MAIDEN FULL YEAR FINANCIAL RESULTS PRESENTATION. September 2018

Transcription

1 MAIDEN FULL YEAR FINANCIAL RESULTS PRESENTATION September 2018

2 PRESENTERS JOHAN VAN DER MERWE CO-CEO, AFRICAN RAINBOW CAPITAL Member of ARC Board Member of UBI Board Member of UBI General Partner Board Member of Investment Advisory Committee of the General Partner Member of FinHoldCo Board BRIDGET RADEBE CHIEF FINANCIAL OFFICER, UBI Member of ARC Investments Board Member of Investment Advisory Committee of the General Partner Member of FinHoldCo Board 2

3 OUTLINE STRATEGY FINANCIAL REVIEW PORTFOLIO OVERVIEW OUTLOOK 3

4 01 ARC INVESTMENTS STRATEGY Johan van der Merwe co-ceo, ARC

5 BACKGROUND & TIMELINE ARC INVESTMENTS Ubuntu-Botho Investments (UBI) 2004 Empowerment Partner to Sanlam 2004 Deal matured in 2013 new 10 year partnership signed African Rainbow Capital Investments listed September 2017 (51.7% owned by ARC) African Rainbow Capital formed in 2015 (UBI funds & owns ARC) Shareholding in Sanlam valued at R15 billion in 2013 (R20.5bn at 30 June 2018) 5

6 STRATEGIC POSITIONING ARC INVESTMENTS Permanent capital blackowned and black-controlled entity Underlying high quality listed & unlisted portfolio companies Diversified portfolio of investments sector specific focused building blocks ARC leadership and partners have a solid track record and access to a strong balance sheet ARC facilitates access to investments that would otherwise be difficult to access Investments into portfolio companies are made at appropriate BEE discounts Listed platform provides liquidity to investors Black economic empowerment is a suitable framework for redistributing wealth in SA 6

7 STRATEGIC FOCUS ARC INVESTMENTS ARC INVESTMENTS FINANCIAL SERVICES DIVERSIFIED INVESTMENTS ARC has extensive experience in financial services to evaluate investment opportunities ARC team evaluates opportunities with partners who are leading sector experts (i.e. Mining, Agri) Investments are made with stand-alone and synergistic potential in mind across all businesses in FS portfolio Investments are made with stand-alone and synergistic potential in mind within sub-category (i.e. Telecoms or Property) Significant synergistic opportunities exist to unlock shareholder value over time Businesses in Diversified Investments offer significant client pool value to Financial Services businesses 7

8 INVESTMENT SELECTION CRITERIA ARC INVESTMENTS Experienced, qualified and aligned management A demonstrable track record Commercial prospects which can be enhanced by having strong BEE credentials Established market position, either existing or disruptive Robust growth prospects target return of >16% Opportunities for consolidation and synergies among portfolio companies within the ARC Fund 8

9 OPERATING ENVIRONMENT KEY POINTS Economic transformation an imperative for SA Significant political uncertainty remains, which impacts level of consumer, investor and overall business confidence in economy Weak equity markets for most of the period under review Some businesses in our portfolio experienced unfavourable trading conditions 9

10 FUND STRUCTURE OVERVIEW UBI 100% 13.1% Sanlam ARC Investments is incorporated in Mauritius ARC Investments ordinary shares listed on the JSE Outside investors 48.3% ARC 51.7% ARC Investments ARC Fund established in SA as a BEE investment vehicle ARC Investments owns 49.9% of financial services portfolio companies Diversified Investments Limited partner 99.5% 100% ARC Fund 49.9% 50.1% Financial Services ARC Investments owns 100% of the non-financial services portfolio companies ARC Fund, an en commandite partnership, houses investments 10

11 OUR EMPOWERMENT STATUS KEY POINTS Our investment selection criteria are supported by our empowerment status We boast significant empowerment status with broad base of black individuals and groups since 2004 Currently about 550 individuals who each became millionaires (gross income) Large number of groups (trade unions, churches, youth, women) Development trusts doing significant investments in social infrastructure 11

