ARC Investments
Annual financial results announcement for the year ended 30 June 2023
14 September 2023
ARC INVESTMENTS ANNOUNCES ROBUST ANNUAL GROWTH AND NOTABLE PROGRESS IN RESHAPING THE PORTFOLIO
HIGHLIGHTS
- Significant advances at several of the large early-stage portfolio companies
- rain – successfully launched rainone mobile service
- Kropz Plc – Elandsfontein plant sold 120 000 tonnes of phosphate in the six months to June 2023
- TymeBank and Tyme Global – Successful $125 million capital raise
- Sanlam 3rd party Asset Management – Conclusion of the Absa Asset Manager transaction
- Capital Legacy – Sanlam’s investment in Capital Legacy and acquisition of the Sanlam Trust accounts by Capital Legacy
- RSA and Agri cluster – Strong profits on the back of robust performance
- Cash decreased by 25% to R500 million and debt increased by 51% to R1.47 billion
- A new fee structure delivers substantial savings for shareholders
Sandton. – Leading South African empowerment investment holding company ARC Investments announced pleasing growth in the Intrinsic net asset value (INAV), which increased by 15.8% to R15.3 billion and by 13.4% to R11.41 on a per-share basis in the 2023 financial year, benefiting from net new investment and net fair value gains.
ARC Investments said that the portfolio value has begun to reflect the benefits of the early-stage investments such as rain, TymeBank and Kropz approaching or attaining profitability, as well as the substantial corporate activity undertaken during the year to reposition the portfolio. As part of its revised strategy, ARC Fund has disposed of smaller and non-core assets in its Diversified Investments portfolio, reduced its exposure to listed shares that investors can acquire directly in the market, and increased the weighting of the Financial Services portfolio through bolt-on acquisitions, synergistic transactions and an increased Fintech exposure.
Disposals of R1.44 billion have delivered considerable value to shareholders. The internal rate of return (IRR) on the disposed investments, based on disposal profits as well as dividends, were: Afrimat (27.7%); Humanstate and Payprop (19.7%); Capital Appreciation (12.0%), Mooiplaats Coal Holdings (carrying value) and Rand Mutual Holdings (in ARC FSI) (16.8%).
The ARC Fund also finalised acquisitions of R1.99 billion, including additional investments in TymeBank, Tyme Global, ARCH Emerging Markets, Upstream and Kropz, as well as a small mining services acquisition in SMS Mining Group. ARC FSI acquired a minority holding in airtime credit supplier, Optasia, and domestic solar solutions provider, GoSolr.
As a result of these transactions, Mining, Property and Business Process Outsourcing exposure has decreased, while exposure to future-focused growth areas in Financial Services, Telecommunication, Agriculture and “Diversified financials” has increased notably.
Says Johan van der Merwe, co-CEO of African Rainbow Capital:
“ARC Investments’ diverse portfolio has shown remarkable resilience against the persisting challenging macroeconomic environment. Our efforts to rationalise and reposition the portfolio also achieved good traction this year. Importantly, the multiple disposals at full value have provided independent validation for our portfolio valuations.”
ARC Fund’s key underlying investments generated strong performance, which accelerated progress towards profitability at several of the ARC Fund’s pre-break-even portfolio companies.
The principal asset in the portfolio is a 20.3% interest in telecommunications business rain. The investment increased by R881 million to R4.5 billion in June 2023, largely due to the business now progressing beyond the period of significant net cash outflows, as well as the recent acquisition of additional spectrum. rain launched its 4G mobile voice offering together with its new 5G home product, rainone, in May 2023 and the uptake has exceeded expectations. The business is tracking well against its aim of achieving an EBITDA of over R2.5 billion for the year ending February 2024.
The second major asset in African Rainbow Capital Investments’ portfolio, valued at R2.2 billion, is TymeBank, the leading digital bank in South Africa. TymeBank had acquired 7.4 million customers by June 2023 and experienced a marked increase in activity levels. TymeBank and The Foschini Group (TFG) launched a partnership that installed 600 kiosks across 22 TFG brands almost doubling TymeBank’s distribution across South Africa. TymeBank also acquired Retail Capital, the largest Small Medium Enterprises (SME) funder of its kind in the sector, to support its offering to its business banking clients.
A revised General Partner fee structure was implemented during the period. This led to pleasing savings for shareholders, with a year-on-year reduction of more than 50% in the management fee charged in 2023.
The focus has now shifted from mainly acquisitive to organic growth through the repositioning of the portfolio and capitalising on synergies among the underlying investments.
Says Johan van Zyl, co-CEO of African Rainbow Capital:
“We are particularly pleased with the synergies that we have achieved within our Financial Services ecosystem. Not only have investee companies concluded multiple value-adding transactions among themselves, but they were also able to fully capitalise on the large client pools in the ecosystem to launch new products and services. We see this type of value creation, together with our early-stage business now approaching profitability to be major drivers of value in the portfolio over the short to medium term.”
He said that while the company has a low expectation of significant improvement in economic growth over the medium term, ARC Investments is in a fortunate position that it has a well-diversified portfolio and that the underlying assets in the portfolio have the capacity to continue to generate good growth.
ENDS
For media enquiries, please contact:
Garry Ramaru on 066 477 4112 or garry.ramaru@africanrainbowcapital.co.za
To the editor
ABOUT ARC INVESTMENTS
ARC Investments Limited is a Black-controlled investment holding company that acquires minority interests in quality unlisted and listed businesses at a discount by leveraging its compelling empowerment credentials. The Company manages a portfolio of 50 mainly South African investments, valued at R16.4 billion, offering shareholders the opportunity to indirectly invest in a diversified portfolio of listed and unlisted investments.
