Wrap Text
Consolidated unaudited financial results for the six-month period ended 30 September 2017
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 UNAUDITED FINANCIAL RESULTS FOR THE SIX-MONTH PERIOD ENDED 30 SEPTEMBER 2017
The Board of Reinet Investments Manager S.A. announces the results of Reinet Investments S.C.A. for the six-month period ended 30 September 2017.
Key financial data
* Reinet's net asset value of EUR 5 398 million, reflects a compound return of 14 per cent per annum in euro terms, since March 2009, including dividends paid
* Net asset value at 30 September 2017: EUR 5 398 million, a decrease of EUR 604 million or 10 per cent from EUR 6 002 million at 31 March 2017
* Net asset value per share at 30 September 2017: EUR 27.55 (31 March 2017: EUR 30.63)
* Commitments totalling EUR 31 million in respect of new and existing investments were made during the period
* Dividends received from British American Tobacco during the period amounted to EUR 138 million
* Reinet dividend of some EUR 32 million, or EUR 0.165 per share, paid during the period
* On 14 November 2017, Reinet's ordinary shares were listed on Euronext Amsterdam
* On 29 November 2017, Reinet's ordinary shares will be listed on the Johannesburg Stock Exchange and the depository receipts subsequently cancelled
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 and Euronext Amsterdam 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
BUSINESS OVERVIEW
Reinet Investments S.C.A. (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 and income 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 at 30 September 2017 comprised: |
+-----------------------+---------------------------------------------+
| |30 September 2017 31 March 2017 |
| +---------------------------------------------+
| | EUR m % EUR m %|
+-----------------------+-----------------+------+-------------+------+
|Listed investments | | | | |
+-----------------------+-----------------+------+-------------+------+
|British American | 3 606| 66.8| 4 249| 70.8|
|Tobacco p.l.c. | | | | |
+-----------------------+-----------------+------+-------------+------+
|SPDR Gold shares | 24| 0.4| 26| 0.4|
+-----------------------+-----------------+------+-------------+------+
|Selecta Biosciences, | 5| -| 5| -|
|Inc. | | | | |
+-----------------------+-----------------+------+-------------+------+
|Unlisted investments | | | | |
+-----------------------+-----------------+------+-------------+------+
|Pension Insurance | 1 206| 22.4| 1 175| 19.6|
|Corporation Group | | | | |
|Limited | | | | |
+-----------------------+-----------------+------+-------------+------+
| | | | | |
+-----------------------+-----------------+------+-------------+------+
|Private equity and | 779| 14.4| 780| 13.0|
|related partnerships | | | | |
+-----------------------+-----------------+------+-------------+------+
|Trilantic Capital | 214| 4.0| 202| 3.4|
|Partners | | | | |
|Fund IV, Fund | | | | |
|V, TEP, related | | | | |
|general partners and | | | | |
|management companies | | | | |
+-----------------------+-----------------+------+-------------+------+
|36 South | 44| 0.8| 49| 0.8|
|macro/volatility funds | | | | |
+-----------------------+-----------------+------+-------------+------+
|Asian private equity | 184| 3.4| 182| 3.0|
|and portfolio funds | | | | |
+-----------------------+-----------------+------+-------------+------+
|Milestone China | 136| | 135| |
|Opportunities funds, | | | | |
|investment holdings and| | | | |
|management company | | | | |
|participation | | | | |
+-----------------------+-----------------+------+-------------+------+
|Prescient China | 48| | 47| |
|Balanced Fund | | | | |
|and investment | | | | |
|management company | | | | |
+-----------------------+-----------------+------+-------------+------+
|Specialised investment | 337| 6.2| 347| 5.8|
|funds | | | | |
+-----------------------+-----------------+------+-------------+------+
|Vanterra Flex | 26| | 30| |
|Investments | | | | |
+-----------------------+-----------------+------+-------------+------+
|Vanterra C Change TEM | 20| | 23| |
+-----------------------+-----------------+------+-------------+------+
|NanoDimension funds and| 47| | 44| |
|co-investment | | | | |
|opportunities | | | | |
+-----------------------+-----------------+------+-------------+------+
