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RECM AND CALIBRE LIMITED - Abridged Annual Financial Statements for the year ended 31 March 2019

Release Date: 18/06/2019 16:09
Code(s): RACP     PDF:  
Wrap Text
Abridged Annual Financial Statements for the year ended 31 March 2019

(Incorporated in the Republic of South Africa)
(Registration number 2009/012403/06)
Preference share code: RACP
ISIN: ZAE000145041
(“RAC” or “the Company”)



To our fellow shareholders

During the financial year, the per share Net Asset Value (“NAV”) (our preferred method of measuring value creation) of
RAC declined by 3% to R26,92. This compares to a gain of the JSE All Share Total Return Index (“ALSI”) for the year of

R10 invested in RAC participating preference shares in June 2010 has grown to R26,92 in NAV after all fees and taxes.
The same amount invested in the ALSI would have grown to R27,09, before taking any fees or possible taxes into account.
         ALSI total return (based to R10)     RAC NAV/share

Jun-10              10,00                         10,00
Sep-10              10,97                         10,09
Mar-11              12,15                         10,26
Sep-11              11,37                         10,45
Mar-12              13,06                         11,12
Sep-12              14,15                         11,26
Mar-13              16,00                         11,83
Sep-13              17,96                         11,85
Mar-14              19,77                         12,32
Sep-14              20,73                         12,59
Mar-15              22,24                         18,64
Sep-15              21,73                         19,86
Mar-16              22,95                         19,66
Sep-16              23,16                         22,42
Mar-17              23,53                         27,35
Sep-17              25,52                         27,86
Mar-18              25,79                         27,77
Sep-18              26,37                         26,86
Mar-19              27,09                         26,92

RAC has grown its NAV per share by 12% p.a. since inception, compared to the ALSI’s equivalent growth rate of 12,1%.
Over the same period, the rand has depreciated by 7,6% p.a. RAC has thus compounded its NAV by 4,1% p.a. in
US$ terms. This represents real growth in hard currency. We think this is a satisfactory, but not exceptional outcome. It
definitely falls short of our own expectations and aspirations.

The NAV per share reduction of 3% over the last year implies a decrease of R43,7m in RAC’s total NAV. This decrease
can be broken down as follows:
                                                                                              2019                 2018
                                                                                                 R                    R
 Interest and dividends received                                                        71 698 813           32 422 299
 Financing expenses                                                                    (48 858 135)        (34 262 759)
 Realised (loss)/profits on sale of assets                                             (15 868 225)           4 940 113
 Investment advisory fees                                                              (24 108 986)        (20 575 625)
 Operating expenses                                                                     (5 129 895)         (5 256 449)
 Tax paid                                                                               (2 931 154)         (9 146 238)
 Adjustments to fair value of assets                                                   (34 415 765)          66 718 843
 Tax reversed/(provided for)                                                             15 896 136        (12 949 549)
 Net (decrease)/increase in NAV                                                        (43 717 211)          21 890 635

The main expense is the investment advisory fee we pay. This fee amounts to 1% (excluding VAT) of the value of the
portfolio. There are other small operating expenses, such as external directors’ fees, audit fees etc – but we work hard to
keep the total costs of managing the business as low as possible.

The increase in financing expenses is mainly due to the higher debt levels this year as part of our attempt to acquire
control of Astoria.

You will note there are negative numbers in the lines “Realised profits” and “Adjustments to fair values of assets”. These
represent a crystallisation - in this year - of capital allocation mistakes we committed, in some cases quite a number of
years ago.

There is a tendency to blame unsatisfactory results on ‘a difficult trading environment’, ‘uncertain political conditions’,
‘difficult global economic circumstances’, ‘increased competition’, or even hide them under ‘discontinued operations’. Not
so at RAC. We accept that, as business owners and investors, all of these conditions will become our reality at some
stage in our journey. Bad outcomes are solely a result of us not having done our jobs well enough. Look no further. The
mistakes are ours, etched into our track record, to live with forever.

This year’s fairly acceptable overall result includes our short, painful investment in DAWN. We first invested into DAWN
just over two years ago, through underwriting an emergency rights issue at (what we thought was) a deeply discounted
price of R1/share. We received 16.8% of the company in exchange for R92mn of our cash. To cut a long story short – the
cash was not enough, the company was not strong enough and the turn-around did not turn around. This year we decided
to accept an offer of 1c/share from a consortium in a going-private transaction, rather than commit more capital to the
business. Apart from the R91mn of capital we lost, this investment also consumed an inordinate amount of our partner
Theunis de Bruyn’s time – two very valuable assets we can never get back. Talk about a permanent loss! This investment
ended up costing all of us R1,39/share in NAV.

Transhex has been a consistently noticeable drag to our results, which we have carried for a number of years now.
With the benefit of hindsight, we should have passed on this opportunity when it was first presented to us. Our skills in
evaluating mining prospects turned out to be no better than the next. West Coast Resources (a subsidiary of Transhex)
(“WCR”) looked like a fantastic project on paper. In the real world, it has consistently fallen short of even our very low
expectations. The extent of the damage has been over R1,50 in NAV being destroyed in this misguided venture.

In the spirit of Charlie Munger’s ‘rubbing your nose in your own mistakes’, we, with direct input from our non-executive
directors, have spent many hours reflecting on them. We could write quite a voluminous treaty – especially on the
compounding effect of mistakes – but for the sake of brevity and posterity, we record the common factors below:

•     Our due diligence process did not identify all the issues within the businesses. We should have spent a lot more time
      and effort on obtaining a more in-depth understanding of the current state of the businesses, including speaking to
      trusted outside experts, before committing.

•     Some of the people managing these investments turned out not to be the “partner” material we aspire to. In most
      cases we should have seen this right from the start. This is likely to remain one of the most difficult things to get
      right in future.

•     We relied too heavily on ‘skin in the game’ from our partners as a screen for positive outcomes. In our world this
      means they should also stand to lose money with us when things go wrong. The absence of, or aversion to having
      skin in the game has been a very strong negative signal. The opposite is not quite true. Our future partners need to
      possess more than just a willingness to share in a potential loss of wealth.