12 PORTFOLIO OVERVIEW AS AT 30 JUNE 2018 FINANCIAL SERVICES DIVERSIFIED INVESTMENTS Asset Management Insurance Specialist Banking Agriculture Property Telecoms BPO Mining, Construction, Energy Other Alexander Forbes A2X TymeDigital Acorn Agri & Food ARC Properties RAIN Humanstate Last Mile Fund Fledge Capital Lima Mbeu Alternative Prosperity BKB Majik Metrofibre Bluespec Elandsfontein ARC Investments Colourfield Bravura RSA Val de Vie Autoboys Afrimat InFund Solutions EdgeGrowth Subtropico ARC Real Estate GemCap GAM Sinayo Payprop Constellation Capital Infoslips Ooba Consumer Friend Anglo African Finance CSG Life Short term Health EBS International Santam Afrocentric EOH Capital Appreciation LifeCheq Indwe ARC Health 12

13 FINANCIAL REVIEW RETURN ON INTRINSIC PORTFOLIO VALUE (IPV) R million Fair value adjustments 708 Dividend income and directors fees 87 Interest income on shareholder loans Return before fees 813 Fund management fee (88) Opening IPV Additions - cash Additions - non-cash Net IPV returns for the year 725 Weighted Average IPV Period under review Annualised 0 Intrinsic Portfolio Value Fair value adjustments Return on IPV: Before dilution After dilution 11.3% 9.5% 13.9% 11.7% INAV increase: Before dilution After dilution 9.1% 7.8% 11.2% 9.6% 13

14 02 FINANCIAL REVIEW Bridget Radebe Chief Financial Officer, UBI

15 FINANCIAL REVIEW KEY HIGHLIGHTS ARC INVESTMENTS LISTED ON THE JSE ON 7 September DAYS SINCE LISTING INTRINSIC NET ASSET VALUE (INAV) 9.1% INAV PER SHARE (after fees) R9.23 TO R9 528 million (R9.12 on a diluted basis) (7 September 2017: R8 734 million) (7 September 2017: R8.46) CASH IN THE ARC FUND AT YEAR END OF R1 576 m INTRINSIC PORTFOLIO VALUE R8 147 m (7 September 2017: R4 473 million) CASH CONVERSION NET INVESTMENTS OF R2 735 m 15

16 FINANCIAL REVIEW STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR TO 30 JUNE 2018 R million Fair value movement on the Investment in the ARC Fund at FVTPL* From 7 Sept 2017 to 30 June A VIEW INTO THE ARC FUND R million 30 June 2018 Income Other income 2.1 Other expenses (7.2) Performance participation expense (115.1) Profit/(loss) before taxation Taxation - Profit/(loss) for the period Other comprehensive income/(loss) Total comprehensive income/(loss) Earnings per share Basic earnings per share (cents) 81 Diluted earnings per share (cents) 79 Fair value movements on Diversified Investments Fair value movements on Diversified Financial Services 23.3 Income from Diversified Investments 89.9 Income from Diversified Financial Services 25.2 Interest income on cash and cash equivalents Expenses (94.2) Fees paid to the Fund Manager (94.2) Net foreign exchange gains/(losses) on mark-to-market of foreign denominated loans and receivables in the portfolio (12.9) Other expenses 12.9 Total * FVTPL: Fair value through profit or loss 16

