MAIDEN FULL YEAR FINANCIAL RESULTS PRESENTATION September 2018 - - PowerPoint PPT Presentation
MAIDEN FULL YEAR FINANCIAL RESULTS PRESENTATION September 2018 PRESENTERS JOHAN VAN DER MERWE CO-CEO, AFRICAN RAINBOW CAPITAL BRIDGET RADEBE Member of ARC Board CHIEF FINANCIAL OFFICER, UBI Member of UBI Board Member of ARC
MAIDEN FULL YEAR FINANCIAL RESULTS PRESENTATION
September 2018
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PRESENTERS
JOHAN VAN DER MERWE CO-CEO, AFRICAN RAINBOW CAPITAL
BRIDGET RADEBE CHIEF FINANCIAL OFFICER, UBI
Committee of the General Partner
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OUTLINE
STRATEGY FINANCIAL REVIEW PORTFOLIO OVERVIEW OUTLOOK
Johan van der Merwe co-CEO, ARC
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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)
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STRATEGIC POSITIONING
ARC INVESTMENTS
Permanent capital black-
and black-controlled entity Underlying high quality listed & unlisted portfolio companies Diversified portfolio
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
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STRATEGIC FOCUS
ARC INVESTMENTS
ARC INVESTMENTS
FINANCIAL SERVICES ARC has extensive experience in financial services to evaluate investment opportunities Investments are made with stand-alone and synergistic potential in mind across all businesses in FS portfolio Significant synergistic opportunities exist to unlock shareholder value over time DIVERSIFIED INVESTMENTS 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 within sub-category (i.e. Telecoms or Property) Businesses in Diversified Investments offer significant client pool value to Financial Services businesses
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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
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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
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FUND STRUCTURE
OVERVIEW
ARC Investments is incorporated in Mauritius ARC Investments
listed on the JSE ARC Fund established in SA as a BEE investment vehicle ARC Investments owns 49.9% of financial services portfolio companies ARC Investments owns 100% of the non-financial services portfolio companies ARC Fund, an en commandite partnership, houses investments
UBI Sanlam ARC ARC Investments ARC Fund Financial Services Diversified Investments Outside investors
13.1% 100% 51.7% 50.1% 49.9% 100% 48.3% 99.5% Limited partner
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Our investment selection criteria are supported by
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
OUR EMPOWERMENT STATUS
KEY POINTS
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PORTFOLIO OVERVIEW
AS AT 30 JUNE 2018 FINANCIAL SERVICES
Asset Management Insurance Specialist Banking Alexander Forbes Lima Mbeu Colourfield A2X Alternative Prosperity Bravura EdgeGrowth Sinayo Constellation Capital Ooba TymeDigital Anglo African Finance InFund Solutions Acorn Agri & Food BKB RSA Subtropico ARC Properties Majik Val de Vie ARC Real Estate RAIN Metrofibre Afrimat GAM GemCap Payprop Infoslips Consumer Friend CSG Agriculture
DIVERSIFIED INVESTMENTS
Property Telecoms BPO Humanstate Bluespec Autoboys Mining, Construction, Energy Last Mile Fund Elandsfontein Other Fledge Capital ARC Investments EBS International LifeCheq Santam Indwe Afrocentric ARC Health Life Short term Health EOH Capital Appreciation
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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 18 Return before fees 813 Fund management fee (88) Net IPV returns for the year 725 Weighted Average IPV 6 413
Period under review Annualised