•     In turn-around investments, minority stakes don’t work – especially for listed companies. Compliance with stock
      exchange rules and disclosure requirements inhibits speedy action. Together with egregious remuneration
      demands in the listed environment, the odds are stacked against minority investors. Come to think of it – this holds
      true for all listed investments, not only turn-arounds.

•     There is no doubt that some of our actions were motivated by overconfidence, coming on the back of previous
      successful investments.

Many, if not most, of these mistakes were made in ‘good’ times, but they only show up in the bad times. We know that we
will make mistakes again, but we will definitely learn from these.


Our core investments, where we have a significant stake in the business, and associated influence, are grouped together.
We expect to be long-term capital partners of these businesses and their management teams. At year-end, this made up
89% of our asset base. Our minority stakes are grouped under the heading of Portfolio Investments and make up 5% of
our asset base. There is a third group called Other Investments. This consists of interests in investments we are either in
the process of exiting or acquiring. Either way, we do not think it is in our shareholders’ best interest that we disclose any
specifics of this group, as this could have the effect of jeopardising any transactions.

                                                                                    Directors Fair Value at 31 March (R’mn)

                                                         %     % of total
                                                 ownership         assets            2019             2018             2017

 Core investments                                                      89         1 859,4          1 567,6          1 127,3

 Goldrush                                               50             52         1 089,3            941,1            816,4

 Astoria                                                28             23           485,5            386,4             95,0

 JB Private Equity (UCP)                                90              5            96,2            106,1            100,9

 Outdoor Investment Holdings                            31              5            96,3             82,5             59,9

 ISA Carstens                                           49              2            50,2                –                –

 College SA                                             97              2            41,9             51,5             55,1

 Portfolio investments                                                  5            99,0            318,1            251,8

 Transhex                                               32              2            37,4            114,4            110,0

 West Coast Resources                                    –              –               –                –             53,3

 RECM Hedge Fund                                         –              2            37,5             42,4                –

 Conduit Capital                                         2              1            24,1             38,9             46,2

 DAWN                                                    –              –               –             78,5                –

 La Concorde                                             –              –               –             43,9             42,3

 Other investments                                                      3            68,2             22,2            137,2

 Cash and receivables                                                   3            57,2            123,1            178,9

 Total assets                                                                     2 083,8          2 031,0          1 695,2

 CGT and other liabilities                                             (6)         (120,5)          (132,4)          (146,3)

 Bank funding                                                         (28)         (586,3)          (477,9)          (150,1)

 Net assets                                                                       1 377,0          1 420,7          1 398,8

 Net asset value per share (“R”)                                                    26,92            27,77            27,35

    Some notes on our valuation methodology:

    IFRS requires RAC, as an investment entity, to place a fair value on all its assets. We have not changed our valuation
    methodology. Where possible, we use market prices, either listed or over the counter. For assets where there is no
    visible price, we perform a valuation exercise, which culminates in a range of fair values, as required by IFRS. Due
    to the inherent uncertainty of valuing large stakes in unlisted, untraded assets, this range is necessarily quite wide.
    For some of our unlisted investments, this range includes the original cost price. In select circumstances, we have
    provided debt to some of our investee companies. In these rare instances, our valuations above include both equity
    and debt.

    We explicitly provide for deferred capital gains tax (CGT), where applicable, on our unrealised gains. This is not a
    wide spread practice amongst investment companies, but we believe it is the most conservative way to account for
    the actual value of our investments.

    In this vein, we should note that our valuations always err on the side of conservatism. We are firm believers in the
    power of low expectations, and explicitly build this into our valuations. Our track record shows that when we have
    exited an investment, it has, almost without fail, taken place at a level above our own fair value estimates. The reason
    we are conservative is that the future is always highly uncertain, and even the best businesses, run by the best
    management teams, are sometimes subject to random adverse outcomes. Our valuations always recognise this fact
    of life.


Goldrush is the largest independent alternative gaming group in the country. At year end, Goldrush operated 3 543
Electronic Bingo Terminals (“EBT’s”) in 27 Bingo sites. The group operated 1 882 Limited Payout Machines (“LPM’s”) and
33 sports betting shops.

Goldrush operates in all nine provinces of the country and employs more than 2 300 staff throughout its operations. Its
customers are served under the Goldrush (Bingo, LPM), Bingo Royale (Bingo), Crazy Slots (LPM) and G-bets (retail
sports betting and online betting) brands.

The biggest development for the year was the successful opening of two new Bingo properties and the redevelopment of
two existing properties to include EBT’s in Kwazulu Natal. These openings were spaced over the year, and have had an
immediate positive impact on the business which was better than we have experienced anywhere else before.

All of our other Bingo properties experienced organic growth, with the exception of the Atterbury and Kolonade branches
in Pretoria, where we continue to bear the brunt of the proximity of a large new Casino.

We plan to roll out four of the last remaining Bingo licences in the coming 12 months, which means that our Capex
requirements will reduce significantly after that.

The past year saw an acceleration in the roll-out of our LPM’s. This was mostly due to a reprieve in administration backlog
from various gambling boards, which allowed the team to power ahead with previously prepared sites. We expect another
year of strong roll-outs in LPM’s.

The sports betting division remains marginally unprofitable, despite rapid growth on the revenue line. Online sports betting
turned out to be quite a challenge to get profitable early on.

The primary value of our business resides in the exclusive ownership of gaming licenses. Without the entrenched rights to
operate these licenses, our business would be substantially less valuable. As Goldrush matures and improves the scale
of its operations, the group has become more successful at acquiring licenses, both through a very competitive bidding
process for new licenses and through acquisition of existing licenses from other operators.

Recently the Gauteng Gambling Board decided to issue a further 81 sports betting licences. The inherent value of sports
betting licences in the Gauteng province all but disappeared. The continued proliferation of illegal gaming operators near
many of our properties also slowly erodes the fundamentals of the value of our licences.

The table below shows Goldrush’s progress in terms of the number of licenses across all segments over time.

