ARC Investments announces satisfactory full-year financial results
- Intrinsic Net Asset Value Per Share growth of 2,1% to R9,54 per share (2019: R9,34 per share)
- Net Investments made of R1,641 billion (2019: R1,198 billion)
- R750 million Rights Offer to shareholders announced
South Africa’s leading empowerment investment firm African Rainbow Capital Investments today reported a satisfactory performance in a challenging operating environment as part of its full-year financial results announcement for the period to 30 June 2020.
ARC Investments (the listed entity) is majority owned (51,1%) by African Rainbow Capital (the unlisted entity) (ARC), which in turn is 100% owned by Ubuntu-Botho Investments (UBI), a broad-based empowerment company that has as its key asset a 13,1% interest in the financial services group Sanlam. UBI, which is Sanlam’s largest shareholder, currently has over 600 individual black shareholders as well as a number of groups, which makes it one of the true broad-based empowerment success stories in South Africa over the past two decades.
In the context of a uniquely challenging economic environment, ARC Investments managed to achieve intrinsic growth in its portfolio of investments of 2.1% to R9,948 billion.
ARC Investments also managed to grow its Intrinsic Net Asset Value Per Share by 2,1% to R9,54 per share. This metric is an indication of the underlying value of a share.
While the achievement is significantly below the medium to long-term expectation of growth of 16% per annum, it is indicative of a difficult trading environment. The performance achieved by ARC Investments is aligned to the current equity market performance.
Johan van der Merwe, co-Chief Executive Officer of African Rainbow Capital, commented:
“Our performance in the period under review was first impacted by the poor trading environment as a result of a pedestrian economy. Subsequently, with the onset of the Covid-19 pandemic, the challenging operating environment was exacerbated. Interestingly, some of our investments experienced a significant acceleration in business activity, while others experienced a marked slow-down.
“In this instance, we have clearly benefited from a diversified pool of investments in our portfolio. This has helped us to perform satisfactorily on a relative basis to our peers as well as other listed investment holding companies. On an absolute basis we missed our key performance metric as a result of a poor trading environment. We are certainly not pleased with this performance.”
The two portfolio investments that benefited during the national lockdown as a result of the onset of the Covid-19 pandemic are the telecommunications business Rain and the will and estate administration and insurance business Capital Legacy.
Rain saw a sharp increase in its subscriber customer base as a result of people wanting access to cost-effective data offerings. Rain offers both 4G as well as the superfast 5G data packages.
Capital Legacy, a leading provider of wills, experienced a surge in the number of clients who wanted to sign up for a will. The Covid-19 pandemic exposed the extent to which South Africans appear to be ill prepared to get their financial affairs in order should they die unexpectedly. It is estimated that some 75% of South Africans die without a valid will in place. Capital Legacy assists about 6 000 people a month with the drafting of their wills and about 5000 people take out insurance against the administration cost associated with the winding up of the estate on passing.
Other businesses in the ARC Investments portfolio that experienced some initial difficulty are TymeBank, the country’s leading digital bank, and Rand Mutual Holdings, which provides insurance for workers in the mining and metal industries.
TymeBank experienced a drop in footfall to its kiosks located inside Pick n Pay stores in March and April under national lockdown levels 5 and 4. With the easing of the lockdown regulations, the bank managed to increase its customer onboarding rate to pre-lockdown levels. As before, it now enrols about 110 000 to 120 000 new customers each month.
Rand Mutual Holdings administers workers’ compensation for employees in the mining and metal industry that are injured on the job. The company did operate in the lockdown period but was unable to generate significant new business.
The ARC Fund directly and indirectly made acquisitions totalling R1,976 billion in the period under review. Some of the key investments include:
- Alexander Forbes Group Holdings: ARC Financial Services Holdings (ARC FS), the entity which houses all the financial services investments other than Sanlam for ARC, acquired 193 million shares in Alexander Forbes Group Holdings for a total consideration of R1 billion.
- TymeBank: ARC FS contributed R750 million to TymeBank, of which it owns 70.5%.
- Rain: In the period under review, Rain did a capital raise and some R103 million was invested by the ARC Fund to maintain its 20.7% shareholding.
- Kropz Plc: The ARC Fund subscribed for additional shares amounting to R249 million.
ARC Investments also announced a Rights Offer to shareholders, which is fully underwritten by ARC, its immediate holding company. Existing shareholders can follow their rights by taking up newly issued shares at R2.75 per share. The company intends to raise R750 million, which will bolster its cash position. This will allow the company to respond to any investment opportunities in the market. The deadline for shareholders to take up the offer is Friday 2 October. The full details are available on www.arci.mu.
“Going forward, we expect the difficult trading environment to persist over the short to medium term. The impact of Covid-19 on our economy has been widely reported, with the economy now in a contracting phase. This does not bode well for many companies, including companies in which we have invested.
“As a result, we have already made plans with the management teams of key companies in our portfolio to see how we can align the business’ growth objectives with the prevailing economic environment. It cannot be business as usual over the medium term,” Van der Merwe concluded.
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