|Fountainhead Expert | 24| | 29| |
|Fund | | | | |
+-----------------------+-----------------+------+-------------+------+
|Snow Phipps funds | 72| | 48| |
|and co-investment | | | | |
|opportunities | | | | |
+-----------------------+-----------------+------+-------------+------+
|Palm Lane Credit | 87| | 94| |
|Opportunities Fund(1) | | | | |
+-----------------------+-----------------+------+-------------+------+
|GAM Real Estate | 58| | 75| |
|Finance Fund | | | | |
+-----------------------+-----------------+------+-------------+------+
|Other fund investments | 3| | 4| |
+-----------------------+-----------------+------+-------------+------+
|United States land | 100| 1.9| 154| 2.6|
|development and | | | | |
|mortgages | | | | |
+-----------------------+-----------------+------+-------------+------+
|Diamond interests | 43| 0.8| 56| 0.9|
+-----------------------+-----------------+------+-------------+------+
|Other investments | 56| 1.1| 64| 1.1|
+-----------------------+-----------------+------+-------------+------+
|Total investments | 5 819| 107.8| 6 509| 108.4|
+-----------------------+-----------------+------+-------------+------+
|Cash and liquid funds | 313| 5.8| 360| 6.0|
+-----------------------+-----------------+------+-------------+------+
|Bank borrowings | | | | |
|and derivatives | | | | |
+-----------------------+-----------------+------+-------------+------+
|Borrowings | (670)|(12.4)| (813)|(13.5)|
+-----------------------+-----------------+------+-------------+------+
|Net derivative | 38| 0.7| 26| 0.4|
|assets/(liabilities) | | | | |
+-----------------------+-----------------+------+-------------+------+
|Other liabilities | | | | |
+-----------------------+-----------------+------+-------------+------+
|Minority interest, fees| (102)| (1.9)| (80)| (1.3)|
|payable and | | | | |
|other liabilities, net | | | | |
|of other assets | | | | |
+-----------------------+-----------------+------+-------------+------+
|Net asset value | 5 398| 100.0| 6 002| 100.0|
+-----------------------+-----------------+------+-------------+------+
(1) During the period JPS Credit Opportunities Fund (Cayman) Ltd. changed its name to Palm Lane Opportunities Fund (Cayman) Ltd.
All investments are held, either directly or indirectly, by Reinet Fund S.C.A., F.I.S. ('Reinet Fund'). The Company and Reinet Fund together with Reinet Fund's subsidiaries are referred to as 'Reinet'.
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 |EUR| -| -| 1 739| 1 830| 3 606| 5 436|
|p.l.c. |GBP| -| -| 1 418| 1 502| 3 179| 4 681|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|SPDR Gold shares |EUR| 21| -| 22| -| 24| 24|
| |USD| 25| -| 25| -| 28| 28|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|Selecta Biosciences, Inc. |EUR| 4| -| 4| -| 5| 5|
| |USD| 5| -| 5| -| 6| 6|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|Unlisted investments | | | | | | | |
|Pension Insurance | | | | | | | |
|Corporation Group |EUR| 611| -| 656| -| 1 206| 1 206|
|Limited |GBP| 539| -| 539| -| 1 063| 1 063|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|Trilantic Capital Partners |EUR| 319| 88| 263| 305| 214| 519|
|Euro investment |EUR| 86| 20| 66| 111| 69| 180|
|US dollar investment(4) |USD| 296| 81| 225| 240| 171| 411|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|36 South macro/volatility | | | | | | | |
|funds |EUR| 88| -| 88| 6| 44| 50|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|Asian private equity | | | | | | | |
|and portfolio funds | | | | | | | |
|Milestone China | | | | | | | |
|Opportunities funds, investment| | | | | | | |
|holdings and | | | | | | | |
|management company |EUR| 143| 7| 123| 18| 136| 154|
|participation |USD| 169| 9| 160| 22| 160| 182|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|Prescient China Balanced | | | | | | | |
|Fund and investment |EUR| 27| -| 25| -| 48| 48|
|management company |USD| 32| -| 32| -| 57| 57|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|Specialised investment funds | | | | | | | |
|Vanterra Flex |EUR| 88| 34| 49| 23| 26| 49|
|Investments |USD| 104| 40| 64| 27| 31| 58|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|Vanterra C Change TEM |EUR| 55| 5| 43| 1| 20| 21|
| |USD| 65| 6| 59| 1| 24| 25|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|NanoDimension funds | | | | | | | |