Summary of gaming licenses in the Goldrush Group

                                                      Mar 2019       Mar 2018       Mar 2017       Mar 2016       Mar 2015
 Bingo/Casino       Licences Owned                          35             33             18             14             11
                    Licenses Active                         27             25             14             14             11
                    EBT’s in Operation                   3 543          3 112          1 637          1 637          1 250
 LPM                Route Licenses Owned                     6              6              6              6              4
                    Machines Approved                    4 200          4 200          4 200          2 520          1 900
                    Machines in Operation                1 882          1 671          1 537          1 360          1 042
 Sports Betting     Licenses Owned                          33             36             36             30             19
                    Licenses in Operation                   33             28             23             18             15

Goldrush managed to increase total sales by 22% to R1,3b for the year. This included 9% organic growth of existing
operations. The rest was driven by a combination of adding new bingo properties, redevelopment of existing properties,
together with an accelerated roll-out of LPMs and further growth of our sports betting business. Sustainable EBITDAR (the
measure we use to evaluate the progress of the business) increased by 17%. Net financial indebtedness increased this
year to fund developments of bingo and sports betting properties as well as equipment acquisitions.

Selected financial information for the Goldrush Group

                                                      Mar 2019        Mar 2018       Mar 2017       Mar 2016       Mar 2015
                                                          R’mn            R’mn           R’mn           R’mn           R’mn
 Total Revenue                                           1 319           1 080            748          627,1            517
 – Bingo Division                                          905             738            556          480,6            390
 – LPM Division                                            319             277            168            137            126
 – Sports Betting Division                                  95              65             24              9              1
 Sustainable EBITDAR                                     349,7           300,0          229,5          181,3          151,2
 Net Debt                                                597,8           436,5          112,8           96,1          101,0

We value Goldrush using an earnings multiple for the existing operations (as reflected in sustainable EBITDAR, that is, the
cashflow from all of our mature operations). We then make an adjustment for the balance sheet structure, which includes
net debt as reflected above, plus market-related valuations for non-operational licenses.

The multiple used for our valuation remains unchanged at 7. Goldrush continues in its current growth trajectory, which will
no doubt slow down once we have finished the roll-out of all bingo properties, and as the LPM business matures. After
many years of re-investing all cashflow back into the company, we are finally getting to the point where we can anticipate
some dividends coming our way.

We remain cautious in our valuations, as the proposed Control Of Tobacco Products And Electronic Delivery Systems Bill,
the so-called “smoking ban”, which seems to include potentially severe restrictions on the use of tobacco products in all
public areas, remains unresolved. If promulgated, it could have a detrimental impact on Goldrush.

We expect the 2020 financial year to be the heaviest year in terms of expansion capex for Goldrush, as we push hard to
open the KZN market, grow the number of LPM’s in operation and grow sports betting.

When RAC set out on its journey, we said we would aim to invest in great businesses, to partner with great management
teams and do that at a good price. So far, Goldrush represents a tangible manifestation in our lives of exactly that
objective. If you ever come across Mergan Naidoo or Ray Hipkin, buy them a drink and send us the bill. We owe them
much gratitude – not only for what they have done in building Goldrush, but also for the way in which they have done it.

Astoria Investments

Astoria is a Mauritian-domiciled investment company which is listed in South Africa (JSE), Mauritius (SEM) and Namibia
(NSX). It used to hold a portfolio consisting mainly of small minority stakes in global blue-chip companies and a smattering
of private equity investments. Fairly shortly after listing, Astoria traded at a significant discount to its underlying portfolio
and RAC managed to acquire close to 30% of the company’s shares at a favourable price.

We then approached the Astoria Board and announced that we intended to make an offer for all shares of Astoria in a
part cash, part equity offer. This proposed offer was opposed by the Astoria Board in Mauritian courts, which introduced
a significant time delay. Astoria shares continued to trade at a steep discount to the value of its underlying portfolio.
Eventually, frustrated Astoria shareholders understandably voted for the company to sell off all of its liquid assets and
return the freed-up capital to its shareholders via a capital distribution. At the same time it cancelled its management
contract with its fund manager, paid a termination fee and the Board of the company took control of all further investment

The 25% increase in the Astoria share price for the year added R97mn to our NAV. Subsequent to year-end we have
received R452mn, our share of the capital distribution. We still own just shy of 30% of what remains of the company,
which at last count was worth about R60mn. We originally invested R366mn in Astoria.

Astoria now primarily owns investments in offshore private equity funds, a small listed company and a majority of US dollar
cash. The share continues to trade at a discount to its remaining assets. The financial result of this investment has been
marginally satisfactory.

This expedition provided us with first-hand experience of why many of our fellow South African management teams
find it so difficult to do business in other jurisdictions. The fact that one knows and understands the corporate, legal,
regulatory, and most importantly – the cultural framework, in South Africa, does not necessarily translate into success in
other countries. A transaction that would have taken three months at the maximum in South Africa, has stretched out to
13 months and counting.

Our shareholding in Astoria remains valuable to us, as it provides us with further potential returns and with options to
deploy capital for our shareholders.

JB Private Equity Partnership

RAC owns 90% of JB Private Equity (“JB”) an entity that has as its only investment a 37% stake in Unicorn Capital
Partners (“UCP”), a company listed on the JSE. RAC initially invested in UCP in April 2015. In October of that year
Jacques Badenhorst was appointed as CEO. Over the subsequent three years, Jacques has done a tremendous job
turning Unicorn into an investment holding company.

During the 2019 financial year, Ritchie Crane Hire powered ahead, maintaining momentum. JEF Drill & Blast is
implementing the final elements of its restructuring programme that started in the first half, while Geosearch is bedding
down its aggressive expansion programme in Botswana.

Production at Nkomati Anthracite has been negatively affected by the business rescue proceedings of a key contractor,
community action interrupting mining activities, poor management and operational execution at the mine. Unicorn
announced during the year that they are investigating options to realise value from this asset. The process is ongoing.

The market’s assessment of this effort was a mark-down of 12,5% in the share price of UCP.

More information on UCP can be found at


Transhex is an alluvial diamond miner, with two main assets: WCR, a mine on the West Coast of South Africa, and
Somiluana, a mine in Angola. WCR continues to struggle, making large operating cash flow losses, which, to date, have
been funded by its main shareholder, Transhex. The result is that debt levels at WCR have become elevated. Somiluana
continues to do well.

