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Interim financial results for the six months ended 31 December 2022
AFRICAN RAINBOW CAPITAL INVESTMENTS LIMITED
Incorporated in the Republic of Mauritius
Company number: C148430
JSE share code: AIL A2X share code: AILJ
ISIN code: MU0553S00000 LEI: 378900F086B090C6FB94
INTERIM FINANCIAL RESULTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2022
HIGHLIGHTS
Significant advances at several of the large early-stage portfolio companies:
Rain - on course for more than R2 billion EBITDA for the year ended February 2023
TymeBank - substantial organic growth, acquisition of Retail Capital and expansion
into SME banking
Tyme Global – successful launch of GOtyme in the Philippines
Kropz Plc - Elandsfontein mine achieved its first bulk sales in January 2023 of c. 30
000 tonnes of phosphate
Intrinsic net asset value (INAV) was stable at R13 272 million (30 June 2022: R13 242
million)
INAV per share decreased marginally by 1.7% to R9.88 (31 December 2021: increase of
16.8%)
Cash in the ARC Fund increased by 57% to R1 051 million (30 June 2022: R669 million)
Debt in the fund increased by 43% to R1 396 million (30 June 2022: R974 million)
Major disposals finalised:
Disposal of remaining Afrimat shares for R486 million, achieving an overall internal
rate of return (IRR) of 27.7%
Disposal of PayProp and Humanstate resulting in ARC Fund receiving cash amounting to
R486 million and achieving an IRR of 19.7%
Major additional investments:
R490 million investment by ARC Fund in TymeBank and Tyme Global was largely to fund
the acquisition of Retail Capital
Additional capital advanced to Kropz Plc amounting to R472 million
New fee structure implemented for the ARC Fund
OVERVIEW
ARC Investments has a diverse portfolio of listed and unlisted assets. ARC
Investments’ portfolio companies operated under strained trading conditions in the
six-month period under review. The contracting economy and the continuous
implementation of various stages of load-shedding, coupled with the ever-increasing
pressure on consumers have negatively impacted business performance in some of our
entities, as well as growth expectations. The diverse investment portfolio has,
however, shown remarkable resilience against the persisting challenging macroeconomic
environment.
PERFORMANCE HIGHLIGHTS
The Company’s intrinsic investment value in the ARC Fund increased by 0.2% from R13
242 million at 30 June 2022 to R13 272 million at 31 December 2022. The IFRS Net
Asset Value (NAV) per share decreased by 1.1% from R10.08 at 30 June 2022 to R9.97 at
31 December 2022 (31 December 2021: R10.31) due to an increase in the number of
shares as a result of the performance hurdle being met at 30 June 2022. The diluted
net asset value per share remained constant, as compared to 30 June 2022.
Performance analysis
for the six-month period ended 31 December 2022
Net Net
Net
Asset Asset
Increase Percentage
Value Net Value
Investment in ARC Fund in Net change
30 Investment 31 Dec
Asset
June 22
Value
22
Intrinsic portfolio
13 659 -36 33 13 656 -0.02%
value
Cash in the ARC Fund 669 399 -17 1 051 57.10%
Debt in the ARC Fund -975 -363 -58 -1 396 43.18%
Other net
assets/(liabilities) in -111 – 72 -39 -64.86%
the ARC Fund
UBI GP fee payable -110 – 73 -37 -66.36%
Other liabilities in
-1 – -1 -2 100.00%
the ARC Fund
Intrinsic Investment in
13 242 – 30 13 272 0.23%
the ARC Fund at FVTPL*
* FVTPL: Fair Value Through Profit or Loss
GROWTH IN INTRINSIC PORTFOLIO VALUE
The marginal decrease in ARC Investments’ share in the INAV of the ARC Fund at FVTPL
was due to R33 million of net fair value gains, offset by R36 million of net
transactions.
NOTABLE PROGRESS IN REPOSITIONING THE PORTFOLIO
The stable portfolio value does not yet reflect all the benefits of the substantial
activity that took place in the portfolio during the period. ARC Fund completed
disposals of R1 132 million, which included Afrimat, Humanstate, PayProp, Capital
Appreciation and Mooiplaats Coal Holdings (MCH) (which was subsidiary of ARC
Services). These disposals are mainly in line with long term portfolio
rationalisation and repositioning initiatives. The IRR (based on disposal profits as
well as dividends) for these disposals were: Afrimat (27.7%); Humanstate and PayProp
(19.7%); Capital Appreciation (12.0%) and MCH (carrying value).