|and co-investment | | | | | | | |
|opportunities |EUR| 55| 6| 48| 1| 47| 48|
|Euro investment |EUR| 4| -| 4| 1| 4| 5|
|US dollar investment |USD| 61| 7| 54| -| 51| 51|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|Fountainhead Expert |EUR| 34| 17| 15| -| 24| 24|
|Fund |USD| 40| 20| 20| -| 28| 28|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|Snow Phipps funds | | | | | | | |
|and co-investment |EUR| 119| 57| 64| 4| 72| 76|
|opportunities |USD| 141| 68| 73| 5| 85| 90|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|Palm Lane Credit |EUR| 59| -| 54| -| 87| 87|
|Opportunities Fund |USD| 70| -| 70| -| 103| 103|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|GAM Real Estate |EUR| 113| 34| 54| 31| 58| 89|
|Finance Fund |GBP| 100| 30| 70| 26| 51| 77|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|United States land | | | | | | | |
|development and |EUR| 180| 2| 160| -| 100| 100|
|mortgages |USD| 213| 2| 211| -| 118| 118|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
|Diamond interests(5) |EUR| 77| 2| 116| 74| 43| 117|
| |ZAR| 1 230| 40| 1 190| 1 069| 690| 1 759|
+-------------------------------+---+---------+------------+---------+------------+-----------+-----------+
(1) Calculated using period 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 decrease in the net asset value of EUR 604 million during the period is mainly due to the decrease in value of the investment in British American Tobacco p.l.c., decreases in certain other investments including United States land development and mortgages, the payment of a dividend and expenses. Offsetting these decreases is the receipt of dividends from British American Tobacco p.l.c in the period, an increase in the value of Pension Insurance Corporation Group Limited, an increase in the value of the derivative asset associated with the collar financing and the decrease in the estimated fair value of borrowings mainly due to the weakening of sterling against the euro in the period.
The Company records its assets and liabilities in euro; the depreciation of other currencies against the euro has resulted in an overall decrease in the value of certain assets and liabilities in euro terms. Applying current period end exchange rates to the March 2017 assets and liabilities would have resulted in a decrease in value of some EUR 269 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 2.1 billion and at 30 September 2017 committed to provide further funding of EUR 252 million to its current investments. Details of the funding commitments outstanding are given in the table below of this report. The increase in commitments during the period under review amounted to EUR 31 million, and a total of EUR 42 million was funded during the period.
Major items impacting the net asset value, significant changes in carrying value and new investments during the period under review are described below.
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.
During the period under review, Reinet received dividends from BAT amounting to EUR 138 million (GBP 119 million), being BAT's final 2016 dividend and interim 2017 dividend.
Reinet holds 68.1 million shares in BAT, representing some 2.97 per cent of BAT's issued share capital, a decrease from 3.65 per cent at 31 March 2017. This dilution is a result of the increase in BAT's share capital following the Reynolds American Inc, acquisition. The value of Reinet's investment in BAT amounted to EUR 3 606 million at 30 September 2017, being some 67 per cent of Reinet's net asset value (31 March 2017: EUR 4 249 million). The BAT share price on the London Stock Exchange decreased from GBP 53.00 at 31 March 2017 to GBP 46.72 at 30 September 2017, resulting in a decrease in value of EUR 485 million; the carrying value is also impacted by the weakening of sterling against the euro during the period, the effect of which amounts to some EUR 158 million.
The BAT share price has been volatile during the current period, with an initial increase in price following the completion of the acquisition of the remaining 57.8 per cent of Reynolds American Inc. but subsequently decreasing following the announcement of the US Food and Drug Administration's decision to pursue regulation that requires nicotine in cigarettes to be reduced to non-addictive levels.
