Wrap Text
Abridged Annual Financial Statements for the year ended 31 March 2019
RECM AND CALIBRE LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2009/012403/06)
Preference share code: RACP
ISIN: ZAE000145041
(“RAC” or “the Company”)
ABRIDGED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 March 2019
SHAREHOLDERS’ LETTER
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
5%.
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 INVESTMENTS
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
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
decisions.
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 www.unicorncapital.co.za.
Transhex
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 www.safarioutdoor.co.za and for Family Pet Centre at
www.familypetcentre.co.za
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
brand.
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
capacity.
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 www.isacarstens.co.za
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 www.recm.co.za
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 www.conduit.co.za.
Exits
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
people.
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.
SHAREHOLDERS’ MEETING WITH EXECUTIVE DIRECTORS
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
ASSETS
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 AND LIABILITIES
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
Liabilities
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
Total
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
1. BASIS OF PREPARATION
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.
2. GROUP STRUCTURE
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
location.
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.
3. SIGNIFICANT ACCOUNTING POLICIES
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.
4. AUDIT OPINION
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 www.racltd.co.za.
2019 2018
R R
5. INVESTMENTS
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
below)
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
R4,6m.
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.
below)
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.
investments)
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.
(excluding
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
6. EARNINGS AND HEADLINE EARNINGS
PER SHARE
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
shares
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
Earnings
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
7. NET ASSET VALUE PER SHARE
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
8. SUBSEQUENT EVENTS
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.
Directors:
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
Sponsor:
Questco Corporate Advisory (Pty) Ltd, 1st Floor, Yellowwood House, Ballywoods Office Park, 33 Ballyclare Drive,
Bryanston, 2021
Date: 18/06/2019 04:09:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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