Return on IPV: Before dilution After dilution INAV increase: Before dilution After dilution 11.3% 9.5% 9.1% 7.8% 13.9% 11.7% 11.2% 9.6% 4 473 2 735 231 708 3 000 6 000 9 000 Intrinsic Portfolio Value Opening IPV Additions - cash Additions - non-cash Fair value adjustments
Bridget Radebe Chief Financial Officer, UBI
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FINANCIAL REVIEW
KEY HIGHLIGHTS
INTRINSIC NET ASSET VALUE (INAV)
▲9.1%
TO R9 528 million (7 September 2017: R8 734 million)
INAV PER SHARE (after fees)
▲R9.23
(R9.12 on a diluted basis) (7 September 2017: R8.46)
296 DAYS SINCE LISTING
INTRINSIC PORTFOLIO VALUE
▲R8 147 m
(7 September 2017: R4 473 million) CASH CONVERSION – NET INVESTMENTS OF
▲R2 735 m
ARC INVESTMENTS LISTED ON THE JSE ON
7 September 2017
CASH IN THE ARC FUND AT YEAR END OF
R1 576 m
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FINANCIAL REVIEW
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR TO 30 JUNE 2018
R million 30 June 2018 Income 888.9 Fair value movements on Diversified Investments 619.2 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 131.3 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 794.7
A VIEW INTO THE ARC FUND
R million From 7 Sept 2017 to 30 June 2018 Fair value movement on the Investment in the ARC Fund at FVTPL* 794.7 Other income 2.1 Other expenses (7.2) Performance participation expense (115.1) Profit/(loss) before taxation 674.5 Taxation
674.5 Other comprehensive income/(loss) Total comprehensive income/(loss) 674.5
* FVTPL: Fair value through profit or loss
Earnings per share Basic earnings per share (cents) 81 Diluted earnings per share (cents) 79
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FINANCIAL REVIEW
STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018
R million Reviewed as at 30 June 2018 Unaudited at listing incorporation 7 Sept 2017 ASSETS 794.7 Non-current assets 2.1 Investment in the ARC Fund at FVTPL* 9 581.7 8 787.0 Current assets Trade and other receivables 0.9 1.3 Cash and cash equivalents 28.5 45.1 Total assets 9 611.1 8 833.4 EQUITY Stated capital 8 831.8 8 831.8 Retained income/(Accumulated loss) (131.4) (12.4) Performance participation reserve 115.1
794.7
Current liabilities Trade and other payables 0.9 14.0 Total equity and liabilities 9 611.1 8 833.4 Number of ordinary shares in issue (million) 1 032.0 1 032.0 Diluted number of ordinary shares (million) 1 045.0
931 849 Diluted net asset value per share (cents) 920 849 INAV per share (cents) 923 846 Diluted INAV per share (cents) 912 846 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 6 649.9 3 565.7 Diversified Financial Services 1 555.0 992.8 IFRS Portfolio Value 8 204.9 4 558.5 Cash and cash equivalents in the ARC Fund 1 576.3 4 221.9 Other net assets in the ARC Fund (199.5) 6.6 Total Investment in the ARC Fund at FVTPL 9 581.7 8 787.0
A VIEW INTO THE ARC FUND
* FVTPL: Fair value through profit or loss
value divided by 100 shares at incorporation Number of ordinary shares in issue (million) 1032.0 Diluted number of ordinary shares (million) 1 045.0 1 045.0 million NAV per share (cents) 931 INAV per share (cents) 923 Diluted NAV per share (cents) 920 Diluted INAV per share (cents) 912
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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
FINANCIAL REVIEW
SEGMENTAL REVIEW – IFRS NAV RECON TO INTRINSIC PORTFOLIO VALUE
R million 30 June 2018 7 Sept 2017 Change Comment Reported IFRS Portfolio Value 8 204.9 4 558.5 3 702.5 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 67.3 88.5 (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) Other
9.0 Segment reported Intrinsic Portfolio Value 8 147.4 4 473.3 3 674.1 Liabilities in the ARC Fund² (261.6)
