JSE-listed investment holding company African Rainbow Capital (ARC) increased its intrinsic net asset value by 15.8% year-on-year to R15.3-billion for the financial year ended June 30, while its net asset value a share increased by 13.4% to R11.41 a share.

The company’s cash reserves, however, decreased by 25% to R500-million, while its debt increased by 51% to R1.47-billion.

During the financial year under review, ARC disposed of its remaining shares in Afrimat for R486-million, as well as PayProp and Humanstate, with the ARC Fund receiving R486-million in cash. ARC also disposed of its interest in Rand Mutual Holding for R727-million.

The ARC Fund, meanwhile, made significant investments of R664-million in TymeBank and Tyme Global, largely to fund the acquisition of Retail Capital, and also made an additional capital advance of R833-million to Kropz.

The company also reported significant advances at several of its large, early-stage portfolio companies, including telecommunications provider rain’s successful launch of the rainOne mobile service, and Kropz's Elandsfontein operation having sold 120 000 t of phosphate in the six months to June 2023.

Additionally, TymeBank and Tyme Global successfully raised $125-million of capital.

“A tough macro environment put pressure on the economy and consumers and harmed some of our entities’ growth. ARC Investments’ diverse portfolio has, however, shown remarkable resilience against the persisting challenging macroeconomic environment,” it said in its results statement.

Commenting on the reshaping of its portfolio, ARC said its portfolio value has begun to reflect the benefits of the early-stage investments approaching profitability, as well as the substantial corporate activity to reposition the portfolio.

“ARC Fund completed disposals of R1.4-billion, which included investments in Afrimat, Humanstate, Gemcap (PayProp), Capital Appreciation and Mooiplaats Coal. ARC Financial Services Investments (ARC FSI) disposed of its investments in Rand Mutual Holdings,” it said.

The ARC Fund also finalised acquisitions of R1.99-billion, including additional investments in TymeBank, Tyme Global, ARCH Emerging Markets, Upstream and Kropz, as well as a small mining services acquisition in SMS Mining Group. ARC FSI acquired a minority holding in Optasia and GoSolr.

“As part of its revised strategy, ARC Fund has disposed of smaller noncore assets in its diversified investments portfolio, reduced its exposure to listed shares that can be acquired directly in the market, and increased the weighting of the financial services portfolio through bolt-on acquisitions and synergistic transactions, as well as an increased Fintech exposure.

“As a result of these transactions, mining, property and business process outsourcing exposure has decreased, while exposure to future-focused growth areas in financial services, telecommunication, agriculture and diversified financials has notably increased.

“The collective efforts of management and investment partners also delivered synergy benefits and excellent progress in early-stage investments in the current year,” it noted.

Meanwhile, ARC also implemented initiatives to narrow the gap between the intrinsic and market values, which includes efforts to streamline the portfolio and position it in future-focused areas. Its top 13 investments now comprise 88% of the value of the portfolio.

“Portfolio valuations have been validated through several disposals at full value,” the company said.

MANAGEMENT AND PERFORMANCE FEE REDUCTION

ARC has reduced management and performance fees by more than 50%.

The general partner fee structure review was finalised and approved in November. The approved fee structure is based on the general partner charging actual cost plus a 5% markup. The management fee for the year ended 30 June 2023 was R98-million, compared to R225-million for 2022.

In terms of the newly approved performance participation fee structure, the C shareholders share in 16% of the growth in ARCI net asset value, which is above its 10% target.

“The adjusted annualised growth in invested assets for the year amounted to 15.8%, which is above the hurdle. Accordingly, a provisional performance amount of R122-million was recognised for 2023, relative to R273-million in the prior year.

“The management and performance fee combined reflect a substantial saving for investors,” the company said.