Wrap Text
Full year financial results for the twelve-month period to 30 June 2023
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
(“ARC Investments” or “the Company”)
FULL YEAR FINANCIAL RESULTS
for the twelve-month period to 30 June 2023
Significant advances at several of the large early-stage portfolio companies:
Rain - Successfully launched rainOne mobile service
Kropz Plc - Elandsfontein sold 120 000 tonnes of phosphate in the six months to June
2023
TymeBank and Tyme Global - Successful USD125 million capital raise
Sanlam 3rd party Asset Management - Conclusion of the Absa Asset Manager transaction
Capital Legacy - Sanlam’s investment in Capital Legacy and acquisition of the Sanlam
Trust accounts by Capital Legacy
RSA - Strong profits exceed combined results for past two years
Financial performance:
Intrinsic net asset value (INAV) increased by 15.8% to R15 328 million (30 June 2022:
R13 242 million)
INAV per share increased by 13.4% to R11.41 per share (30 June 2022: up 14.7%)
Cash in the ARC Fund decreased by 25% to R500 million (30 June 2022: R669 million)
Debt in the ARC Fund increased by 51% to R1 473 million (30 June 2022: R974 million)
Major disposals finalised:
Disposal of remaining Afrimat shares for R486 million (IRR of 27.7%)
Disposal of PayProp and Humanstate; ARC Fund receiving R486 million cash (IRR of 19.7%)
Disposal of Rand Mutual Holding (RMH) for R727 million (IRR of 16.8% for ARC FSI)
Major additional investments:
R664 million investment by ARC Fund in TymeBank and Tyme Global, largely to fund the
acquisition of Retail Capital
R833 million additional capital advanced to Kropz Plc
New fee structure delivers substantial savings for shareholders
NATURE OF BUSINESS
ARC Investments is an investment holding company and focuses on being a broad-based,
Black-controlled investment vehicle of significant scale, offering shareholders the
opportunity to indirectly invest in a diversified portfolio.
STRONG PORTFOLIO PERFORMANCE
A tough macro environment put pressure on the economy and consumers and harmed some of
our entities’ growth. ARC Investments’ diverse portfolio has, however, shown remarkable
resilience against the persisting challenging macroeconomic environment.
The Company’s intrinsic investment value in the ARC Fund increased by 15.8% to R15 328
million at 30 June 2023 (2022: R13 242 million). During the year under review, the
Company’s effective share of the invested assets (or the IPV) increased by 19.8% to
R16 363 million at 30 June 2023 (2022: R13 659 million) as depicted below. The IFRS
Net Asset Value (NAV) per share increased by 13.5% to R11.44 at 30 June 2023 (2022:
R10.08), due to an increase in the number of shares. The increase in shares was driven
by the performance hurdle being met in the prior year.
Investment in ARC Fund Net Net Net Net Asset Percentage
Asset Investment increase Value change
Value 30 in Net 30 June 23
June 22 Asset
R million Value
Intrinsic portfolio value 13 659 553 2 151 16 363 19.8
Cash in the ARC Fund 669 -190 21 500 -25.3
Debt in the ARC Fund -975 -363 -135 - 1 473 51.1
Other net
assets/(liabilities) in the -111 – 49 -62 -44.1
ARC Fund
UBI GP fee payable -110 – 49 -61 -44.6
Other liabilities in the
ARC Fund -1 – – -1 –
Intrinsic Investment in the
ARC Fund at FVTPL* 13 242 – 2 086 15 328 15.8
*FVTPL: Fair Value Through Profit or Loss
NOTABLE PROGRESS IN RESHAPING THE PORTFOLIO
The portfolio value has begun to reflect the benefits of the early-stage investments
approaching profitability, as well as the substantial corporate activity to reposition
the portfolio. ARC Fund completed disposals of R1 440 million which included investments
in Afrimat, Humanstate, Gemcap (PayProp), Capital Appreciation, and Mooiplaats Coal
Holdings (MCH) and ARC Financial Services Investments (ARC FSI) disposed of its
investments in Rand Mutual Holdings. ARC Fund also finalised acquisitions of R1 993
million, including additional investments in TymeBank, Tyme Global, ARCH Emerging
Markets, Upstream, and Kropz, as well as a small mining services acquisition in SMS
Mining Group. ARC FSI acquired a minority holding in Optasia and GoSolr.
