Empowerment investment holding company African Rainbow Capital (ARC) released interim results for the six months ended December 31, 2018 on Thursday as a slew of companies come out with financial results reports that reflect a challenging operating environment in South Africa.
The economy grew 0.8% in 2018 and this pedestrian growth and poor performance of listed entities took a toll on ARC Investments. The company only managed to grow its intrinsic net asset value (NAV) by 1% to R9.6 billion. “Our target is to grow intrinsic NAV of the investments in our portfolio by at least 16% per annum through the cycles,” says ARC’s co-CEO Dr Johan van Zyl. He adds that the group is not satisfied with the performance under review.
ARC Investments is listed on the JSE and is 50.1% owned by African Rainbow Capital, which is in turn 100% owned by Ubuntu-Botho Investments. ARC, which was founded by Van Zyl, a financial services veteran, and mining magnate Patrice Motsepe, is 100% black owned and controlled and was set up to advance wealth creation of black South Africans by investing in listed and unlisted investments that span across everything from life insurance, healthcare, money management and banking.
In its results statement, the group notes that during the period ARC’s invested companies experienced low consumer, business and investor confidence, which was exacerbated by political and policy uncertainty. The group is reporting negative growth in profit, down R385 million to R77 million. At June 30, 2018, the company reported profit of R675 million.
In the listed share portfolio, share prices decreased substantially and the ARC fund devalued its interest in these investments by R83 million (31 December 2017: R197 million).
ARC made several acquisitions during the period, the most significant of these is the majority buyout of new digital player TymeBank for R275 million. The digital bank offers cheap transactional and other banking services through self-service kiosks at Pick n Pay and Boxer stores. The bank doesn’t have any physical branches.
While the company’s strategy is to invest for the longer term, it did dispose of its 20% shareholding in agribusiness BKB. The agri business re-acquired the 20% interest held by the ARC fund for a consideration of R410 million. The stake was originally acquired when ARC listed on September 7, 2017 for R220 million.
In terms of existing investments held, ARC’s investment in mobile disruptor Rain increased in value from R2 144 million at June 30, 2018 to R2 330 million at December 31, 2018. The group says that overall, growth prospects for Rain ‘remain optimistic’ and notes that significant progress has been made to further improve on network performance and stability. Rain recently announced at the World Mobile Congress that they are in advanced talks with the Chinese electronics manufacturer Huawei to launch 5G technology.
Another investment is Bluespec, which is focused on short-term insurance and luxury/exotic vehicle sales. The local auto environment has been subdued as consumers have come under increased pressure financially due to the likes of increases in taxes and fuel. The group says that while corrective measures were implemented to address challenges, it came to the conclusion that it would have to write down the value of Bluespec by R209 million. The carrying value has thus been reduced to R300 million.
Despite the tough conditions, Van Zyl says that ARC is seen as an attractive empowerment player and that many businesses are willing to partner with it, creating a “healthy pipeline of future investment opportunities”. He says, however, that the group remains committed to its strategy and will only invest in specific sectors that it believes hold value and will be able to “reward shareholders with long-term growth opportunities”.
Read the company’s full Sens announcement here.