Further information on BAT is available at www.bat.com/annualreport.
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.
At 30 June 2017, Pension Insurance Corporation had GBP 24.2 billion in financial investments (31 December 2016: GBP 22.6 billion) and had insured more than 145 000 pension fund members (31 December 2016: 134 900). Clients include FTSE 100 companies, multinationals and the public sector.
In the first six months of 2017, Pension Corporation made an operating profit of GBP 93 million, an 18 per cent increase over the same period in 2016, and wrote GBP 1.9 billion of premiums compared to GBP 918 million in the same period in 2016.
During 2017, Pension Corporation reinsured GBP 1 billion of longevity risk with SCOR, a new counterparty, reached an agreement with Retirement Advantage to fund equity release mortgages and welcomed CVC as a new shareholder.
Reinet's investment in Pension Corporation is carried at an estimated fair value of EUR 1 206 million at 30 September 2017 (31 March 2017: EUR 1 175 million). This value takes into account Pension Corporation's embedded value at 30 June 2017 of GBP 2.6 billion (31 December 2016: GBP 2.6 billion), valuation multiples drawn from industry data at 30 September 2017 and a discount of 10 per cent which takes into account the relatively illiquid nature of Reinet's investment.
The increase in the estimated fair value is due to increases in comparable company valuation multiples derived from public information relating to listed companies in the UK insurance sector and an increase in embedded value, offset by the weakening of sterling against the euro in the period.
Further information on Pension Corporation is available at www.pensioncorporation.com.
PRIVATE EQUITY AND RELATED PARTNERSHIPS
TRILANTIC CAPITAL PARTNERS
Trilantic Capital Partners ('Trilantic') is composed of Trilantic North America and Trilantic Europe, two separate and independent private equity investment advisors focused on making controlling and significant minority interest investments in companies in their respective geographies. Trilantic North America primarily targets investments in the consumer, energy, and business services sectors, and currently manages five funds. Trilantic Europe primarily targets investments in the industrials, consumer and leisure, telecommunication, media and technology, business services and healthcare sectors, and currently manages two funds.
Reinet and its minority partners invest in the Trilantic general partnerships and management companies (together 'Trilantic Management') and five of the seven current funds under Trilantic's management.
Trilantic Capital Partners IV L.P. and Trilantic Capital Partners IV (Europe) L.P. are in the process of realising value from underlying investments. In the period under review, distributions of EUR 1 million were received (30 September 2016: EUR 8 million).
Trilantic Capital Partners V (North America) L.P., Trilantic Energy Partners (North America) L.P., and their respective general partners continue to build their portfolios with Reinet making capital contributions of some EUR 19 million and receiving distributions of some EUR 31 million in the period under review. 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.
In August 2017, Reinet committed an amount of some EUR 18 million (USD 21 million) to Trilantic Energy Partners II (North America) L.P. ('TEP II') and its general partner. TEP II had its first closing in August 2017 and expects further closings in the coming months, at which time Reinet's commitment will increase in line with the overall fund size. As at 30 September 2017, TEP II had no investments and no capital contributions have been made.
Reinet's and its minority partners' investment in Trilantic Management and all the above funds is carried at the estimated fair value of EUR 214 million at 30 September 2017 (31 March 2017: EUR 202 million) of which EUR 9 million (31 March 2017: EUR 10 million) is attributable to minority partners. The estimated fair value is based on unaudited valuation data provided by Trilantic Management at 30 June 2017, adjusted for changes in the value of listed investments included in the portfolios. The increase in the estimated fair value is due to net capital contributions of EUR 10 million together with increases in the estimated fair value of underlying investments.
During the period under review, gains of EUR 22 million were realised (30 September 2016: EUR 4 million).
Further information on Trilantic is available at www.trilantic.com.
SPECIALISED INVESTMENT FUNDS
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.
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. Reinet has also invested in three co-investment opportunities alongside Snow Phipps III, L.P.
