JSE-listed investment fund African Rainbow Capital Investments (ARC Fund) notes that the third quarter of its 2023 financial year was characterised by a challenging macroeconomic environment featuring currency weakness, elevated inflation, rising interest rates and electricity supply constraints.

"Gross domestic product growth is sluggish, and business and consumer sentiment remain suppressed.

“Despite the current economic climate, the performance of several portfolio companies has been resilient, and we continue to identify attractive investment opportunities,” the company said on June 9.

In terms of its diversified investment portfolio, ARC Fund said telecommunications services provider rain had expanded its fourth-generation network after acquiring spectrum in the 2022 auction. This enhancement enabled rain to enter the market as a full mobile network operator, offering national voice, short message service and data coverage.

The new RainOne product combines mobile and fixed-wireless, unlimited data, free monthly calls and data for two phones, and a fixed-fifth-generation connection at an affordable monthly price. It expects a significant number of existing customers to switch to this new offering and to acquire new customers.

Rain continued to meet its monthly financial targets, ARC added.

Further, the ARC Fund maintained its financial support of Kropz Elandsfontein’s operations during its ramp-up phase by extending an additional R285-million bridge loan facility in March.

Kropz Elandsfontein continues making progress towards achieving financial independence and profitability. Although supply chain issues negatively affected production volumes, significant progress has been made in improving processing stability and run times, ARC said.

Between December 2022 and March 31, Elandsfontein successfully produced and sold more than 53 000 t of phosphate concentrate.

Kropz is also in the process of finalising a new mine plan and feasibility study in relation to a reduced-scale starter project at its Cominco resource, in the Republic of Congo.

Meanwhile, ARC is currently restructuring and aligning its agricultural portfolio to unlock untapped efficiencies and cross-selling opportunities.

“Our goal is to create an ecosystem where our agricultural-focused businesses can work together to achieve substantial growth, enhance food security, and reduce the cost of food delivery. By leveraging off each other's strengths, we believe we can create a more efficient and effective system using the Acorn Agri and Food platform,” ARC said in a statement.

During the period under review, ARC increased its shareholding in the Upstream Group of Companies from 25% to 49% following the exit of an existing shareholder. This transaction was concluded in consortium with Fledge Capital, being a new shareholder in Upstream, which acquired about 13% as part of the transaction.

“Upstream is a uniquely positioned, technology-focused, debt review, rehabilitation, and recovery service provider. Upstream performs a pivotal role in the wider debt review ecosystem on behalf of creditors.

“We believe that the higher level of unsecured credit lending, including the tough economic environment, will lead to more debt reviews and debt recoveries which translates into increased potential demand for services provided by the Upstream group of companies,” ARC said.

FINANCIAL SERVICES
In terms of its financial services portfolio, Tyme, which includes TymeBank and GoTyme, has a yearly revenue run rate of more than R1.9-billion. Across its two markets, namely South Africa and the Philippines, the business is growing at a pace of 300 000 new customers a month, as it works to provide consumers, particularly the underserved and financially excluded portion of the population, quality financial services.

TymeBank now serves more than seven-million customers since its launch in February 2019, with a current monthly acquisition rate of 188 000 customers. The bank registers an average of 23-million monthly transactions and a 70% 30-day account activity rate. The focus remains on profitability in the coming months.

GoTyme in the Philippines launched in October 2022 in partnership with the Gokongwei Group and is currently exceeding its business plan targets.

Further, as part of a recently concluded pre-Series C capital raise, Tyme has successfully secured two new international investors, namely international technology growth fund Norssken22 and independent global impact investment firm Blue Earth Capital. New and existing shareholders invested a total of $77-million in this raise. ARC followed its rights and is still in control of the Tyme Group.

“The funds raised are intended to further operations in South Africa and the Philippines and for possible future expansion. The Series C capital raise is currently underway with several potential investors and is expected to close later this year,” ARC said.

Additionally, despite a difficult consumer environment and the negative impact of loadshedding on Crossfin's point-of-sale businesses, such as Adumo payments and Ikokha, the Crossfin portfolio has shown resilience and growth.

The Akelo group had undergone a successful restructuring, led by a group CEO and executive committee who were focused on driving commercialisation and top-line growth. Overall, the portfolio's performance was ahead of the prior year and in line with expectations, ARC noted.

Meanwhile, on February 3, Sanlam announced the conclusion of an agreement to acquire 26% of Capital Legacy in exchange for the Sanlam Trust business and cash. ARC Financial Services Investments will dilute to 25% on conclusion of the transaction.

“We believe the transaction is mutually beneficial to Sanlam and Capital Legacy with synergies in respect of distribution and insurance.”

ARC Financial Services Investments also extended a loan facility of R200-million to Capital Legacy in April that will be converted into equity or repaid after a period of 12 months.

Additionally, during the period, ARC Financial Services Investments concluded the sale of its 30% stake in Rand Mutual Holdings in January for a consideration above both the underlying embedded value and the carrying value as at June 30, 2022, ARC said.