JSE-listed African Rainbow Capital (ARC) Investments on Tuesday reported strong growth during the year ended June 30.

ARC’s intrinsic net asset value per share expanded 14.7%, to R10.06 apiece, boosted by good financial performances by some of the businesses it has invested in, such as Rain, TymeBank in South Africa, Tyme Global in Singapore, Alexforbes, Fledge Capital and Capital Legacy.

During the year under review, ARC increased the value of its total portfolio, excluding cash, by 11.3% to R13.66-billion, mostly owing to a net increase of R1.38-billion in asset values.

This is despite the operating environment for most of the companies within the ARC Fund portfolio being largely challenged as the economy continues to perform poorly and consumers are experiencing adverse financial pressures.

“The period under review has been characterised by constrained trading conditions, although there appears to be some economic recovery in some sectors underway,” ARC co-CEO Johan van der Merwe comments.

“Notwithstanding difficult trading conditions, most of the key assets in our portfolio delivered strong results, while others continue to show improvements in their financial performance. Despite the adverse trading conditions, the diversified nature of our investment portfolio has shielded the overall performance of the portfolio from the vagaries of the market.”

ARC invested additional funds into its three largest investments, making up 45% of the total portfolio value, including R56-million into Rain, R362-million in Kropz and R303-million into TymeBank and Tyme Global.

During the year under review, the value of the ARC Fund’s interest in Rain increased 9.7% to R3.6-billion as the data-only mobile operator continues to do well on the sale of fourth-generation and fifth-generation products as demand is sustained throughout and post the easing of Covid-19 restrictions.

Rain’s R1.43-billion acquisition of new spectrum, including 20 MHz in the 700 MHz band and 20 MHz in the 2.6 GHz band, during the Independent Communications Authority of South Africa’s March and April spectrum auction, is expected to positively impact the operator’s cash flow and significantly enhance its competitiveness.

During Rain’s financial year ended February, Rain achieved its budget of R1-billion earnings before interest, taxes, depreciation and amortisation (Ebitda), which, on a comparable IFRS16 basis, equates to an Ebitda of more than R3-billion.

Meanwhile, Kropz, which owns two prized phosphate assets, namely Elandsfontein on the West Coast of South Africa and Cominco in the Republic of Congo, has experienced unexpected orebody variability at its Elandsfontein project, which requires alternative mining methods.

Consequently, management has impaired the investment value; however, once the challenge is resolved, the business can still deliver significant value.

The R362-million capital injection was largely used to fund operational cash shortfall at Elandsfontein resulting from a delay in the ramp-up as well as to commission the updated feasibility study for Cominco.

At Elandsfontein, the construction of the processing plant has been completed and the first ore was introduced in December 2021; however, subsequent to the introduction of the ore into the plant, Elandsfontein suffered further delays in the ramp-up of its operations, the most recent driven by the unexpected ore variability in the current mining area.

Mining rates and the associated delivery of ore to the plant have been compromised owing to the presence of banks of hard material within the orebody that previous geological work failed to identify, the company notes, adding that a revised mineral resource estimate and mining plan will be produced once the results of this drilling have been interpreted.

Kropz, meanwhile, appointed Hatch in February 2021 to complete the updated feasibility study for Cominco, which supported a substantially higher valuation of the Cominco asset.

ARC also highlights the successful raising by TymeBank of $150-million from new shareholders, Tencent and the CDC, with several of the existing shareholders also following their rights.

Some 36 months after launch, TymeBank boasts five-million customers. In August, it had also launched several hundred TFG (formerly The Foschini Group) kiosks to be rolled out over a period of four months.

More recently, TymeBank acquired, with some regulatory approvals still outstanding, small and medium-sized enterprise (SME) lender Retail Capital to drive a new SME focus.

“With Covid largely behind us, we will enter a phase of reviewing our portfolio and consider some pruning over the short- to medium-term. We have received some unsolicited offers for our shareholdings in a few companies, which we are considering. Should we decide to dispose of some of our investments, we expect the net result will be a more focused portfolio over the medium term,” says ARC co-CEO Johan van Zyl.

“Going forward, the company is likely to consider fewer major acquisitions. We had a good run since we listed five years ago. The Covid-19 pandemic has shown us that we have largely made the right investment decisions.”

Van Zyl also says management has completed the work to relook the management fee, which the ARC Fund pays to the General Partner for managing the portfolio. Shareholders in ARC Investments will vote on the proposals on November 15 at the company’s annual general meeting.

“As management, we are pleased with the progress we are making with the various investments in our portfolio. While we expect the trading environment to remain challenging over the medium term, we take a realistic view on the key drivers impacting our future success,” he concludes.

ARC Investments has shareholdings in 52 companies spanning several economic sectors, including the financial services sector, telecommunications, mining and energy, business process outsourcing, property, agriculture and other private equity-type businesses.

The strategic focus of the ARC Fund is to invest in businesses and work with the respective management teams to unlock synergies that will deliver additional value.