FIFI PETERS: African Rainbow Capital, the investment firm founded by Patrice Motsepe, released its annual results today. The company, which has investments in a wide range of sectors such as telecommunications, mining, agriculture and financial services, tripled its cash in the year to June to R669 million.
For more on the numbers I am joined by the co-CEO of African Rainbow Capital, Johan van der Merwe. Johan, thanks so much for the time. You are sitting in a healthier cash position than you were at this time last year, and yet you’ve chosen not to pay a dividend, suggesting that you think the money can be put to better use elsewhere. Is that the case? And, if so, where do you plan on putting this money to work?
JOHAN VAN DER MERWE: Good evening, Fifi. Nice to join you and your listeners. Yes, you hit the nail on the head there. I think for an investment firm to keep on paying dividends [is] basically admitting defeat that you can’t put that money to better use. So we’ve got plans for that money. We’ve got certain commitments already in the pipeline.
Obviously after having been listed for five years in September now, we’ve reached a level of maturity where we are not only investing, but we are also divesting.
So over time you will see that we will also raise cash and generate more cash through sales. We are on the lookout for better opportunities and good opportunities to deploy that money elsewhere as well. That doesn’t mean that we will never pay a dividend, but for the moment we don’t have any plans to pay dividends.
FIFI PETERS: Like you did with Afrimat, where you sold around R12.4 million worth of shares in the period under review, you’ve hinted at the possibility of divestments. I suppose the natural question would be: Who’s next or what’s next?
JOHAN VAN DER MERWE: That is key. So on the mining side, we invested in Afrimat. It has a fantastic and very competent management team.
In fact, the share has done much better than we even anticipated, and selling Afrimat is almost, ‘a bit of a punishment’ for how well they’ve done, which is never nice to see. But yes, we’ve taken profit on that side.
It became too a large portion in our own estimation of the portfolio, especially being in mining as well. We still have around the R600 million to R650 million worth of Afrimat shares. But, as you mentioned, we did sell R740 million worth of shares in the last year.
FIFI PETERS: On the other of the side of that coin, then, in terms of where you are seeing opportunity and where you could be investing, let’s just start with the companies currently in your portfolio. You lent a bit of a hand to the Elandsfontein project.
Could more money be forthcoming for them, or could more money be forthcoming for your other investing companies, given the fact that things are still pretty tough out there if we take a look at the growth of South Africa’s economy.
JOHAN VAN DER MERWE: Yes, that’s true Fifi. Some of our larger investments were actually all earlier-cycle investments, like Rain, TymeBank and also the mine.
The mine has actually taken more money than we anticipated, [more] than we wanted to spend, but obviously one has to relook at it from a zero base every time. We believe that the money that we spent there, we will get a very good return on that. It has taken a bit longer to commission on that side. We’re still having certain problems but at least we see light at the end of the tunnel there. It’s important to have a little bit of cash reserves there.
As you say, we entering into a very uncertain environment with increasing interest rates and then obviously inflation as well. And when our investee companies, the existing ones, need cash, we want to be there for them and to help them as well.
But I think we are in this cycle now where not only do we invest, but we also divest, and we’ve received bids on certain of our companies as well.
So I think you will see more divestment as well in the next few years than you’ve seen in the past.
Bbecause we were actually building a portfolio until now, whereas now I think we are winnowing it, bolt-on acquisitions, but definitely where we don’t see that we can add more value and we believe that a certain investment has run its course for us, we will definitely sell as well.
FIFI PETERS: Interesting, because we seem to be in this environment of consolidation. You made the point right now that some of your investee companies are potential takeover targets. Care to share who has caught whose eye at this stage, or you’re not [able] to share that detail?
JOHAN VAN DER MERWE: It’s difficult because we are only shareholders in some of those, and many of them have other shareholders as well, and especially the founding members of those, etc.
But there’s one very interesting business that we invested in in South Africa, called PayProp.
They have a platform which really does the back end of rentals. They collect all the rentals and then they give you a very nice way of reporting, etc. That’s a business that expanded into the UK, they expanded into Canada and also the US now.
On that basis, one of the US big companies has come out with a bid on that company, which we are considering at this point in time.
If we sell that business in the next while, which we believe we will, that will generate cash of anything between R450 million and R500 million for ARC.
FIFI PETERS: Which could go where?
JOHAN VAN DER MERWE: That’s a good question. I think we definitely want to bolster some acquisitions on the financial services side.
And the other area where Dr Patrice Motsepe is very interested in us playing a bit of a bigger role is in some food security.