Reinet's investment in the two funds and associated co-investments is carried at an estimated fair value of EUR 72 million at 30 September 2017 (31 March 2017: EUR 48 million), based on unaudited valuation data provided by Snow Phipps at 30 June 2017. The increase in value being due to additional capital invested and an increase in the estimated fair value of underlying investments in the period.
Further information on Snow Phipps is available at www.snowphipps.com
GAM Real Estate Finance Fund
The GAM Real Estate Finance Fund was created to take advantage of opportunities resulting from a funding gap between the expected demand for commercial real estate finance and its availability from banks, other traditional lenders and equity investors. Its investment strategy focuses on the origination of commercial real estate loans primarily in Western Europe, and with a primary focus on the UK.
The investment is carried at the estimated fair value of EUR 58 million at 30 September 2017 (31 March 2017: EUR 75 million) based on unaudited valuation data provided by the fund manager at 30 June 2017.
The decrease in estimated fair value is mainly due to repayments of capital in the period, mostly owing to early settlement of loans, together with the weakening of sterling against the euro in the period.
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. These investments are held in Arendale Holdings Corp.
The investment is carried at the estimated fair value of EUR 100 million (31 March 2017: EUR 154 million), of which EUR 3 million is attributable to minority partners (31 March 2017: EUR 3 million).
The current valuation is based on unaudited financial statements as at 30 June 2017 adjusted for cash movements up to 30 September 2017. The decrease in the estimated fair value reflects reductions in the expected rate of lot sales and lot prices, and revised future expenses. The decrease in value also reflects the weakening of the US dollar against the euro during the period.
Further information on Arendale Holdings Corp., which holds the residential golf community assets, may be found at www.arendale.com
Further information on Reinet's investments may be found in the Reinet 2017 annual report which is available at www.reinet.com.
COMMITTED FUNDS
Funding commitments are entered into in various currencies including sterling, US dollar and South African rand and are converted into euro using 30 September 2017 exchange rates.
The table below summarises Reinet's outstanding investment commitments at 30 September 2017.
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
| | | Exchange| Committed| Funded| | |
| | 31 March| rate| during the| during the| 30 September| 30 September|
| | 2017(1)| effects(2)| period(3)| period(3)| 2017(3)| 2017|
| | EUR m| EUR m| EUR m| EUR m| EUR m| %|
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Pension Corporation | -| -| -| -| -| -|
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Private equity and related partnerships | | | | | | |
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Trilantic Capital Partners | | | | | | |
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Fund IV, Fund V, TEP, related | 93| (8)| 18| (19)| 84| 33.3|
|general partners and management companies(4)| | | | | | |
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|36 South macro/volatility funds | -| -| -| -| -| -|
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Asian private equity and portfolio funds | | | | | | |
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Milestone China Opportunities | 8| (1)| -| -| 7| 2.8|
|funds, investment holdings and | | | | | | |
|management company participation | | | | | | |
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Prescient China Balanced Fund | -| -| -| -| -| -|
|and investment management company | | | | | | |
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Specialised investment funds | | | | | | |
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Vanterra Flex Investments | 37| (3)| -| -| 34| 13.5|
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Vanterra C Change TEM | 5| -| -| -| 5| 2.0|
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|NanoDimension funds and | 10| (2)| 5| (7)| 6| 2.4|
|co-investment opportunities | | | | | | |
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Fountainhead Expert Fund | 19| (2)| -| -| 17| 6.7|
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Snow Phipps funds | 73| (7)| 8| (17)| 57| 22.6|
|and co-investment opportunities | | | | | | |
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Palm Lane Credit Opportunities Fund | -| -| -| -| -| -|
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|GAM Real Estate Finance Fund | 35| (1)| -| -| 34| 13.5|
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Other fund investments | -| -| -| -| -| -|
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|United States land | 1| -| -| 1| 2| 0.8|
|development and mortgages(4) | | | | | | |
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Diamond interests | 3| (1)| -| -| 2| 0.8|
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
|Other investments | 4| -| -| -| 4| 1.6|
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
| | 288| (25)| 31| (42)| 252| 100.0|
+--------------------------------------------+---------+-----------+-----------+-----------+-------------+-------------+
(1) Commitments calculated using 31 March 2017 exchange rates.