17 FINANCIAL REVIEW STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018 R million Reviewed as at 30 June 2018 ASSETS Non-current assets 2.1 Unaudited at listing incorporation 7 Sept 2017 Investment in the ARC Fund at FVTPL* Current assets Trade and other receivables Cash and cash equivalents Total assets EQUITY Stated capital Retained income/(accumulated loss) (131.4) (12.4) Performance participation reserve Fair value reserve LIABILITIES Current liabilities Trade and other payables Total equity and liabilities Number of ordinary shares in issue (million) Diluted number of ordinary shares (million) Net asset value per share (cents) Diluted net asset value per share (cents) INAV per share (cents) Diluted INAV per share (cents) A VIEW INTO THE ARC FUND R million Reviewed as at 30 June 2018 Unaudited at listing incorporation 7 Sept 2017 Investment in the ARC Fund at FVTPL* The segmental analysis of the Investment is as follows: Diversified Investments Diversified Financial Services IFRS Portfolio Value Cash and cash equivalents in the ARC Fund Other net assets in the ARC Fund (199.5) 6.6 Total Investment in the ARC Fund at FVTPL Number of ordinary shares in issue (million) Diluted number of ordinary shares (million) million NAV per share (cents) 931 INAV per share (cents) 923 Diluted NAV per share (cents) 920 Diluted INAV per share (cents) 912 * FVTPL: Fair value through profit or loss 1. FVTPL: The net asset value per shares was derived from the (R11.2 million) net asset value divided by 100 shares at incorporation 17

18 FINANCIAL REVIEW SEGMENTAL REVIEW IFRS NAV RECON TO INTRINSIC PORTFOLIO VALUE R million 30 June Sept 2017 Change Comment Reported IFRS Portfolio Value Excludes cash and other net assets Adjust for non-ifrs measures included in Intrinsic Portfolio Value¹ (57.5) (85.2) (28.5) 30 day VWAP difference to spot price on listed portfolio assets (21.3) Spot rate is required under IFRS 13 Deferred taxation on: (5.5) 7.1 (12.6) Deferred taxation only applicable on financial services assets B-BBEE lock in discount on listed assets (119.3) (115.7) (3.6) Lock in discounts not recognised on listed shares under IFRS IFRS day one gains reported in equity - (56.1) (56.1) Other - (9.0) 9.0 Segment reported Intrinsic Portfolio Value Liabilities in the ARC Fund² (261.6) - (261.6) Cash and other net assets in the ARC Fund ( ) Cash and other net assets in the ARC Investments (3.9) INAV NAV The adjustments for Non-IFRS measures include (inter alia): listed investments valued on a 30day VWAP basis (compared to closing spot price), net of deferred taxation on listed investments valued after recognising B-BBEE discounts (compared to closing spot price), net of deferred taxation 2. Liabilities in the ARC Fund include the R134 million loan facility drawn down in ARC Financial Services Proprietary Limited pertaining to the TymeDigital equity investment, R84 million for deferred consideration payable mainly to RSA (R45 million) and Subtropico (R24 million) and R30.7 million Fund Manager fees unpaid at year-end 18

19 FINANCIAL REVIEW SEGMENTAL REVIEW INTRINSIC PORTFOLIO VALUE R million 30 June September 2017 Diversified Investments Telecommunications Business process outsourcing Mining, Construction and Energy Agriculture Property Other Diversified Financial Services Insurance and Asset Management Specialist Financial Services Banking Total AT YEAR END AT LISTING Telecommunications 28% 17% Business Process Outsourcing 15% 19% Mining, Construction and Energy 16% 25% Agriculture 11% 10% Property 6% 7% Other 5% 0% Insurance and Asset Management 14% 17% Specialist Financial Services 3% 5% Banking 2% 0% 19

20 FINANCIAL REVIEW SEGMENTAL REVIEW ANALYSIS INTRINSIC PORTFOLIO VALUE AT LISTING INTRINSIC PORTFOLIO VALUE R m (30 June 2018) (September 2017: R4 473m) Listed shares R million Listed notes R92.9 million Unlisted shares R million Preference shares R2.5 million Shareholder loans R580.5 million AT YEAR END Listed shares R million Listed notes R101.4 million Unlisted shares R million Preference shares R17.7 million Shareholder loans R717.6 million 20

21 FINANCIAL REVIEW SEGMENTAL REVIEW ANALYSIS INVESTED NET ASSET VALUE AT YEAR END AT LISTING Diversified Investments R6 581 million Financial Services R1 566 million Cash and other net assets R1 380 million Diversified Investments R million Financial Services R967 million Cash and other net assets R4 261 million 21