So you will definitely see that we at least consider the agri side a little more as well. But, as you know, agri is also going through cycles – whether you have droughts or hail storms or problems with that – but that’s an area where he definitely wants to make an impact as well. So you’ll see that we, perhaps over the next while, look at some of those opportunities too.
FIFI PETERS: Well, we’ll be watching this space closely. Just on TymeBank then, the financial services company you have there, or the bank, in essence. The last time we spoke to the bank on SAfm, the CEO was talking about the first account being opened in the Philippines, or was said to be opened in the Philippines. How are things going there for TymeBank in that part of the world?
JOHAN VAN DER MERWE: It is going well. They’ve got a bank there. They call it GoTyme.
As you know, ‘Tyme’ stands for ‘take your money everywhere’. That’s why it’s a digital bank.
Obviously South Africa is providing the blueprint to a very large extent. It took us a little bit longer to roll out the bank here. We’ve got over five million customers now. But in all the learnings that we’ve had, we believe [where] the Philippines are really now, the rollout of the bank is going to be much shorter in terms of the learnings that we’ve had.
As you may have seen, we also gained a banking licence in Pakistan. So we’ll be rolling out in Pakistan as well. In those outside jurisdictions [it is] very important for us to get a very good partner, and we believe that we’ve got an excellent partner in the Philippines, and we are talking to quite a number of people in Pakistan as well.
We want those partners to have good distribution, firstly, and secondly you need them to have deep pockets as well, because to start a bank is not a small feat.
FIFI PETERS: In terms of South Africa, you said that TymeBank has around five million customers. So the Shoprite Money Market account has been touted as potentially being a big challenger for TymeBank’s growth. Would you agree?
JOHAN VAN DER MERWE: Yes, I think so. If you look at the retailers, even the mobile network operators, they’re all going to financial services to a certain extent. We believe that over time it’s going to be very important to have the right type of products, just to have a savings account or so is just not really enough. You have to offer a range of services too. And in many of these cases – and I don’t say we’ve done that yet – we’d like to take hands with retailers, with mobile network operators, to see how we can actually set up partnerships in these areas to do what’s best and good for the customers out there.
FIFI PETERS: On mobile networks and mobile telecoms players, you and I spoke a little earlier about the whole MTN/Telkom/Rain potential debacle – or perhaps it’s not even a debacle, because that’s more of a negative word. But the interesting activity happening between you three right now, ultimately the prize being Telkom, which MTN initially expressed interest for. For the interest of the SAfm listener, why do you think a Rain/Telkom union is potentially better than an MTN/Telkom union? And, if a Rain/Telkom union doesn’t happen, what does Rain look like after that?
JOHAN VAN DER MERWE: I think a very good question, Fifi, and obviously, as I said earlier, we are only a 20% shareholder in Rain, so it’s for Rain’s management and board to do that, but we’ve got people on the board there, so I do have a bit of insight on that in any event.
So for us it’s important to be at the table when a prized asset like Telkom is up for grabs. We believe that a combination of Rain and Telkom could serve the public very well.
We are concerned that if MTN takes over Telkom in its entirety, then competition will be less because there will be two big gorillas – with Vodacom and MTN/Telkom on the one side, and then a distant third will be ourselves and maybe some of the other mobile network operators.
So I can’t really see that the competition authorities, which usually do a very good job in South Africa, would allow a total takeover of Telkom by MTN. I think there will be more a merger. I would like to believe a merger of more or less equals. There’s a lot that we can bring to the table. There’s a lot that they have. And in combination, at least there could be a third very good mobile network operator in South Africa and data provider.
Then you’ve got the likes of Vodacom, MTN, and a Rain/Telkom, which I think will serve the customers and the public out there much better, because there will be more competition.
FIFI PETERS: Right. Cell C – do you have an opinion on those assets?
JOHAN VAN DER MERWE: No, we don’t. We know that they’ve gone through their issues as well. I think they are sorting them out in a certain way and so on, but we haven’t really looked at that now.
I think the market, because we don’t give the market enough information on Rain because Rain is a unlisted business and because, as an investment holding company that’s got only 20% of Rain, the market wants a lot of in information on Rain, but it’s difficult because they see it as a competitive advantage that they’re not listed and they don’t have to [share] all their strategies and plans and numbers.
Obviously there’s a certain minimum that we have to get, but it’s the same with Cell C. That information is not always readily available, but I believe it’ll be a better service for the public if there could be stronger mobile network operators out there, rather than just two gorillas and the rest.
FIFI PETERS: Well, time will tell how that story ends. Johan, thanks so much for joining the show right now. Johan van der Merwe is the co-CEO at African Rainbow Capital.