(2) Reflects exchange rate movements between 31 March 2017 and 30 September 2017.
(3) Amounts calculated using 30 September 2017 exchange rates.
(4) Commitments noted represent only Reinet's share of the investments at 30 September 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.
CASH AND LIQUID FUNDS
Reinet holds cash on deposit principally in European-based banks and in liquidity funds 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 313 m
Undrawn borrowing facility EUR 284 m
Cash required for unfunded commitments (refer to table above) (EUR 252 m)
Cash required to meet ZAR borrowing obligations (EUR 28 m)
The undrawn borrowing facility comprises a revolving facility with Bank of America, N.A. of GBP 250 million. At 30 September 2017 amounts drawn down were EUR nil (31 March 2017: EUR 101 million (GBP 85 million)).
Medium-term bank borrowings of EUR 642 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
During early 2017, Reinet entered into a GBP 500 million, medium-term financing arrangement with Merrill Lynch International, which runs to 2022. At 30 September 2017, the estimated fair value of the borrowing was EUR 564 million (GBP 497 million) (31 March 2017: EUR 591 million (GBP 502 million)). The GBP 500 million financing 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. As at 30 September 2017, the premium loan is carried as a liability at an estimated fair value of EUR 78 million (GBP 69 million) (31 March 2017: EUR 90 million (GBP 77 million)). Some 4.1 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 30 September 2017, the estimated fair value of the borrowing was EUR 28 million (31 March 2017: EUR 31 million), the decrease reflects the weakening of the South African rand against the euro in the period. This loan matures in March 2018.
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 38 million at 30 September 2017 (31 March 2017: EUR 29 million). The increase in the carrying value of the put options reflects the decrease in value of the underlying BAT shares offset by the decrease in the time to maturity, and the weakening of sterling against the euro in the period. 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.
In the period under review, Reinet settled outstanding forward exchange contracts amounting to ZAR 480 million realising a loss of EUR 1 million. Reinet also entered into a new forward exchange contract to sell ZAR 230 million (31 March 2017: ZAR 480 million), which is carried at an estimated fair value of EUR nil at 30 September 2017 (31 March 2017: liability of EUR 3 million).
Refer to page 51 of the Reinet 2017 annual report for a description of Reinet's policy on foreign exchange exposure.
OTHER LIABILITIES
MINORITY INTEREST, FEES PAYABLE AND OTHER LIABILITIES, NET OF OTHER ASSETS
The minority interest liability amounts to EUR 16 million (31 March 2017: EUR 16 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 25 million in respect of the management fee payable at 30 September 2017 (31 March 2017: EUR 22 million) a provision for deferred taxes of EUR 27 million (31 March 2017: EUR 7 million) relating to realised and unrealised gains arising from the investments in Trilantic and Snow Phipps, and withholding and corporate taxes of EUR 26 million (31 March 2017: EUR 25 million) relating to the investment in United States land development and mortgages. Accruals and other payables amount to some EUR 8 million (31 March 2017: EUR 10 million).
No provision has been made in respect of a performance fee as at 30 September 2017 (31 March 2017: EUR nil) 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 Reinet Investment Advisors Limited.