22 FINANCIAL REVIEW SEGMENTAL REVIEW DIVERSIFIED INVESTMENTS IPV MOVEMENTS DIVERSIFIED INVESTMENTS PORTFOLIO MOVEMENTS Major investments at Listing included: Rain Afrimat Elandsfontein Gemcap EOH EKB Acorn Agri & Foods R656m R656m R422m R324m R314m R220m R212m Major acquisitions Rain Bluespec Fledge Last Mile Fund RSA Subtropico R1 122m R510m R314m R133m R106m* R78m* Fair value adjustments Rain R366m BKB R196m ARC Real Estate R90m EOH (R236m) Gemcap R69m Acorn Agri & Foods R66m Significant Portfolio assets at 30 June 2018: Rain R2 144m Afrimat R641m Bluespec R509m Elandsfontein R454m Gemcap R429m BKB R416m Fledge Capital R342m Acorn Agri and Foods R277m Majik Property Holdings R238m 22

23 MOVEMENT IN THE PORTFOLIO VALUES for the period ended 30 June 2018 DIVERSIFIED FINANCIAL SERVICES PORTFOLIO MOVEMENT Major investments at Listing included: AFGH AF Limited Ooba ARC Health Afrocentric Colourfield R127m R288m R97m R90m R83m R66m Major acquisitions AFGH TymeDigital Afrocentric R266m R158m R43m Fair value adjustments: AFGH (R21m) AF Limited R33m Ooba R12m Indwe R14m Deferred Tax: A deferred taxation liability of R17.4 million resulted from the fair valuation of the financial services assets Significant Portfolio assets at 30 June 2018: Alexander Forbes Group Holdings Limited R371m Alexander Forbes Limited R321m TymeDigital R158m Afrocentric R131m Ooba R110m 23

24 FINANCIAL REVIEW VALUATION REVIEW DIVERSIFIED INVESTMENTS KEY INPUTS Company Diversified Investments Intrinsic Portfolio Value (IPV) IPV before minority and marketability discounts Valuation approach Minority discount Marketability discount Discount rate / PE Multiple applied Rain DCF 12.5% 12.5% 18.7% Afrimat VWAP adjusted n/a 15.0% n/a Bluespec Acquisition price n/a n/a n/a Elandsfontein* DCF 12.50% 30% 18.0% Gemcap DCF / VWAP n/a n/a 17% % BKB Floor price n/a n/a n/a Fledge Sum of the parts 5.0% 15.0% n/a Acorn Agri and Food OTC price n/a n/a n/a Majik Property Holdings* NAV 15.0% 15.0% n/a Balance of portfolio Various Various Various Various Total Diversified Investments *Amounts include both equity and shareholder loans 24

25 FINANCIAL REVIEW VALUATION REVIEW DIVERSIFIED FINANCIAL SERVICES KEY INPUTS Company Financial Services Intrinsic Portfolio Value (IPV) IPV before minority and marketability discounts Valuation approach Control premium Minority discount Marketability discount Discount rate /PE Multiple applied Alexander Forbes Group Holdings Limited VWAP n/a n/a n/a Alexander Forbes Limited Proxy to listed price 20.0% 15.0% 15.0% n/a TymeDigital Acquisition cost n/a n/a n/a n/a Afrocentric VWAP n/a n/a n/a n/a Ooba DCF n/a 7.5% 10.0% 14.9% Balance of portfolio 476 Various Various Various Various Various Total Financial Services Total Portfolio

26 03 PORTFOLIO OVERVIEW Johan van der Merwe co-ceo, ARC

27 ARC INVESTMENTS OUR BUILDING BLOCK APPROACH ARC INVESTMENTS FINANCIAL SERVICES DIVERSIFIED INVESTMENTS Insurance Telecoms Asset Management BPO Banking Mining, Construction, Energy Specialist Financial Services Property Agriculture Other 27

