*African Rainbow Capital AUDITED FINAL RESULTS

2019/09/12 08:01:30
SENS announcement for JSE listed company: AIL

African Rainbow Capital Investments Limited
Incorporated in the Republic of Mauritius
Company number: C148430
JSE share code: AIL
ISIN code: MU0553S00000
AUDITED FINAL RESULTS for the year ended 30 June 2019
? Increase of 2.4% in INAV
? Per Share R9.34 (30 June 2018: R9.12)
? Intrinsic Portfolio Value R9 359 million (30 June 2018: R8 148 million)
? Cash in the ARC Fund at Year-End of R725 million (30 June 2018: R1 601 million)
? TymeBank and Rain are meeting their milestones (Fair value write-up of R640 million)
? Elandsfontein commissioning delayed (Kropz Group Fair value write-down of R480
African Rainbow Capital Investments Limited (ARC Investments) is a public company which is
incorporated in the Republic of Mauritius and holds a Category One Global Business Licence
under the Mauritian Financial Services Act 2007 and is regulated by the Mauritian Financial
Services Commission.
The year under review has been characterised by strained economic conditions which
adversely impacted most of the companies in our portfolio. The poor performance of the
economy resulted from several political and economic factors and is expected to continue
over the short to medium term. Our investee companies generally experienced low
consumer, business and investor confidence, which was exacerbated by political and policy
uncertainty before and after the May 2019 national elections. The South African economy
and its currency were also negatively affected by exogenous factors, particularly a
slowdown in global growth and changing politics.
The Intrinsic Net Asset Value (INAV) of the Company increased from R9.12 per share at 30
June 2018 to R9.34 per share at 30 June 2019 which amounts to an increase of 2.4%. Whilst
this is significantly below the medium to long-term expectation of 16% per annum, it
reflects the current economic environment. The 10% hurdle for the Performance
Participation has not been met.
The IFRS Net Asset Value (NAV) per share increased from R9.20 per share at 30 June 2018 to
R9.45 per share at 30 June 2019.
Investment in ARC
Net Asset
30 June 18
in Net
Net Asset
30 June 19
Growth in
Net Asset
Intrinsic Portfolio Value 8 148 1 198 13 9 359
Cash in the ARC Fund 1 601 725 (54.7%)
Other net assets in the
ARC Fund
(249) (344)
Intrinsic Investment in
the ARC Fund at FVTPL* 9 500 1 198 13 9 740 2.5%
The most significant included:
African Rainbow Capital Financial Services Holdings Proprietary Limited (ARC FinHoldCo)
increased its holding in TymeBank to 100% in November 2018 when it purchased the 90%
interest previously held by Commonwealth Bank of Australia. Over the course of the 2019
financial year the ARC Fund contributed R240 million for its effective 49.9% share of capital
injections into the bank. With the introduction of new partners in the bank through a series
of capital raises, the 100% controlling interest held by ARC FinHoldCo diluted to 65.5%. This
equates to an effective ownership interest of 32.75% for the ARC Fund.
Kropz Plc
The ARC Fund subscribed for US$ 32 million as part of the Initial Public Offering (IPO) of
Kropz Plc, a holding company which listed on the Alternative Investment Market of the
London Stock Exchange in November 2018 when it acquired three phosphate investments
comprising 74% in Kropz Elandsfontein (South Africa), 100% in Cominco (Republic of the
Congo) and 50% in Aflao (Ghana).
Rand Mutual Holdings
ARC FinHoldCo acquired a 30% equity interest in Rand Mutual Holdings (RMH) at a
consideration of R580 million (The ARC Fund’s effective interest is 15% which is R289
Last Mile Fund
The ARC Fund converted the bridging loan of R40 million advanced to the entity in June
2018 to equity and further injected capital in the form of preference shares amounting to
R180 million into the Last Mile Fund.
Alexander Forbes
ARC FinHoldCo increased its interest in Alexander Forbes Group Holdings Limited from 8.9%
to 13.11% for a purchase consideration of R308 million (resulting in an ARC Fund effective
investment of R153 million).
BKB acquired the ARC Fund shareholding for a total consideration of R410 million. This
resulted in a profit of R189 million on the investment and a return well in excess of the 16%
The Intrinsic Portfolio Value (IPV) of the ARC Fund increased by 14.9%, largely driven by net
investments made by the ARC Fund totalling R1.2 billion with net fair value adjustments of
R13 million. The IPV comprised of 72.5% in Diversified Investments (2018: 80.8%) and 27.5%
in Diversified Financial Services Investments (2018: 19.2%).
Rain (26.8% of Fund Value, 2018:26.3%)
Rain is aiming to become a full-service Mobile Network Operator, focusing on data as a
primary offering. The major assets constitute spectrum licences. Overall Rain is tracking well
against the timelines to extend its footprint and the development of the business.
Significant progress has been made to further improve on network performance and
stability. The Company is well positioned to become a major player in the 5G data market.
The ARC Fund investment in Rain increased from R2 144 million at 30 June 2018 to R2 508
million at 30 June 2019, mainly as a result of a fair value write-up of R364 million (2018:
R366 million).
Kropz Plc (4.1% of Fund Value, 2018: not applicable)
ARC subscribed for US$ 32 million as part of the Initial Public Offering of Kropz Plc. Due to
the delays in the commissioning of the mine and plant discussed below in Kropz
Elandsfontein, the investment in Kropz Plc was written down by 25% from a fair value of