+---------------------------+---------------------+------------------------+
|INCOME STATEMENT | Six-month | Six-month |
| | period ended | period ended |
| | 30 September 2017 | 30 September 2016 |
| | EUR m EUR m | EUR m EUR m |
+---------------------------+--------------+------+----------------+-------+
|Income | | | | |
+---------------------------+--------------+------+----------------+-------+
|BAT dividends | 138| | 127| |
+---------------------------+--------------+------+----------------+-------+
|Interest and other | 27| | 16| |
|investment income | | | | |
+---------------------------+--------------+------+----------------+-------+
|Realised gains | 22| | 4| |
|on investments | | | | |
+---------------------------+--------------+------+----------------+-------+
|Realised loss on | (1)| | (4)| |
|foreign exchange | | | | |
|contracts | | | | |
+---------------------------+--------------+------+----------------+-------+
|Carried interest | -| | 4| |
|earned on investments | | | | |
+---------------------------+--------------+------+----------------+-------+
|Total income | | 186| | 147|
+---------------------------+--------------+------+----------------+-------+
|Expenses | | | | |
+---------------------------+--------------+---- -+----------------+-------+
|Management fee | (27)| | (23)| |
+---------------------------+--------------+------+----------------+-------+
|Operating expenses, | (3)| | (3)| |
|foreign exchange and | | | | |
|transaction-related | | | | |
|costs | | | | |
+---------------------------+--------------+------+----------------+-------+
|Interest expense | (5)| | (6)| |
+---------------------------+--------------+------+----------------+-------+
|Tax expense | (25)| | (4)| |
+---------------------------+--------------+------+----------------+-------+
|Total expenses | | (60)| |(36) |
+---------------------------+--------------+------+----------------+-------+
|Realised investment | | 126| | 111 |
|income, net | | | | |
|of expenses | | | | |
+---------------------------+--------------+------+----------------+-------+
|Fair value adjustments | | | | |
+---------------------------+--------------+------+----------------+-------+
|BAT – | | | | |
|unrealised (loss)/gain | | | | |
|on shares held | (643)| | 362| |
|Other investments | (74)| | (68)| |
|Derivative | | | | |
|instruments – fair | | | | |
|value adjustment on | | | | |
|outstanding contracts | 12| | (104)| |
|Borrowings – | | | | |
|unrealised gain on | | | | |
|outstanding loans | 35| | 31| |
+---------------------------+--------------+------+----------------+-------+
|Total fair | | (670)| | 221|
|value adjustments | | | | |
+---------------------------+--------------+------+----------------+-------+
| | | (544)| | 332|
+---------------------------+--------------+------+----------------+-------+
|Effect of | | (28)| | (11)|
|exchange rate | | | | |
|changes on | | | | |
|cash balances | | | | |
+---------------------------+--------------+------+----------------+-------+
|Net (loss)/profit | | (572)| | 321|
+---------------------------+--------------+------+----------------+-------+
|Minority interest | | -| | -|
+---------------------------+--------------+------+----------------+-------+
|(Loss)/profit | | (572)| | 321|
|attributable to | | | | |
|the shareholders of | | | | |
|the Company | | | | |
+---------------------------+--------------+------+----------------+-------+
INCOME
Dividends received from BAT increased from EUR 127 million (GBP 103 million) during the period to September 2016 to EUR 138 million (GBP 119 million) during the period under review. The increase is due to an increase of GBP 0.19 in the total dividend per BAT share offset by the weakening of the sterling/euro exchange rate at the time of the dividend payments. The dividends received from BAT during the period represent the final 2016 dividend paid in May 2017, as well as the interim 2017 dividend paid in September 2017.
Interest income is earned on bank deposits, investments and loans made to underlying investments. Included in other investment income are the foreign exchange movements on fees payable, other liabilities and other assets.
Realised gains on investments of EUR 22 million were mainly in respect of investments realised by the Trilantic funds.
Losses of EUR 1 million were realised on the settlement of the euro/South African rand foreign exchange contracts during the period.
EXPENSES
The management fee for the period ended 30 September 2017 amounts to EUR 27 million (30 September 2016: EUR 23 million). Operating expenses of EUR 3 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 2 million.
A performance fee may be payable for the year ended 31 March 2018 if certain conditions are met. 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 2018, less the sum of all performance fees paid in respect of previous periods. The provision for the performance fee accrued in respect of the six-month period ended 30 September 2017 amounts to EUR nil (30 September 2016: EUR nil).
Interest expense relates to sterling and South African rand denominated borrowings.
The net tax expense of EUR 25 million includes corporate and withholding taxes payable in respect of gains realised on Trilantic investments, together with an increase in the deferred tax provision related to unrealised gains, expected distributions and accrued interest in respect of the Trilantic, Snow Phipps and other US investments.