Cash and other net assets in the ARC Fund 1 613.5 4 228.5 (2 615.0) Cash and other net assets in the ARC Investments 28.5 32.4 (3.9) INAV 9 527.8 8 734.2 793.6 NAV 9 610.2 8 763.3 846.9
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FINANCIAL REVIEW
SEGMENTAL REVIEW – INTRINSIC PORTFOLIO VALUE
R million 30 June 2018 7 September 2017 Diversified Investments 6 580.9 3 506.2 Telecommunications 2 279.9 772.6 Business process outsourcing 1 245.0 866.6 Mining, Construction and Energy 1 284.7 1 121.4 Agriculture 877.0 431.8 Property 523.0 313.8 Other 371.3
1 566.5 967.1 Insurance and Asset Management 1 147.0 755.1 Specialist Financial Services 261.5 212.0 Banking 158.0
8 147.4 4 473.3 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%
AT YEAR END AT LISTING
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INTRINSIC PORTFOLIO VALUE
FINANCIAL REVIEW
SEGMENTAL REVIEW – ANALYSIS
INTRINSIC PORTFOLIO VALUE
R8 147.4 m
(30 June 2018) (September 2017: R4 473m)
AT YEAR END
Listed shares R1 410.7 million Listed notes R101.4 million Unlisted shares R5 900.0 million
AT LISTING
Listed shares R1 333.8 million Listed notes R92.9 million Unlisted shares R2 463.6 million Preference shares R17.7 million Shareholder loans R717.6 million Preference shares R2.5 million Shareholder loans R580.5 million
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INVESTED NET ASSET VALUE
FINANCIAL REVIEW
SEGMENTAL REVIEW – ANALYSIS
AT YEAR END
Diversified Investments R6 581 million Financial Services R1 566 million
AT LISTING
Diversified Investments R3 506.2 million Financial Services R967 million Cash and other net assets R1 380 million Cash and other net assets R4 261 million
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FINANCIAL REVIEW
SEGMENTAL REVIEW – DIVERSIFIED INVESTMENTS IPV MOVEMENTS
5 000 10 000 15 000
DIVERSIFIED INVESTMENTS PORTFOLIO MOVEMENTS
Major investments at Listing included:
R656m
R656m
R422m
R324m
R314m
R220m
R212m Fair value adjustments
R366m
R196m
R90m
(R236m)
R69m
R66m Major acquisitions
R1 122m
R510m
R314m
R133m
R106m*
R78m* Significant Portfolio assets at 30 June 2018:
R2 144m
R641m
R509m
R454m
R429m
R416m
R342m
R277m
R238m
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MOVEMENT IN THE PORTFOLIO VALUES
for the period ended 30 June 2018
1 000 2 000 3 000 4 000
DIVERSIFIED FINANCIAL SERVICES PORTFOLIO MOVEMENT
Major investments at Listing included:
R127m
R288m
R97m
R90m
R83m
R66m Fair value adjustments:
(R21m)
R33m
R12m
R14m Major acquisitions
R266m
R158m
R43m Significant Portfolio assets at 30 June 2018:
Holdings Limited R371m
R158m
R131m
R110m Deferred Tax: A deferred taxation liability of R17.4 million resulted from the fair valuation of the financial services assets
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FINANCIAL REVIEW
VALUATION REVIEW – DIVERSIFIED INVESTMENTS KEY INPUTS
Company Intrinsic Portfolio Value (IPV) IPV before minority and marketability discounts Valuation approach Minority discount Marketability discount Discount rate / PE Multiple applied Diversified Investments Rain 2 144 2 801 DCF 12.5% 12.5% 18.7% Afrimat 641 755 VWAP adjusted n/a 15.0% n/a Bluespec 509 509 Acquisition price n/a n/a n/a Elandsfontein* 454 512 DCF 12.50% 30% 18.0% Gemcap 429 429 DCF / VWAP n/a n/a 17% - 18.5% BKB 385 385 Floor price n/a n/a n/a Fledge 342 423 Sum of the parts 5.0% 15.0% n/a Acorn Agri and Food 277 277 OTC price n/a n/a n/a Majik Property Holdings* 238 253 NAV 15.0% 15.0% n/a Balance of portfolio 1 161 Various Various Various Various Total Diversified Investments 6 580 *Amounts include both equity and shareholder loans
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FINANCIAL REVIEW
VALUATION REVIEW – DIVERSIFIED FINANCIAL SERVICES KEY INPUTS