ARC Fund also finalised acquisitions of R1 096 million as part of its strategy to
increase the Financial Services portfolio, particularly focusing on Fintech. These
transactions include additional investments in TymeBank, Tyme Global and ARCH
Emerging Markets, as well as a small mining services acquisition in SMS Holdings. ARC
Financial Services Investments (ARC FSI) also acquired a minority holding in Optasia,
a leading provider of airtime credit services to prepaid mobile subscribers in more
than 30 countries with more than 88 million monthly customers.
The adjustments to the portfolio are in line with the revised strategy that the
Company announced in 2022. ARC Fund has disposed of non-core assets in its
Diversified Investment portfolio, reduced its exposure to listed shares that can be
acquired directly in the market, and bulked up the Financial Services portfolio
through bolt-on acquisitions and synergistic transactions in the current portfolio,
as well as an increased Fintech exposure. As a result of these transactions, Mining
exposure has decreased from 14.2% to 11.7% of the ARC Fund and Property has continued
to reduce steadily. At the same time, exposure to future-focused growth areas has
increased notably. The Other Investments portfolio increased from 11.7% to 14.8%,
Agriculture increased from 3.3% to 3.9% and the Financial Services’ weighting
increased from 28.3%, to 30.9% in the current period. The unlisted portion of the
Fund that is only accessible through ARC Investments, has grown to 88% of the
portfolio.
The efforts of streamlining the portfolio, reducing concentration in the mining
sector, combined with the fact that over 69% of the portfolio has reached break-even
or is in a mature business stage, as well as the reduced management and performance
fee, should contribute towards closing the gap between the intrinsic and market
values.
Fees for the six-month period
UBI General Partner’s (The General Partner) fee structure review was finalised and
approved at the Annual General Meeting during November 2022, with an effective date
of 1 July 2022. The approved fee structure is based on the General Partner charging
actual cost plus a 5% markup. The management fee for the six-month period ended 31
December 2022 was R37 million, as compared to R115 million on 31 December 2021.
The Company did not recognise any provisional performance amount in terms of IFRS 2,
as the Adjusted Annualised Growth in the Company’s share in the IPV of the ARC Fund
for the period of 0.5% was below the 10% performance participation hurdle.
DIVERSIFIED PORTFOLIO SUPPORTS RESILIENT PERFORMANCE
ARC Fund’s key underlying investments generated strong performance and progress
towards profitability was accelerated at several of the ARC Fund’s pre-break-even
portfolio companies.
Rain - 26.6% of Fund Value - The valuation of the Company’s interest in Rain has
remained unchanged at R3 635 million. The sector outlook remains positive after the
successful spectrum auction and the potential consolidation of market players. Rain
is well positioned as a low-cost data provider that already has spectrum in contested
areas. The acquired spectrum will allow Rain to improve its coverage at a
comparatively low cost. Rain also plans to soon launch a mobile service, utilising
the newly acquired spectrum. Demand and sales have remained robust. Rain is on course
to achieve an EBITDA of over R2 billion for the year ended February 2023, after
considering IFRS 16 adjustments as is industry practice.
TymeBank - 14.1% of Fund Value - TymeBank remains a leading digital bank with 6.2
million customers as at 31 December 2022. TymeBank and The Foschini Group (TFG)
launched a partnership which installed 600 kiosks across 22 TFG brands, almost
doubling TymeBank’s distribution across South Africa. In the period under review,
TymeBank acquired Retail Capital to support TymeBank’s business banking offering. The
valuation of TymeBank was adjusted at 31 December 2022 to reflect the Series B3
capital raise that was concluded to fund the acquisition of 100% of Retail Capital.
ARC Fund contributed $30 million of the $60 million capital raise, hence its
shareholding remains at just over 50%. The Company’s effective investment in
TymeBank, through the ARC Fund and ARC Financial Services Holdings (ARC FSH), is R1
924 million.
Kropz Plc - 10.1% of Fund Value - The ARC Fund invested an additional R472 million
into Kropz Plc during the period. The capital was largely used to fund an operational
cash shortfall at Elandsfontein resulting from a delay in the ramp-up of operations.
The ARC Fund’s investment value was estimated at R1 374 million at 31 December 2022
(30 June 2022: R1 028 million). The Elandsfontein plant achieved its first bulk sales
in January 2023 of c. 30 000 tonnes of phosphate. Plant throughput and quality
continue to show a steady improvement. Substantial work has been done to gain a
better understanding of the ore body and variability and as a result of that, the
Mineral Resource Estimate was updated. Total phosphate resources at Elandsfontein
increased to 106.58 million tonnes and the grade improved, while the total Measured
and Indicated resource tonnage reduced by approximately 76%. Kropz Plc indicated that
while the downgrade of the Measured and Indicated resource is disappointing, the
increased level of confidence will allow for accurate and efficient mine planning.