The result for shareholders has been a drop of 61% in the share price of Transhex over the past year.

Subsequent to year end, a transaction has been entered into which Transhex will ultimately transfer the assets and
liabilities of WCR to a third party operator. This operator will also take over all mining activities at WCR. Furthermore, the
Transhex head office has been sold for an amount approaching its current market capitalisation.

Outdoor Investment Holdings

Outdoor Investment Holdings (“OIH”) is primarily focused on the outdoor and sport shooting industry. It serves the market
through the national retailer Safari & Outdoor as well as wholesalers Inyathi Sporting Supplies and Formalito. This
year, OIH opened its first concept store for the Family Pet Centre, an animal mega speciality store, with comprehensive
grooming and on-site veterinary services. Just before year-end, the retail arm, Safari & Outdoor, opened its 5th store.

OIH performed well for the year, with group turnover growing 4% to R701mn. The operating margin remained around
9%. A judicial share buy-back from some of our fellow shareholders left RAC with a larger, more valuable, shareholding
of 31%.

The market for further Safari & Outdoor stores is limited. Family Pet Centre is planning to open its second store in
September this year.

More information on Safari & Outdoor can be found at and for Family Pet Centre at

ISA Carstens

Early in the year RAC became a 49% shareholder of ISA Carstens Holdings South Africa, the holding company for a
private tertiary education institution which provides tuition in the health and wellness industry under the ISA Carstens

ISA Carstens has campuses, including boarding facilities for students, in Stellenbosch and Pretoria. Through the
transaction, we partnered with the founding family that built the business over the past 40 years.

ISA Carstens has an active alumni of more than 3 000 “ISA’s” spread throughout South Africa and many parts of Europe,
a range of accredited qualifications that comply with international standards, a reputation for excellence and some spare

Our agreement with our partners is that RAC’s capital and ownership will help the business grow its student numbers on
the back of increasing its offering, number of campuses, and areas of teaching. With RAC as a shareholder, the transition
from being a family-managed business to having a professional management team in place has commenced.

Since we acquired this investment during the financial year, we have not changed its valuation in our portfolio as yet. We
are however very encouraged by the 24% increase in student numbers for the 2019 calendar year.

More information about ISA Carstens can be found at

College SA

College SA houses our distance education-focused assets, which serves tertiary students under three brands, namely
“College SA”, “Tabaldi Online Accounting Classroom” and “IASeminars UK”. Through these three brands, the business
served 5 400 active students last year, a number very similar to the year before.

At College SA, the Technical and Vocational Education and Training College, sales increased by 10% during the year but
very little has changed with regards to the payment behaviour by students, which we highlighted last year.

After a good 2017, IASeminars UK had a disappointing 2018, with sales down significantly. We have accepted that the
nature of the business is inherently more volatile than we previously thought.

In Tabaldi Online Accounting Classroom the “CTA support” product was launched. It has become clear that a fair number
of other tuition providers have spotted the same opportunity as Tabaldi, and with technology these days the barrier to entry
is quite low. CTA support has very quickly become a very crowded space in South Africa.

We have reduced our valuation for College SA and IASeminars further this year and wrote our investment in Tabaldi down
to a nominal amount.

RECM Flexible Value Hedge Fund

We were day-1 investors in this fund through the swap of a number of our smaller holdings of cheap listed assets for units
in the fund. The fund utilises a Collective Investment Scheme structure that has many benefits to investors such as RAC
– long-term orientated, tax sensitive, patient and the pursuit of exceptional – albeit volatile – returns. RECM has since
raised further outside capital for the fund.

The returns of the fund have been muted thus far. For the year we currently review, the fund lost 11,6% of its value.
However, we are pleased that the fund has outperformed our original portfolio of contributed stocks during that period.
The investments in the fund could be classified under the labels of “Investor Disgust”, “Neglect”, “Illiquid”, “Complicated”,
“Net Asset Plays”, “Opportunistic”, “Unlisted” and even in a few cases as “Overvalued” or “Over-Levered”, but for the most
part – completely outside the ambit of any Exchange Traded Fund or index tracker. We have even been able to find some
very attractive high-yielding debt investments recently. We have found the structure of the fund to be much better suited
to these types of investments and expect most of our future investments outside of our Core Investments to be housed
in this fund.

More information about the RECM Flexible Value Hedge Fund can be found at

Conduit Capital

RAC owns 2.3% of Conduit Capital, a listed specialist insurance and investment business. We have a high regard for
management and their business and investment strategy. Our shareholding has remained unchanged, and we value
Conduit at its listed price. More information can be found at


During the year, we sold our entire holding in La Concorde, after having received our share of special dividends, as well as
the unbundled Hosken Passenger Logistics and Rail shares (which we subsequently sold after having received a series
of dividends and special dividends). This concludes our original investment in KWV from 2012.

We have done so in private before, but it is appropriate that we publicly thank the team at HCI for the amount of value
which they unlocked for us as fellow shareholders in KWV. Our internal rate of return on this investment came to 10.1%
over this period and was done in a very tax efficient manner. A pleasing outcome which took very little time from us to
manage, but required patience to conclude.

This realisation continues our experience of selling assets at a premium to which it has been carried in our books.

Meaningful events subsequent to year-end

RAC Received R452m as a capital distribution from Astoria on 29 April 2019. We settled R239m of outstanding term debt
and borrowings. On 31 May 2019, RAC acquired a further 4,9% of Goldrush for R89m.

Our Structure

This is such an important part of RAC, that we have chosen to repeat our thoughts from last year verbatim.
Our investment strategy has played, and will continue to play an important role in our success. But our structure also
has an important role to play. At year-end, control of the Company vests with the two of us, through our holding in the
ordinary shares of the company. Theunis remains our partner in a non-executive capacity. He also remains a significant
shareholder in the business.

When we interrogate our shareholders register, it appears that there is only one other investor (an institution on behalf of
its clients) which holds a bigger economic interest in RAC than the directors of RAC. We have skin in this game. If you
ever wonder about which way potential conflicts in this business get resolved, we would refer you back to this section of
our letter.