Company Intrinsic Portfolio Value (IPV) IPV before minority and marketability discounts Valuation approach Control premium Minority discount Marketability discount Discount rate /PE Multiple applied Financial Services Alexander Forbes Group Holdings Limited 371 371 VWAP n/a n/a n/a Alexander Forbes Limited 321 405 Proxy to listed price 20.0% 15.0% 15.0% n/a TymeDigital 158 158 Acquisition cost n/a n/a n/a n/a Afrocentric 131 131 VWAP n/a n/a n/a n/a Ooba 110 136 DCF n/a 7.5% 10.0% 14.9% Balance of portfolio 476 Various Various Various Various Various Total Financial Services 1 567 Total Portfolio 8 147 9 366
Johan van der Merwe co-CEO, ARC
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ARC INVESTMENTS
OUR BUILDING BLOCK APPROACH
ARC INVESTMENTS
FINANCIAL SERVICES
Insurance Asset Management Banking Specialist Financial Services
DIVERSIFIED INVESTMENTS
Telecoms BPO Mining, Construction, Energy Property Other Agriculture
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ARC INVESTMENTS
DIVERSIFIED INVESTMENTS
UBI Sanlam ARC ARC Investments ARC Fund Financial Services Diversified Investments Outside investors
13.1% 100% 51.7% 50.1% 49.9% 100% 48.3% 99.5% Limited partner
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ARC INVESTMENTS
DIVERSIFIED INVESTMENTS
TELECOMS BUSINESS PROCESS OUTSOURCING MINING, CONSTRUCTION & ENERGY AGRICULTURE PROPERTY OTHER DIVERSIFIED INVESTMENTS
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DIVERSIFIED INVESTMENTS
TELECOMS
Portfolio company % Holding % of Fund Value Rain 20.0 26.3 Metrofibre 15.0 1.7
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TELECOMS
RAIN
Major assets are spectrum licenses, including allocations in the 1800 and 2600 MHz band The networks business is responsible for the expansion
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 2 000 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
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DIVERSIFIED INVESTMENTS
BUSINESS PROCESS OUTSOURCING
Portfolio company % Holding % of Fund Value Gemcap (see next table) 100 5.3 Bluespec 25.0 6.2 Autoboys 51.0 0.5 Humanstate (Payprop Int) 10.0 1.7 EOH (Speculative) 1.7 1.0 Capital Appreciation (Speculative) 3.3 0.6 Gemcap portfolio % Holding Payprop SA 43.2 Consumer Friend 25.0 CSG 8.0 Infoslips 33.2
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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
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DIVERSIFIED INVESTMENTS
AGRICULTURE
Portfolio company % Holding % of Fund Value Acorn Agri & Food 7.4 3.4 BKB Limited 20.0 5.1 RSA 40.0 1.3 Subtropico 25.0 1.0
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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
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DIVERSIFIED INVESTMENTS
PROPERTY
Portfolio company % Holding % of Fund value ARC Real Estate 51.5 1.5 Majik Property Holdings (Squarestone Growth) 16.4 2.9 Val de Vie 20.0 2.0
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PROPERTY
ARC REAL ESTATE | MAJIK
ARC Real Estate is a joint venture between ARC & Buffet KLT Investments; fund is majority black-
assets Majik is a private equity structure which invest in secondary commercial real estate in the UK focusing on well- located high yielding properties
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DIVERSIFIED INVESTMENTS
MINING, CONSTRUCTION AND ENERGY
Portfolio company % Holding % of Fund Value Last Mile Fund (Bernard Swanepoel / Sipho Nkosi) 71.0 1.6 Elandsfontein 26.3 5.6 Afrimat 19.0 7.9 Global Asset Management (GAM) 26.0 0.7
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MINING, CONSTRUCTION AND ENERGY
ELANDSFONTEIN
Elandsfontein is a phosphate mine with 2nd 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% Currently considering listing the business on the Alternative Investment Market (AIM) of the LSE Minor additional capital investment is required in order to commission the plant which is planned for early 2019