As part of its revised strategy, ARC Fund has disposed of smaller and non-core assets
in its Diversified Investments portfolio, reduced its exposure to listed shares that
can be acquired directly in the market, and increased the weighting of the Financial
Services portfolio through bolt-on acquisitions and synergistic transactions, as well
as an increased Fintech exposure. As a result of these transactions, Mining, Property
and Business Process Outsourcing exposure has decreased, while exposure to future-
focused growth areas in Financial Services, Telecommunication, Agriculture and
“Diversified financials” has notably increased. The collective efforts of management
and investment partners also delivered synergy benefits and excellent progress in
early-stage investments in the current year.
A variety of initiatives have been implemented to narrow the gap between the intrinsic
and market values. These include:
Efforts to streamline the portfolio and position it in future-focused areas.
The top 13 investments now comprise 88% of the value of the portfolio.
Portfolio valuations have been validated through several disposals at full value.
The internal rate of return (IRR), based on disposal profits as well as dividends were:
Afrimat (27.7%); Humanstate and Payprop (19.7%); Capital Appreciation (12.0%),
MCH (carrying value) and RMH (in ARC FSI) (16.8%).
The management and performance fees have been reduced by more than 50%.
The unlisted portion of the fund that is only accessible through ARC Investments,
has grown to 89% of the portfolio.
MANAGEMENT FEE AND PERFORMANCE PARTICIPATION FEE
The General Partner fee structure review was finalised and approved at the Annual
General Meeting in 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 year ended 30 June 2023 was R98 million, compared to R225
million for 2022.
In terms of the newly approved performance participation fee structure,
the C shareholders share in 16% of the growth in ARCI NAV above the 10% hurdle.
The adjusted annualized growth in IPV for the year ended 30 June 2023 amounted to
15.8%, which is above the hurdle. Accordingly, a provisional performance amount of R122
million was recognised for 2023, relative to R273 million in the prior year.
The management and performance fee combined reflect a substantial saving for investors.
RESILIENCE SUPPORTED BY PORTFOLIO DIVERSIFICATION
ARC Fund’s key underlying investments generated strong performance, which accelerated
progress towards profitability at several of the ARC Fund’s pre-break-even portfolio
companies.
Rain – 27.6% of Fund Value - The ARC Fund’s share in the value of the investment in
Rain increased by R881 million from R3 635 million in June 2022 to R4 516 million in
June 2023. This increase in value can largely be attributed to the business progressing
beyond the period of significant net-cash outflow as well as the recent acquisition of
additional spectrum. Rain launched its 4G mobile voice offering together with its new
5G home product, rainOne, during May 2023. Since launch there has been strong interest
in rainOne and Rain continue to receive positive feedback from new and existing
customers. The business is tracking well against budgets.
Rain is budgeted to achieve an EBITDA of over R2.5 billion for the year ending February
2024 after taking into account IFRS 16 adjustments, as is industry practice.
Rain continues its ambitious rollout and marketing strategy to cover more towns across
the country and will continue densifying coverage in all major metros.
Tyme SA Holdings (TymeBank) – 12.3% of Fund Value - TymeBank had acquired 7.4 million
customers by June 2023. TymeBank and The Fochini Group (TFG) launched a partnership
resulting in 600 kiosks being installed across 22 TFG brands almost doubling TymeBank’s
distribution across South Africa. TymeBank acquired Retail Capital,
the largest Small Medium Enterprises (SME) funder of its kind in the sector, to support
its offering to its business banking clients. The valuation of TymeBank was adjusted
to reflect the Series B3 and pre-series C capital raise that was concluded in December
2022 and April 2023 to fund the acquisition of 100% of Retail Capital.