The three of us all have a very long investment horizon. We plan to remain invested in, and managing the affairs of RAC
for a very, very long time. Most investment partnerships do not last a long time, as the partners have different views on
important issues. Our partnership disagrees on many things, but not the important ones which relates to strategy.

The Future

As we said for the past two years, negative economic environments increase the odds of RAC being able to buy good
companies run by good people at a good price. This situation continues – in fact, it might even have become more
pronounced in the past year. We have been able to add some interesting investments to our portfolio, which would
not have been available in other circumstances. These are included under our “Other Investments” for now, as these
transactions are not complete yet.

We still spend almost no time thinking about the economy. As this year once again proved - our businesses’ management
are more than smart and tenacious enough to deal with the economic challenges and opportunities they face. All we know
is that as with all cycles, this negative one will also come to an end, and this one is a full year closer to the end than the
last time we wrote to you.

Corporate scandals – or rather, the very public realisation over the last year of a number of corporate scandals that have
been brewing for years in South Africa, confirmed yet again, that the relationship between the responsibility our non-
executive directors at RAC assume and the reward they receive for this is completely skewed.

So far, the only response to these scandals has been a large chorus calling for increased “Governance” and more
“Regulation”. We are very sceptical whether higher doses of this medicine will cure the illness.

At RAC, we believe it is crucial that independent directors are independent of management of the company, independent
of the company and independent from other directors. They should think for themselves. Many of the frauds that have
taken place over the past few years in the corporate world might have been nipped in the bud, had directors been more
diligent in their oversight of the management teams of the various companies. We encourage our outside directors to
own shares in RAC, as we believe this strengthens their ability to act as impartial judges of management’s performance.

An experienced, strongly independent director is invaluable. To classify a previously independent director as non-
independent merely as a result of long tenure, does not make sense to us. Gerhard reaches the end of his nine-year
tenure mentioned in the King Code at the end of this year. As we have done in the past, the board has concluded that
Gerhard, as well as Trent and Zanele, exercise objective judgement in fulfilling their duties as non-executive directors. We
can never pay Gerhard, Zanele and Trent enough for the sterling job they do of providing sounding boards and guidance,
not to mention the annual probity process they are subjected to as directors of an owner of a gaming company. We are
proud to be associated with them and so should you be!

2019 cemented our relationship with the managers of the various businesses somewhat more than before. We suspect
that is what happens when we step up to deal with tough times. (The old Billy Ocean song comes to mind.) Thank you to
these managers for the leadership, energy, tough decisions and positive attitude you have displayed this last year, doing
all the heavy lifting and allowing us to get on with the fun job of exploring investment opportunities.

Finally, to all our shareholders – thank you for entrusting your capital to us. It is rather gratifying to know that only about
6% of our issued shares changed hands in the last year. This means that we are speaking largely to the same group of

We want to leave you with the reminder: If you are involved in any business that meets our investment criteria and that
needs capital or a responsible owner with a long-term orientation, please give one of us a call. We can’t promise you
a deal, but we can promise you a quick answer. You will be surprised how many opportunities have already come our
collective way due to the vigilance of our shareholders.


We will hold our annual meeting for all shareholders, immediately after the conclusion of the Annual General Meeting of
RAC Shareholders. This Annual General Meeting is scheduled to take place on Wednesday, 31 July 2019 at the Southern
Sun Hotel in Newlands, Cape Town, at 11:00. At the meeting, we look forward to discussing our investment operations,
and answering as many questions as you have. Some of our CEOs will also be present, if you wish to speak to them
about their businesses. There is an invitation enclosed with this annual report, and we would appreciate it if you would let
us know if you will be attending.

Piet Viljoen                                                                       Jan van Niekerk
Executive Chairman                                                                 Executive Financial Director

Cape Town
14 June 2019

Statement of financial position at 31 March 2019

                                                                                      2019            2018
                                                                     Notes               R               R

Non–current assets                                                           1 376 853 748   1 420 152 165

Investments                                                             5    1 376 853 748   1 420 152 165

Current assets                                                                   1 000 735       1 350 670

Investments                                                             5          969 658       1 094 061

Trade and other receivables                                                          9 860               –

Current tax receivable                                                                  –          221 365

Cash and cash equivalents                                                           21 217          35 244

Total assets                                                                 1 377 854 483   1 421 502 835


Equity                                                                       1 376 962 756   1 420 679 967

Share capital – ordinary shareholders                                           18 206 250      18 206 250

Share capital – preference shareholders                                        506 296 000     506 296 000

Retained income                                                                852 460 506     896 177 717


Current liabilities                                                                891 727         822 868

Trade and other payables                                                           889 297         822 868

Current tax payable                                                                  2 430               –
Total equity and liabilities                                                 1 377 854 483   1 421 502 835

Net asset value

Net asset value attributable to ordinary shareholders                   7      100 950 349     104 155 423

Net asset value attributable to preference shareholders                 7    1 276 012 407   1 316 524 544

Net asset value per ordinary share (cents)                              7            2 692           2 777

Net asset value per preference share (cents)                            7            2 692           2 777

Statement of comprehensive income for the year ended 31 March 2019

                                                                                        2019          2018
                                                                     Notes                 R             R

Revenue                                                                            1 523 370       110 219

Operating expenses                                                                (1 698 371)   (1 463 996)

Operating loss                                                                      (175 001)   (1 353 777)

Fair value (loss)/gain on subsidiary                                             (43 314 549)   23 275 241

(Loss)/profit before taxation                                                    (43 489 550)   21 921 464

Taxation                                                                            (227 661)      (30 829)

(Loss)/profit for the year                                                       (43 717 211)   21 890 635

Other comprehensive income for the year net of taxation                                    –             –

Total comprehensive income                                                       (43 717 211)   21 890 635

Earnings and headline earnings per share

Per share information (ordinary and preference)

Basic and diluted (loss)/earnings per share (cents)                          6           (85)           43

Headline and diluted headline (loss)/earnings per share (cents)              6           (85)           43