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DIVERSIFIED INVESTMENTS
OTHER
Portfolio company % Holding % of Fund Value Fledge Capital 51.0 4.2
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FUND STRUCTURE
ARC FINANCIAL SERVICES
UBI Sanlam ARC ARC Investments ARC Fund Financial Services Diversified Investments Outside investors
13.1% 100% 51.7% 50.1% 49.9% 100% 48.3% 99.5% Limited partner
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INVESTMENT CLUSTERS
FINANCIAL SERVICES
ASSET MANAGEMENT INSURANCE SPECIALIST BANKING LIFE GENERAL HEALTH FINANCIAL SERVICES
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FINANCIAL SERVICES
ASSET MANAGEMENT AND INSURANCE
ASSET MANAGEMENT INSURANCE
SPECIALIST BANKING
LIFE GENERAL HEALTH
FINANCIAL SERVICES
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FINANCIAL SERVICES
ASSET MANAGEMENT AND INSURANCE
Portfolio company % Holding % of Fund value Alexander Forbes 16.9 8.4 Afrocentric Limited 7.1 1.6 ARC Health 100.0 1.2 Colourfield Liability Solutions 28.3 1.0 Santam Limited 0.4 0.7 Indwe 51.0 0.7 EBS International (Global ASP) 25.0 0.2 LifeCheq 25.0 0.1 Lima Mbeu 60.0 0.1 InFund Solutions 51.0 0.1
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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 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 AF has introduced new strategic focus areas which have not translated to improved financial performance yet
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FINANCIAL SERVICES
SPECIALIST
ASSET MANAGEMENT INSURANCE
SPECIALIST
BANKING LIFE GENERAL HEALTH FINANCIAL SERVICES
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FINANCIAL SERVICES
SPECIALIST
Portfolio company % Holding % of Fund value A2X 20.0 0.2 Bravura 30.0 0.5 Edge Growth 31.0 0.1 Sinayo Securities 49.0 0.5 Constellation Capital 30.3 0.2 Ooba 29.6 1.3 Alternative Prosperity 25.0 0.1 Anglo African Finance 41.4 0.4
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FINANCIAL SERVICES
BANKING
ASSET MANAGEMENT INSURANCE SPECIALIST
BANKING
LIFE GENERAL HEALTH FINANCIAL SERVICES
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FINANCIAL SERVICES
BANKING
Portfolio company % Holding % of Fund value TymeDigital (CBSA) 10.0 1.9
Johan van der Merwe co-CEO, ARC
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MAJOR DEVELOPMENTS SINCE YEAR-END Rand Mutual Assurance New Sanlam BEE deal
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RAND MUTUAL HOLDINGS
MAJOR DEVELOPMENTS SINCE YEAR-END
THE BUSINESS
adjudication and administration of workers’ compensation claims, including payment of medical claims
RMH; obtained regulatory approval
book
developed technology to
RAF and municipalities THE FINANCES
and no further capital required for growth GOING FORWARD
a JV to enable RMH to administer Workmen's Compensation obo Compensation Fund
COID opportunity with the relevant stakeholders
product offering and membership base both within SA and in rest of Africa
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NEW SANLAM BEE DEAL
MAJOR DEVELOPMENTS SINCE YEAR-END
THE BUSINESS
increase empowerment shareholding with 5% to 19%
transaction to the benefit
the base of empowerment beneficiaries
THE FINANCES
considered, including some vendor financing
further announcements GOING FORWARD
to Sanlam shareholders
approval
transaction will enhance Sanlam’s competitiveness in institutional clients space
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OUTLOOK
Political sentiment will continue to drive confidence and investment climate over next 18 months We remain reasonably optimistic about
some more lucrative investments may come our way which will be fully assessed