FAIR VALUE ADJUSTMENTS
The investment in 68.1 million BAT shares decreased in value by EUR 643 million during the period under review. Of this, EUR 485 million was attributable to the decrease in value of the underlying BAT shares in sterling terms and EUR 158 million due to the weakening of sterling against the euro during the period under review.
The unrealised fair value decrease of EUR 74 million in respect of other investments includes an increase in the estimated fair value of the investment in Pension Corporation of EUR 31 million (refer to above for a full description of the overall movement of Pension Corporation during the period), and decreases in the estimated fair value in respect of United States land development and mortgages and other investments of EUR 62 million and EUR 43 million respectively. The above amounts include the negative effect of changes in foreign exchange rates due to the depreciation of other currencies against the euro in the period under review.
The estimated fair value of the collar financing derivative asset increased by EUR 9 million during the period, reflecting the decrease in the price of the BAT shares underlying the put options. The estimated fair value of the derivative liability in respect of the forward exchange contracts decreased by EUR 3 million; the contracts were settled on 30 September 2017 resulting in a loss of EUR 1 million.
Borrowings are carried at estimated fair value reflecting the discounted cash flow value of future principal and interest payments taking into account prevailing interest rates. An unrealised gain of EUR 3 million arose in respect of the South African rand borrowing due to the weakening of the South African rand during the period. An unrealised gain of EUR 32 million arose in respect of the sterling borrowing. Of this, a gain of EUR 25 million is due to the weakening of sterling against the euro during the period.
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.
DIVIDEND
A dividend of EUR 0.165 per share totalling some EUR 32 million was paid in September 2017, following approval at the annual general meeting on 29 August 2017. No interim dividend is proposed in respect of the six months ended 30 September 2017.
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 unaudited financial statements at 30 September 2017, on which this announcement is based, have been approved by the Board of the General Partner on 14 November 2017.
SHARE INFORMATION
Reinet Investments S.C.A. ordinary shares are listed and traded on the Luxembourg Stock Exchange (symbol 'REINI', Thomson Reuters code REIT.LU) and on Euronext Amsterdam (symbol 'REINA', Thomson Reuters code REINA.AS, with effect from 14 November 2017) with the ISIN number LU0383812293. The Company's ordinary shares are included in the 'LuxX' index of the principal shares traded on the Luxembourg Stock Exchange.
The depository receipts ('DRs') issued by Reinet Securities SA in respect of the Company's ordinary shares are traded as a secondary listing on the Johannesburg Stock Exchange ('JSE') 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. With effect from 29 November 2017 the DRs will be suspended from trading on the JSE at which time the Company's ordinary shares will be listed on the JSE under ISIN LU0383812293 (symbol 'RNI').
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.
16 November 2017
Website: www.reinet.com
Notes for South African editors
One 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 30 September 2017 of 16.0366 and a rate of 14.3027 as at 31 March 2017.
30 September 2017 31 March 2017
Net asset value ZAR 86 566 m ZAR 85 845 m
Net asset value per share ZAR 441.81 ZAR 438.09
Net asset value per depository receipt ZAR 44.18 ZAR 43.81
The increase in the net asset value reflects the weakening of the euro/rand exchange rate, offset by the decrease in the net asset value in euro terms.
(Loss)/profit for the period
Using the average euro/rand exchange rate for the six-month period ended 30 September 2017 of 15.0114 and an average rate of 16.3161 for the six-month period ended 30 September 2016.
30 September 2017 30 September 2016
(Loss)/profit for the period (ZAR 8 587 m) ZAR 5 237 m
The loss for the period largely reflects the decrease 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:
30 September 2017 30 September 2016
Unadjusted earnings per share (EUR 2.92) EUR 1.64
Headline earnings per share * (EUR 2.92) EUR 1.64
Unadjusted earnings per share (ZAR 43.83) ZAR 26.76
Headline earnings per share * (ZAR 43.83) ZAR 26.76
* There are no dilutive instruments
Dividends paid
September 2017 September 2016
Gross dividend per DR EUR 0.0165 EUR 0.0161
Gross dividend per DR ZAR 0.2597100 ZAR 0.2600231
Euro/rand exchange rate 15.7400 16.1505
Date: 16/11/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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