Continued drilling planned for the year ahead will further increase confidence and
support an increase in reserve tonnes. A potential project is being investigated at
Cominco to prove the concept and mitigate country risk. The ARC Fund continues to
engage with the Congolese government on the strategic plan for the asset.
Alexforbes - 7.5% of Fund Value - The Company’s effective investment in Alexforbes
increased from R963 million at 30 June 2022 to R1 029 million at 31 December 2022. An
increase in the share price resulted in a net fair value gain of R66 million being
recognised.
Tyme Global - 5.1% of Fund Value - During the period, Tyme Global successfully
launched its digital bank, GOtyme in the Philippines with its partner, JG Summit. The
fair value of the Tyme Global investment was adjusted to reflect the post-money value
of the recently closed capital raise, resulting in a 39% increase in fair value
through the ARC Fund and ARC FSH to R696 million. The prospects of Tyme Global and
the thesis around building a multi-country digital bank at scale are starting to come
to fruition.
ARC Investments - 4.3% of Fund Value - During the period under review, the value of
ARC Fund’s effective investment in ARC Investments reduced from R700 million at 30
June 2022 to R587 million at 31 December 2022, due to a decline in the share price.
INCREASED CASH, FUNDING AND DIVIDENDS
Cash in the ARC Fund increased by 57% to R1 051 million (30 June 2022: R669 million),
providing valuable liquidity to support further acquisitions. Debt in the ARC Fund
increased by 43% to R1 396 million (30 June 2022: R974 million). The Company’s
effective share in dividend income for the period under review increased by 30% to
R79 million in six month period ended 31 December 2022, as compared to December
2021.
EVENTS AFTER REPORTING PERIOD
Kropz Group - The ARC Fund advanced an additional R126 million loan to fund operating
cash shorfalls at Elandsfontein.
ARC Services - ARC Services paid R94 million preference share dividends.
Rand Mutual Holdings - ARC FSI disposed of its 30% shareholding in Rand Mutual
Holdings for R726 million that, taken together with cumulative dividends received,
represents an IRR of 16.8%. The proceeds were received after the reporting period.
Capital Legacy - Sanlam’s investment in Capital Legacy was recently announced. The
transaction is still subject to regulatory approvals, including Competition
Commission approval.
GOVERNANCE
ARC Investments is managed and controlled in Mauritius by an experienced, multi-
national Board of Directors (the Board), of which the majority are independent. The
Board has final oversight and responsibility in respect of ARC Investments’ business,
strategy and key policies, including the investment in the ARC Fund. There are no
executive directors on the Board of ARC Investments. ARC Investments is the only
Limited Partner in the ARC Fund. It plays no role in the management or investment
decisions of the ARC Fund.
ABOUT THIS ANNOUNCEMENT
This short-form announcement is the responsibility of the directors and the
information contained herein is only a summary of the information in the full
Financial Results announcement and does not contain full or complete details. Any
investment decision by investors and/or shareholders should be based on consideration
of the full announcement that was released on
https://senspdf.jse.co.za/documents/2023/JSE/ISSE/AILE/IResults23.pdf and the ARC
Investments’ website https://arci.mu/investor-relations/#sens on 16 March 2023. This
short-form announcement does not contain any additional information not appearing in
the full Financial Results released on SENS. The full announcement is available for
inspection at the registered office1 and designated office2 of ARC Investments and
the offices of the Sponsor3 at no charge during normal business hours. Copies of the
full announcement may be requested by email from investors@arci.mu.
16 March 2023
Ebène, Mauritius (with simultaneous circulation in Johannesburg)
Mark Cyril Olivier
Chairman of the Board
Clive Msipha
Chairman of the Audit and Risk Committee
Karen Bodenstein
Chief Financial Officer
SPONSOR
Deloitte & Touche Sponsor Services Proprietary Limited
1The registered office: Level 3, Alexander House, 35 Cybercity, Ebène, 72201,
Mauritius 2Designated Office: 6th Floor, Phase 3, 11 Alice Lane, Sandhurst, Gauteng
3The offices of the sponsor: Deloitte & Touche Sponsor Services Proprietary Limited,
5 Magwa Crescent, Waterfall Crescent, Waterfall, 2090
Date: 16-03-2023 07:30:00
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