ARC INVESTMENTS ANNOUNCES SATISFACTORY INTERIM FINANCIAL RESULTS
- Significant profitability advances at several of the large early-stage portfolio companies
- rain – on course for more than R2 billion EBITDA for the year ended February 2023
- TymeBank – substantial organic growth, acquisition of Retail Capital and expansion into SME banking
- Tyme Global – successful launch of GOtyme in the Philippines
- Kropz Plc – Elandsfontein achieved its first bulk sales in January 2023 of c. 30 000 tonnes of phosphate
- Intrinsic net asset value (INAV)was stable at R13 272 million and decreased marginally by 1.7% to R9.88 on a per-share basis
- Cash increased by 57% to R1 051 million and debt by 43% to R1 396 million
- A new fee structure was implemented for the ARC Fund
Sandton. – Leading South African empowerment investment holding company ARC Investments announced a stable portfolio value in the six months, with net fair value gains of R33 million.
The stable portfolio value does not yet reflect all the benefits of the substantial activity that took place in the portfolio during the period. ARC Fund completed disposals of R1 132 million, which included Afrimat, Humanstate, Payprop, Capital Appreciation and Mooiplaats Coal Holdings. These disposals are mainly in line with long term portfolio rationalisation and repositioning initiatives.
ARC Fund also finalised acquisitions and additions to the portfolio of R1 096 million, as part of its strategy to increase the financial services portfolio, particularly in Fintech. These transactions
include additional investments in TymeBank, Tyme Global and ARCH Emerging Markets, as well as acquiring a minority holding in Optasia, a leading provider of airtime credit service to prepaid mobile subscribers with more than 88 million monthly customers in more than 30 countries.
Says Johan van der Merwe, co-CEO of African Rainbow Capital:
“The diverse investment portfolio has shown resilience in a challenging macroeconomic environment. Our efforts to rationalise and reposition the portfolio also achieved good traction during the period. The rationalisation has resulted in ARC Investments realising an IRR above our expected return in most of the assets sold.”
The key asset in the portfolio is the investment in telecommunications business rain. ARC Investments holds a 20,3% interest in rain, valued at R3 635 million. The industry has been affected by the ongoing load-shedding and battery theft which led to a corresponding increased cost. Demand and sales have however remained robust in the period. Rain is already well-positioned as a low-cost data provider and plans to soon launch a mobile service, utilising the newly acquired spectrum gained in the recent spectrum auction. Rain’s EBITDA is on track to exceed c.R2 billion over the year to February 2023.
The second major asset in African Rainbow Capital Investments’ portfolio is TymeBank, the leading digital bank in South Africa. The Company’s effective investment in TymeBank, through the ARC Fund and ARC Financial Services Holdings, is R1 924 million. The bank was launched in February 2019 and has since attracted 6.2 million customers. TymeBank and The Foschini Group (TGF) recently launched a partnership which installed 600 kiosks across 22 TFG brands, almost doubling TymeBank’s distribution across South Africa. During the period, TymeBank also acquired Retail Capital to support TymeBank’s business banking offering.
The review of the General Partner fee structure was approved by shareholders and implemented during the period. The management fee for the six months ended 31 December 2022 is R37 million, as compared to R115 million for the same period to 31 December 2021.
Says Johan van Zyl, co-CEO of African Rainbow Capital:
“Our efforts of streamlining the portfolio, combined with the fact that over 69% of the portfolio has reached break-even or is in a mature business stage, are increasing the attractiveness of the
portfolio for investors. The unlisted portion of the fund, which is only accessible through ARC Investments, has now increased to 88% of the portfolio. Together with the reduced management
and performance fee, these factors should contribute towards closing the gap between the intrinsic and market values.”
The company has adequate resources to deploy for future investments, yet Van Zyl says the focus has shifted from mainly acquisitive to organic growth through the repositioning of the portfolio and capitalising on synergies amongst the underlying investments. He said that while the company has a low expectation of significant improvement in economic growth over the medium term, ARC Investments is in the fortunate position that the underlying assets in the portfolio have the capacity to continue to generate good growth.
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