Statement of changes in equity for the year ended 31 March 2019

                                            Preference           Ordinary       Retained      shareholders’
                                         share capital      share capital         income            equity
                                                     R                  R              R                 R

Balance at 31 March 2017                  506 296 000         18 206 250     874 287 082     1 398 789 332

Profit for the year                                 –                  –      21 890 635        21 890 635

Balance 31 March 2018                     506 296 000         18 206 250     896 177 717     1 420 679 967

Loss for the year                                   –                  –     (43 717 211)      (43 717 211)

Balance at 31 March 2019                  506 296 000         18 206 250     852 460 506     1 376 962 756

Statement of cash flows for the year ended 31 March 2019

                                                                                    2019              2018
                                                                                       R                 R
 Cash flows from operating activities

 Cash utilised in operations                                                  (1 641 802)       (1 410 178)

 Interest income                                                                     773               672

 Dividends received                                                              500 000                 –

 Tax paid                                                                         (3 866)          (28 887)

 Net cash outflow from operating activities                                   (1 144 895)       (1 438 393)

 Cash flows from investing activities

 Net sale of investments                                                       1 130 868         1 425 000

 Net cash inflow from investing activities                                     1 130 868         1 425 000

 Net movement in cash and cash equivalents                                       (14 027)          (13 393)

 Cash and cash equivalents at the beginning of the year                           35 244            48 637

 Cash and cash equivalents at the end of the year                                 21 217            35 244

Selected notes to the abridged annual financial statements


     The summary financial statements are prepared in accordance with the requirements of the JSE Limited Listings
     Requirements for abridged reports, and the requirements of the Companies Act applicable to summary financial
     statements. The Listings Requirements require abridged reports to be prepared in accordance with the framework
     concepts and the measurement and recognition requirements of International Financial Reporting Standards
     (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
     Pronouncements as issued by the Financial Reporting Standards Council, and to also, as a minimum, contain the
     information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of
     the financial statements, from which the summary financial statements were derived, are in terms of International
     Financial Reporting Standards and are consistent with the accounting policies applied in the preparation of the
     audited annual financial statements.

     These abridged annual financial statements do not contain as much detailed information and disclosures as the
     audited annual financial statements and should therefore not be considered as a substitute for reading the audited
     financial statements.


     RECM and Calibre Limited (“RAC”) was established in 2009 as a closed-end investment entity that makes long-
     term investments, with the objective of generating high real returns from capital appreciation, investment income
     or both. Investments can be listed or unlisted, public or private, and there are no limits as to the geographic

     Given that the investment infrastructure of RAC has been set up to facilitate investments and funding in the most
     efficient manner, investments are made either through a fully owned subsidiary incorporated in South Africa, RAC
     Investment Holdings (Pty) Ltd (“RIH”), Livingstone Investments (Pty) Ltd (“Livingstone”), or directly.

     Given that the majority of investments are held through RIH, RAC has provided the fair value disclosure in two
     parts in note 5. Notes 5.1 and 5.3 disclose the investment in RIH as required by IFRS and notes 5.2 and 5.4 provide
     additional disclosures that the directors deem useful by looking through RIH and RIH’s wholly owned subsidiary
     Livingstone Investments (Pty) Ltd (“Livingstone”) to the underlying investments. All fair value movements on the
     investment in RIH are recognised in profit or loss.


     Assessment as investment entity

     Entities that meet the definition of an investment entity within IFRS 10 are required to measure their subsidiaries
     at fair value rather than consolidate them. The criteria, which define an investment entity, are as follows:

     •    an entity that obtains funds from one or more investors for the purpose of providing those investors with
          investment services;

     •    an entity that commits to its investors that its business purpose is to invest funds solely for returns from capital
          appreciation, investment income or both; and

     •    an entity that measures and evaluates the performance of substantially all its investments on a fair value basis
          (refer to note 5 for additional disclosures relating to fair value).

         Based on the above, the Company is considered to meet all three conditions of the definition and, hence,
         qualifies as an investment entity. Consolidated Financial Statements are, therefore, not prepared.

     In line with RAC carrying its investment in RIH at fair value, RAC has also applied the exemption in IAS 28 to
     carry any interests in associates and joint ventures at fair value through profit or loss. Such application is applied
     consistently due to the fact that the Company is an investment entity and evaluates its investments on a fair
     value basis. The Company reports to its investors via annual and semi-annual results and to its management, via
     internal management reports, on a fair value basis. All investments are reported at fair value to the extent allowed
     by IFRS in the Company’s annual report.

     The Board has also concluded that the Company meets the additional characteristics of an investment entity,
     in that it has exposure, directly or indirectly, to more than one investment; the investments are predominantly
     in the form of equities and similar securities; and its investors are not related parties. These conclusions will be
     reassessed on an annual basis, if any of these criteria or characteristics change.


     This abridged report is extracted from audited information, but is not itself audited. The annual financial statements,
     which exclude the shareholders’ letter, were audited by Ernst & Young Inc., who expressed an unmodified opinion
     thereon. The audited annual financial statements and the auditor’s report thereon are available for inspection at
     the company’s registered office. The Directors take full responsibility for the preparation of the abridged report and
     that the financial information has been correctly extracted from the underlying annual financial statements.

     The audited financial statements, which were prepared under the supervision of the FD, Jan van Niekerk, are
     available for inspection at the Company’s registered office and will be included in the Integrated Annual Report
     2019 available for download from

                                                                                         2019             2018
                                                                                            R                R


     Fair value hierarchy of financial assets

     Level 2

     Class 4 – Money market fund                                                      969 658        1 094 061

                                                                                      969 658        1 094 061

     Level 3

     Class 5 – Unlisted shares – Unquoted – fair value through profit or loss   1 376 853 748    1 420 152 165

                                                                                1 376 853 748    1 420 152 165

     Total financial assets at fair value                                       1 377 823 406    1 421 246 226

     Total assets at fair value through profit or loss                          1 377 823 406    1 421 246 226

     Non-current assets – fair value through profit or loss                     1 376 853 748    1 420 152 165

     Current assets – fair value through profit or loss                               969 658        1 094 061

     Total investments                                                          1 377 823 406    1 421 246 226
     Management classifies money market fund as current and other
     investments as non-current.