28 ARC INVESTMENTS DIVERSIFIED INVESTMENTS UBI 13.1% Sanlam 100% Outside investors ARC 51.7% 48.3% ARC Investments Limited partner 99.5% 50.1% Diversified Investments 100% ARC Fund 49.9% Financial Services 28

29 ARC INVESTMENTS DIVERSIFIED INVESTMENTS DIVERSIFIED INVESTMENTS TELECOMS BUSINESS PROCESS OUTSOURCING MINING, CONSTRUCTION & ENERGY AGRICULTURE PROPERTY OTHER 29

30 DIVERSIFIED INVESTMENTS TELECOMS Portfolio company % Holding % of Fund Value Rain Metrofibre

31 TELECOMS RAIN Major assets are spectrum licenses, including allocations in the 1800 and 2600 MHz band The networks business is responsible for the expansion of the network and roaming agreements with other major telecommunications companies (Vodacom contract) The Business to Business division provides fixed wireless connectivity to end users The direct business (Rain Mobile) was launched on 6 June by 30 June some 4860 sim cards were activated without any marketing A network of over sites has been established with a target of 3000 sites by Feb 2019 Revenue growth is encouraging and significant progress being made to further improve network performance 31

32 DIVERSIFIED INVESTMENTS BUSINESS PROCESS OUTSOURCING Portfolio company % Holding % of Fund Value Gemcap portfolio % Holding Gemcap (see next table) Bluespec Autoboys Humanstate (Payprop Int) Payprop SA 43.2 Consumer Friend 25.0 CSG 8.0 Infoslips 33.2 EOH (Speculative) Capital Appreciation (Speculative)

33 BUSINESS PROCESS OUTSOURCING BLUESPEC GEMCAP BlueSpec is a holding company with many different specialist businesses aiming to transform the repair and recovery industry Business performance impacted by lower insurance claims; year on year vehicle sales also down; competitive environment created downward pressure on margins BlueSpec is 51% black-owned (WIPHOLD Investment Trust together with ARC Fund) The investments through the Gemcap partnership are all highly profitable and cash generative Gemcap s largest investment, Payprop SA, is an established, market leading residential property portal that offers a unique end-to-end rental property management and compliance software platform 33

34 DIVERSIFIED INVESTMENTS AGRICULTURE Portfolio company % Holding % of Fund Value Acorn Agri & Food BKB Limited RSA Subtropico

35 AGRICULTURE ACORN AGRI BKB Acorn Agri & Overberg Agri entered into an Amalgamation Agreement whereby they amalgamated their respective businesses into one combined entity This has created a national agriculture and food investment company called Acorn Agri & Food with an attractive and more diverse portfolio of underlying businesses BKB investment in process of being disposed of 35

36 DIVERSIFIED INVESTMENTS PROPERTY Portfolio company % Holding % of Fund value ARC Real Estate Majik Property Holdings (Squarestone Growth) Val de Vie

37 PROPERTY ARC REAL ESTATE MAJIK ARC Real Estate is a joint venture between ARC & Buffet KLT Investments; fund is majority blackowned with commercial and retail assets Majik is a private equity structure which invest in secondary commercial real estate in the UK focusing on welllocated high yielding properties 37

38 DIVERSIFIED INVESTMENTS MINING, CONSTRUCTION AND ENERGY Portfolio company % Holding % of Fund Value Last Mile Fund (Bernard Swanepoel / Sipho Nkosi) Elandsfontein Afrimat Global Asset Management (GAM)

39 MINING, CONSTRUCTION AND ENERGY ELANDSFONTEIN Elandsfontein is a phosphate mine with 2 nd largest deposits known in SA; phosphate a key ingredient in fertilizer manufacturing Project was completed on time, but various elements simultaneously turned against the project During pre-commissioning phase reverse flotation process was unable to consistently yield required phosphate concentration of 32% Minor additional capital investment is required in order to commission the plant which is planned for early 2019 Currently considering listing the business on the Alternative Investment Market (AIM) of the LSE 39