The ARC Fund’s share in the value of the investment in TymeBank increased to R2 200
million at 30 June 2023 (2022: R1 417 million).
Kropz Plc - 11.7% of Fund Value - The ARC Fund maintained its financial support of the
Kropz Elandsfontein operations during its ramp-up phase by extending R833 million
during the 2023 financial year. Kropz Elandsfontein continues to make progress towards
achieving financial independence and profitability. Good progress has been made in
improving processing stability and average run times of close to 95% were achieved
between December 2022 and June 2023. Elandsfontein has also successfully produced and
sold 120 000 tonnes of phosphate in the six months to June 2023.
Kropz is finalising a new mine plan and feasibility study for a reduced-scale starter
project at its Cominco resource in the Republic of Congo. The ARC Fund’s investment
value increased to R1 919 million at 30 June 2023 (2022: R1 028 million).
Alexforbes - 7.0% of Fund Value - The Company’s effective investment in Alexforbes
increased to R1 139 million at 30 June 2023 (2022: R963 million). Alexforbes’ share
price performed well during the year under review, resulting in a net fair value gain
of R176 million being recognised.
Tyme Group Africa Pte (Tyme Global) – 4.8% of Fund Value - Tyme Global successfully
launched its digital bank, GOtyme, in the Philippines with its partners, JG Summit in
November 2022. GOtyme had attracted 1 million customers by mid-August 2023, with high
customer activity rates. The fair value of the Tyme Global investment was adjusted to
reflect the post-money value of the recently closed pre-Series C capital raise.
The ARC Fund’s share in the value of the investment in Tyme Global increased to R902
million at 30 June 2023 (2022: R500 million).
EVENTS AFTER REPORTING PERIOD
Kropz Group - During August 2023, the ARC Fund advanced an additional R60 million loan
from an existing loan facility to help fund operations at Elandsfontein. Furthermore,
in September 2023 the ARC Fund approved an additional R250 million loan facility to
Kropz Elandsfontein. This additional facility will be used to fund Elandsfontein’s
capital expenditure to increase operational capacity and assist Elandsfontein in
meeting its creditor obligations and working capital needs.
Rain - ARC Fund made an additional investment of R81 million in Rain during August
2023.
Capital raise – Tyme Group - During September 2023, the ARC Fund approved an additional
investment of R75 million in Tyme Group.
LEVEL OF ASSURANCE
PricewaterhouseCoopers Inc., ARC Investments’ independent auditors have audited the
annual financial statements of the Company and expressed an unmodified opinion thereon.
Their report also includes communication of key audit matters. This opinion is
available, along with the annual financial statements on the Company’s website at
https://arci.mu/investor-relations/#sens on 14 September 2023 and also available for
inspection at the Company’s registered office.
GOVERNANCE AND LEADERSHIP
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.
The directors of ARC Investments take full responsibility for the preparation of this
report and the financial information has been correctly extracted from the underlying
financial statements. Any forecast financial information contained in this announcement
is the responsibility of the directors and has not been reviewed or reported on by the
external auditors.
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 annual financial
statements and does not contain full or complete details. Any investment decision by
investors and/or shareholders should be based on consideration of the full annual
financial statements that were released on the JSE Cloudlink at
https://senspdf.jse.co.za/documents/2023/JSE/ISSE/AILE/FY2023AFS.pdf and the ARC
Investments’ website https://arci.mu/investor-relations/#sens on 14 September 2023.
The full annual financial statements are available for inspection at the registered
office1 and designated office2 of ARC Investments. Copies of the full annual financial
statements may be requested by email from investors@arci.mu.
14 September 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
1 The registered office: Level 3, Alexander House, 35 Cybercity, Ebène, 72201, Mauritius
2 Designated Office: 6th Floor, Phase 3, 11 Alice Lane, Sandhurst, Gauteng
Date: 14-09-2023 07:30:00
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