     Level 3 reconciliation
     Opening balance                                                            1 420 152 165    1 396 876 924

     Purchases                                                                         16 132                –

     (Loss)/gain on investments recognised in profit or loss                      (43 314 549)      23 275 241

     Closing balance                                                            1 376 853 748    1 420 152 165

     Level 1

     Class 1 financial assets are valued at the listed price per the exchange on which they trade.

     Class 2 financial assets are valued at the quoted price based on the latest over the counter trades.

     Level 2

     Class 3 financial assets are valued based on the price of the underlying assets.

     Class 4 financial assets are valued by taking the following market observable data into account and applying them
     to the holdings:

     •   credit spread of the institution at which the funds are held

     •   any difference in the interest rate earned and what is available in the market

     Class 6 financial assets are unlisted shares valued at the last traded price between third parties if the transaction
     occurred within the last six months.

     Level 3

     Class 5 unlisted unquoted shares are valued using a number of valuation techniques based on the following
     unobservable market data for each investment as applicable:

     •   Net profit of investee

     •   Equity and net debt of investee

     •   Return on capital

     •   Price/Earnings ratio

     •   Expected cash flows

     •   NAV of the investee if it recognises its assets and liabilities at fair value

     Management uses the above information in multiple valuation techniques as applicable by comparing the investee
     information to similar type entities in the listed market. The nature of the fair value calculations means that fair
     values range greatly and are sensitive to indirect and direct quantifiable and unquantifiable inputs.

     There have been no significant changes to the inputs to the fair valuation calculations of the investments to
     which RAC is exposed. RIH has continued to be valued based on its NAV which is driven by the valuation of the
     underlying investments. Management is responsible for preparing the valuations which are reviewed by the Audit
     and Risk Committee and approved by the Board.

     In terms of IFRS, RAC is an Investment Entity, and therefore no consolidated results are required to be prepared.
     IFRS requires the fair value disclosure to be prepared at the Unit of Account Level (i.e.: at the level of shares that
     RAC owns and those are shown above). The Board of Directors has decided to provide the following voluntary
     disclosures looking through the 100% held investment entity subsidiaries, RIH and Livingstone, to the underlying
     investments. In addition, a summary of the NAV of RIH as well as the underlying valuation techniques and
     sensitivities have been provided.

                                                                                              2019                 2018
                                                                                                 R                    R
      Fair value hierarchy of financial assets held by RAC Investment
      Holdings (Pty) Ltd and Livingstone Investments (Pty) Ltd
      Level 1

      Class 1 – Listed shares – Quoted                                                 533 319 428          565 781 986

      Class 2 – Unlisted shares – Quoted                                                         –           43 874 788

                                                                                       533 319 428          609 656 774

      Level 2

      Class 3 – Hedge fund                                                              37 471 361           42 401 775

      Class 4 – Money market fund                                                       12 443 554           72 433 269

                                                                                        49 914 915          114 835 044

      Level 3

      Class 5 – Unlisted shares – Unquoted – available-for-sale                                  –            4 597 611
      Class 5 – Unlisted shares – Unquoted – fair value through
                                                                                     1 350 945 307        1 165 762 769
      profit or loss
                                                                                     1 350 945 307        1 170 360 380

      Total financial assets at fair value                                           1 934 179 650        1 894 852 198

      Non-current assets                                                             1 921 736 096        1 822 418 929

      Current assets                                                                    12 443 554           72 433 269

      Total investments                                                              1 934 179 650        1 894 852 198

      Summary of net asset value of RIH and Livingstone

      Total investments from above                                                   1 934 179 650        1 894 852 198

      Loans and receivables                                                             91 377 348           68 016 765

      Cash and cash equivalents                                                         43 532 573           49 047 493
      Deferred tax                                                                    (110 178 022)        (126 589 276)

      Contingent consideration and options                                              16 616 415           16 209 881

      Loans and payables                                                              (248 329 362)        (131 044 118)

      Preference shares                                                               (350 344 854)        (350 340 778)

      Net asset value of RIH and Livingstone                                         1 376 853 748        1 420 152 165

5.1    Description of significant unobservable inputs and their sensitivities of investments held by RAC (level 3 investments)

       31 March 2019

                                                 Fair    Significant
                             Valuation          value    unobservable
                             technique            Rm     inputs               Range   Sensitivity

                                                         Earnings and
                                                         multiple of the
                                                                                      A change in the valuation techniques as
        RAC Investment                                   underlying
                             NAV                1 377                          N/A    documented below would result in a change
        Holdings ("RIH")                                 investments (refer
                                                                                      in fair value of R220m.
                                                         to breakdown

 5.2   The below table shows the sensitivities per underlying investment held by RIH as if these were held directly by
       RAC (level 3 investments)

                                                                                      A change in multiple by 1 would result in
        Safari and                   Multiple             96,3   PBIT           6     a change in fair value of approximately
        Outdoor                                                                       R23,1m.
        Goldrush Group       Multiple          1 089,3   EBITDAR                7     An increase or decrease in the EBITDAR
                                                                                      multiple by 1 would result in a change in fair
                                                                                      value of approximately R175,3m.                                                                                     
        JB Private
        Equity Investors                                                              The NAV of the JB Private Equity Investors
        Partnership                                                                   Partnership is directly linked to the
                                                                                      underlying investment in Unicorn Capital
                                                                                      Partners Limited (which is listed on the JSE)
                                                                                      and it is not currently significantly impacted
                                                                                      by any fair value adjustment to trade and
                              NAV                  82,5   N/A                   N/A
                                                                                      other payables and therefore NAV of the
                                                                                      JB Private Equity Investors Partnership is
                                                                                      considered to be fair value. A 10% upward
                                                                                      or downward movement in the Unicorn
                                                                                      Capital Partners share price would have a
                                                                                      R8,2m impact on the Partnership NAV.

                                                                                      A change in multiple up or down by 1
        ISA Carstens         Multiple             35,2   PAT                    3     would results in a change in fair value of
        (excluding                                                                    approximately R5m.
        non equity                                                                    A change in the capitalisation rate up or
        investments)         Capitalisation
                             rate                        Rent received         9%     down by 1% would result in a change in fair
                                                                                      value of approximately R3,8m.