40 DIVERSIFIED INVESTMENTS OTHER Portfolio company % Holding % of Fund Value Fledge Capital

41 FUND STRUCTURE ARC FINANCIAL SERVICES UBI 13.1% Sanlam 100% Outside investors ARC 51.7% 48.3% ARC Investments Limited partner 99.5% 50.1% Diversified Investments 100% ARC Fund 49.9% Financial Services 41

42 INVESTMENT CLUSTERS FINANCIAL SERVICES FINANCIAL SERVICES ASSET MANAGEMENT INSURANCE SPECIALIST BANKING LIFE GENERAL HEALTH 42

43 FINANCIAL SERVICES ASSET MANAGEMENT AND INSURANCE FINANCIAL SERVICES ASSET MANAGEMENT INSURANCE SPECIALIST BANKING LIFE GENERAL HEALTH 43

44 FINANCIAL SERVICES ASSET MANAGEMENT AND INSURANCE Portfolio company % Holding % of Fund value Alexander Forbes Afrocentric Limited ARC Health Colourfield Liability Solutions Santam Limited Indwe EBS International (Global ASP) LifeCheq Lima Mbeu InFund Solutions

45 INSURANCE & ASSET MANAGEMENT ALEXANDER FORBES Strategic focus on this grouping of portfolio companies is to develop longer term synergy potential, with AF being an important cog in this wheel AF is regarded as a market leader in its core business in SA AF has introduced new strategic focus areas which have not translated to improved financial performance yet We have a good working relationship with Mercer to ensure cooperation on key matters As a shareholder we are engaging management and the Board on AF s performance 45

46 FINANCIAL SERVICES SPECIALIST FINANCIAL SERVICES ASSET MANAGEMENT INSURANCE SPECIALIST BANKING LIFE GENERAL HEALTH 46

47 FINANCIAL SERVICES SPECIALIST Portfolio company % Holding % of Fund value A2X Bravura Edge Growth Sinayo Securities Constellation Capital Ooba Alternative Prosperity Anglo African Finance

48 FINANCIAL SERVICES BANKING FINANCIAL SERVICES ASSET MANAGEMENT INSURANCE SPECIALIST BANKING LIFE GENERAL HEALTH 48

49 FINANCIAL SERVICES BANKING Portfolio company % Holding % of Fund value TymeDigital (CBSA)

50 04 MAJOR DEVELOPMENTS SINCE YEAR-END Johan van der Merwe co-ceo, ARC

51 MAJOR DEVELOPMENTS SINCE YEAR-END Rand Mutual Assurance New Sanlam BEE deal 51

52 RAND MUTUAL HOLDINGS MAJOR DEVELOPMENTS SINCE YEAR-END THE BUSINESS Core business is receipt, adjudication and administration of workers compensation claims, including payment of medical claims ARC acquired 30% of RMH; obtained regulatory approval RMH is growing their Life offering within existing book Licensing its custom developed technology to other companies, including RAF and municipalities THE FINANCES RMH is well capitalised and no further capital required for growth GOING FORWARD ARC and RMH setting up a JV to enable RMH to administer Workmen's Compensation obo Compensation Fund Aim to convert the RMH COID opportunity with the relevant stakeholders Grow the RMH current product offering and membership base both within SA and in rest of Africa 52

53 NEW SANLAM BEE DEAL MAJOR DEVELOPMENTS SINCE YEAR-END THE BUSINESS Sanlam intends to increase empowerment shareholding with 5% to 19% ARC will help facilitate transaction to the benefit of Sanlam Objective is to broaden the base of empowerment beneficiaries Focus will be on women THE FINANCES Various funding options considered, including some vendor financing Detail to be shared in further announcements GOING FORWARD Detailed communication to Sanlam shareholders over next few months to obtain shareholder approval Confident that transaction will enhance Sanlam s competitiveness in institutional clients space 53

54 05 OUTLOOK

55 OUTLOOK Political sentiment will continue to drive confidence and investment climate over next 18 months We remain reasonably optimistic about operating environment and believe that some more lucrative investments may come our way which will be fully assessed 55

56 06 QUESTIONS