Investment holding company African Rainbow Capital (ARC) Investments increased its intrinsic portfolio value by 14.1% to R14-billion during the six-month period to December 31, 2021, up from R12.27-billion as at June 30, 2021, mainly as a result of a net increase of R2-billion in asset values.

Its investments in wireless data services company Rain, phosphate production company Kropz and digital financial services company Tymebank are providing ARC with good short- to medium-term prospects as they scale up and grow, said ARC Investments co-CEO Johan van Zyl during a presentation of the company's interim results on March 17.

"Over the next year or two, we expect to see a step-change. A key part of this is our larger assets of Rain, Tymebank and Tymeglobal and the [Kropz] Elandsfontein plant coming online and becoming cash positive."

Rain, which is the largest investment by the ARC Fund, is experiencing good demand for fourth-generation and fifth-generation (5G) data services.

Further, demand for its 5G services is growing well beyond expectations and Rain has covered most metropoles in the country, is continuing to roll out 5G services to new towns and will add the eThekwini/Durban area to its coverage soon, Van Zyl highlighted.

"The most important highlight is that Rain exceeded its budgeted R1-billion earnings before interest, taxes, depreciation and amortisation a year in February already, and it is looking fairly well positioned to maintain its growth trajectory," he said.

Further, a key part of ARC's mining and energy portfolio is Kropz, which is a phosphate production company on the West Coast of South Africa. There were setbacks, but the team has made significant progress on the Elandsfontein plant, with the construction of the reconfigured concentration plant now complete, running and producing phosphate. The team is in the process of making some sales and expects to deliver a few consignments over the next few weeks, and for the company to start making money, Van Zyl said.

"The value of this investment has increased because the problems are, hopefully, all behind us. There has also been a substantial improvement in the phosphate price and outlook, partly because of the war in Ukraine," he said.

Further, Tymebank and Tymeglobal are doing well, with the bank having been operational for 36 months thus far. The bank has grown its client base by more than anticipated, although it has not reached break-even yet.

"Tymebank is in a J-curve [of its growth path] and, moving forward, we will expect more from them, making a contribution to the group. It has also started a lending programme that will focus on short-term lending, and the company continues to add products and create more engagement points with clients," said Van Zyl.

The Tymeglobal intellectual property is held in Singapore and ARC is focusing on rolling out this digital bank in the Philippines. ARC holds a 40% stake in this venture.

"There are tremendous synergies created by our learnings from our South African experience. We think the cost of rolling out a new bank will be 30% compared to the costs of rolling it out in South Africa by us applying these experiences, using existing technologies and partnering with the correct companies to roll it out. We have plans to take this into other countries and we have a pipeline that we are looking forward to in this regard," he said.

For the broader company results, the net asset value a share increased by 16.5% to R10.31. Cash in the ARC Fund stood at R538-million, up from R239-million as at June 30. However, the debt in the fund increased by 8.6% to R944-million, up from R869-million at June 30, 2021.

Further, the Kropz valuation increased following the commissioning of Elandsfontein and there has been significant international equity funding secured in TymeBank and TymeGlobal, including from technology multinational Tencent and UK development finance institution CDC. TymeBank received $150-million as part of the capital raised, while TymeGlobal received $30-million.

However, the operating environment for most of the companies in the ARC Fund portfolio remained largely challenging during the interim reporting period and was mainly characterised by an already poorly performing economy exacerbated by the ongoing impact of the Covid-19 pandemic.

The South African operating environment is expected to be in a protracted period of uncertainty. This is likely to continue to impact the economy adversely at least over the short to medium term.

"We want to prune the long tail in our investment portfolio. Many of these companies have relevance in our ecosystem and we will look to put some companies together, and there will be some merger and acquisitions taking place.

"In terms of our outlook, internally, we will maintain our ongoing focus on creating synergy, within our financial services investments and our diversified investments. Externally, the operating environment remains challenging with low expectations for the economy to improve and grow. We have been cushioned by resources to some extent, but this is not sustainable and, in the future, it will take a while to overcome the shortcomings and constraints in the economy," said Van Zyl.

For the companies within its portfolio to navigate the local and global challenges requires effective and skilled people, he added.

"Having the right people can make the difference. We have a good team and excellent partners and we are well placed to deliver on our vision of superior returns moving forward," he concluded.