                                                                                      A change in multiple by 10% would result
        SA College           Multiples           41,9    Sales                 0,8    in a change in fair value of approximately

        Other level 3 investments                 5,9

        Total                                1 351,10

5.3    Description of significant unobservable inputs and their sensitivities of investments held by RAC (level 3 investments)

       31 March 2018

                                                  Fair    Significant
                              Valuation          value    unobservable
                              technique            Rm     inputs               Range     Sensitivity

                                                          Earnings and
                                                          multiple of the                A change in the valuation techniques
        RAC Investment                                    underlying                     as documented below would result in
                              NAV                1 420                          N/A
        Holdings (“RIH”)                                  investments (refer             an increase in fair value of R177,8m or
                                                          to breakdown                   decrease in fair value of R184,9m.

 5.4   The below table shows the sensitivities per underlying investment held by RIH as if these were held directly by
       RAC (level 3 investments)

        Retail: Safari
        and Outdoor                                                                      A change in multiple by 1 would result in
        (excluding            Multiple             82,5   PBIT                   6       a change in fair value of approximately
        non-equity                                                                       R17,8m.

                                                                                         An increase or decrease in the EBITDAR
        Goldrush Group        Multiple            941,1    EBITDAR                7       multiple by 1 would result in a change in fair
                                                                                         value of approximately R152,6m.

        JB Private                                                                       The NAV of the JB Private Equity Investors
        Equity Investors                                                                 Partnership is directly linked to the
        Partnership                                                                      underlying investment in Unicorn Capital
                                                                                         Partners Limited (which is listed on the JSE)
                                                                                         and it is not currently significantly impacted
                                                                                         by any fair value adjustment to trade and
                                                                                         other payables and therefore NAV of the
                              NAV                  94,3   N/A                   N/A
                                                                                         JB Private Equity Investors Partnership is
                                                                                         considered to be fair value. A 10% upward
                                                                                         movement in the Unicorn Capital Partners
                                                                                         share price would have a R2,3m impact on
                                                                                         the Partnership NAV, whereas as a 10%
                                                                                         downward movement in the share price
                                                                                         would have a R9,4m impact on NAV.

                                                                                         A change in multiple by 10% would result
        Education:            Multiples            47,9   Sales                0,8 – 1   in a change in fair value of approximately
        SA College                                                                       R4,4m.
        non-equity                                                                       A change in 10% of the underlying
        investments)          NAV                         N/A                   N/A      bussinesses, would have a fair value impact
                                                                                         of R0,7m

        Other level 3 investments                   4,6

        Total                                   1 170,4

       Factors that were taken into account by management in all valuations include the current market conditions, the invested
       market segment and interest rate certainty. The market for these instruments often has significant barriers to entry, making the
       comparison pool of similar entities very shallow. Specifically the hunting equipment industry has few market entrants with little
       reliable comparative data. The nature of the fair value calculations means that the calculated fair values could range greatly
       and are sensitive to indirect and direct quantifiable and unquantifiable inputs. Where we have influence over our investee
       companies, we plan to play an active role in the long-term strategy of the Company, ensuring that our interests are aligned.

                                                                                    2019          2018


     Earnings and headline earnings per share are based on the (loss)/
     profit attributable to ordinary and preference shareholders in issue
     during the year.
     Number of shares in issue at year-end

     Ordinary shares                                                           3 750 000      3 750 000
     Preference shares                                                        47 400 000     47 400 000
     Reconciliation of issued shares to weighted average number of
     Ordinary shares (opening and closing balance)                             3 750 000      3 750 000

     Preference shares (opening and closing balance)                          47 400 000     47 400 000

     Total weighted average number of shares                                  51 150 000     51 150 000


     Net (loss)/profit after tax (R)                                         (43 717 211)    21 890 635

     Headline earnings (R)                                                   (43 717 211)    21 890 635

     Basic and diluted earnings per ordinary and preference shares (cents)           (85)            43

     Basic and diluted headline earnings per ordinary and preference
                                                                                     (85)            43
     shares (cents)

                                                                                             2019                2018
                                                                                                R                   R


         Net asset value per share is calculated by dividing the net asset value
         attributable to each class of share by the number of shares in issue
         as at year end. Given the ordinary and preference shares have the
         same rights to the net asset value of the company, net asset value
         per share is the same for both classes.
         Number of shares in issue at year-end

         Ordinary shares                                                                 3 750 000           3 750 000

         Preference shares                                                              47 400 000          47 400 000

         Net asset value attributable to ordinary shareholders                         100 950 349         104 155 423

         Net asset value attributable to preference shareholders                     1 276 012 407       1 316 524 544

         Net asset value per ordinary share (cents)                                          2 692               2 777

         Net asset value per preference share (cents)                                        2 692               2 777


     Subsequent to year end the following significant transactions have occurred in RIH and Livingstone:

     •     Livingstone received a capital repayment from Astoria totalling R452,8m on the 29 April 2019;

     •     Livingstone settled the full loan and interest owing to Absa totalling R204,8m;

     •     Livingstone declared dividends totalling R120m to RIH;

     •     Livingstone purchased an additional 850 000 shares in Astoria for R1,3m;

     •     RIH settled the full loan and interest owing to Calibre Treasury and Management Services totalling R34,2m;

     •     RIH purchased an additional 4,9% in Goldrush for R88,5m which was settled via EFT.

PG Viljoen (Chairman), T de Bruyn, Z Matlala, T Rossini, JG Swiegers, JC van Niekerk

Company Secretary: G Simpson

Financial results preparer: D Schweizer CA(SA)
Registered Office: 6th Floor Claremont Central, 8 Vineyard Road, Claremont, 7700 South Africa

Transfer Secretaries:
Link Market Services South Africa (Pty) Ltd, 13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein, 2004

Questco Corporate Advisory (Pty) Ltd, 1st Floor, Yellowwood House, Ballywoods Office Park, 33 Ballyclare Drive,
Bryanston, 2021

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