euro/rand exchange rate prevailing as at 31 March 2017 of 14.3027 and a rate of 16.8075 as at 31 March 2016.
31 March 2017 31 March 2016
Net asset value ZAR 85 845 m ZAR 87 752 m
Net asset value per ordinary share ZAR 438.09 ZAR 447.92
Net asset value per depository receipt ZAR 43.81 ZAR 44.79
The decrease in the net asset value reflects the strengthening of the euro/rand exchange rate, offset by the increase in the net asset value in euro terms.
Profit for the year
Using the average euro/rand exchange rate for the year ended 31 March 2017 of 15.4322 and the average rate of 15.2217 for the year ended 31 March 2016.
31 March 2017 31 March 2016
Profit for the year ZAR 12 546 m ZAR 2 664 m
The increase in the profit for the year largely reflects the increase in the net asset value in euro terms.
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 2017 31 March 2016
Unadjusted earnings per share EUR 4.15 EUR 0.89
Headline earnings per share * EUR 4.15 EUR 0.89
Unadjusted earnings per share ZAR 64.04 ZAR 13.55
Headline earnings per share * ZAR 64.04 ZAR 13.55
* There are no dilutive instruments
Subject to approval by the shareholders at the annual general meeting, which is scheduled to take place on 29 August 2017, a dividend will be paid to Reinet Depository Receipt holders on 15 September 2017. The rand dividend amount per Reinet Depository Receipt will be calculated by reference to the euro/rand exchange rate prevailing on 29 August 2017, 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 on 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: 23/05/2017 05:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