R510 million to R380 million at 30 June 2019. This resulted in a fair value write-down of
R130 million for the portfolio asset. Kropz Elandsfontein (1.1% of Fund Value, 2018: 5.6%)
Kropz Elandsfontein (Elandsfontein) is a phosphate mine and processing plant situated on
the West Coast. Commissioning of the mine and plant was initially scheduled towards the
end of 2017. Several challenges were encountered, and operations were postponed until
additional laboratory and pilot plant testing could be conducted and funding could be
A three-month period during which intensive test work was performed has almost been
completed. The objective of the test work was to improve the level of confidence in the
performance of the proposed circuit modifications, focussing specifically on additional
reverse flotation. With most of the work done, it was confirmed that the ore body is
significantly more complex than originally expected, both in terms of mineralogy, particle
and grade variability. The provisional conclusion of the test results is that the envisaged
reversed flotation modification to the circuit could struggle to deliver the required process
efficiencies at consistent economic returns at the prevailing depressed phosphate rock
An alternative process solution is required to allow the production of more consistent
processing efficiencies from Elandsfontein‘s ore resource. Additional time is required, up to
the end of the current calendar year, to conduct further test work, design and financial
modelling to define this alternative process. The Elandsfontein executive team has been
granted further time to complete the work necessary to propose the test work and
engineering design programme for alternative processes, to derive capital and operating
cost estimates.
This latest development means that there will be a further delay in the commissioning of
the Elandsfontein mine and concentration plant. It is too early to determine the exact
impact on costs and commissioning dates. Against the background of the further delay and
potential additional funding requirements, the ARC Fund recognised a 75% reduction on its
investment in Kropz Elandsfontein comprising of R328 million fair value write-down and R22
million foreign exchange loss on shareholders loans.
The appeal against Elandsfontein’s integrated water use licence was set to be heard by the
Water Tribunal on 11 September 2019, however, the appellant has subsequently requested
that this be postponed.
Bluespec (2.9% of Fund Value, 2018: 6.2%)
Bluespec is focused on the short-term insurance value chain and luxury vehicle sales. The
motor industry has experienced challenging trading conditions, resulting in significantly
lower volumes and profit margins.
Bluespec’s performance was also impacted by the lower claims ratios that short-term
insurance companies have experienced over the past year.
Although the fair value of the investment was written down to R270 million, the business is
generating good cash flows and is well positioned to benefit from any upturn in the
economy. The ARC Fund was paid a dividend of R25 million in the 2019 financial year (2018:
R17 million).
Rand Mutual Holdings (RMH) (3.1% of Fund Value, not applicable)
RMH is a subsidiary of Rand Mutual Assurance (RMA). The core of RMA’s administration
business is the receipt, adjudication and administration of workers’ compensation claims,
including the payment of medical costs, once-off disability payments and the ongoing
payment of pensions in the case of severe disability and death.
TymeBank (7.2% of Fund Value, 2018: 1.9%)
TymeBank is a digital bank that leverages the use of digital biometric technology to make
banking, simple and affordable and is focused on banking the unbanked in South Africa. At
30 June 2019 the bank on-boarded 500 000 customers, ahead of its business plan. The bank
is signing up between 3 000 and 3 500 customers per day, with about 40% of bank accounts
being active.
ARC Investments is managed and controlled in Mauritius by an experienced, multinational
Board of Directors (the Board) of which the majority are independent. The Board has final
oversight and responsibility in respect of ARC Investments’ business, strategy and key
policies. This includes the investment in the ARC Fund. There are no executive directors on
the Board of ARC Investments. Anil Currimjee was appointed to the Board on 11 March
About this announcement
This short form announcement is the responsibility of the directors and the information
contained herein is only a summary of the information in the full Annual Financial Results
announcement and does not contain full or complete details. Any investment decisions by
investors and/or shareholders should be based on consideration of the full Annual Financial
Results announcement published on SENS
https://senspdf.jse.co.za/documents/2019/JSE/ISSE/AILE/FResults19.pdf and the ARC
Investments’ website http://www.arci.mu/2019_audited_financial_results.pdf. This short-
form announcement does not contain any additional information not appearing in the full
Annual Financial Results released on SENS. The full announcement is available for inspection
at the registered office or other designated office of the issuer and the offices of the
sponsor. Such inspection is available to investors and/or shareholders at no charge within
working hours. Copies of the full announcement may be requested by email to
Ebène, Mauritius (with simultaneous circulation in Johannesburg)
12 September 2019
RAND MERCHANT BANK (A division of FirstRand Bank Limited)


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