UNICORN CAPITAL PARTNERS LIMITED
Unicorn Capital Partners Limited (“Unicorn”) has been listed on the Main Board of the Johannesburg Stock Exchange (“JSE”) since 1993. During 2017 Unicorn completed an aggressive restructuring exercise, which included closing, merging and recapitalizing businesses in its portfolio of investments. As a direct consequence, the company’s name was changed from Sentula Mining Limited to Unicorn to reflect the change in direction from a diversified mining and mining services group to an investment holding company. Unicorn’s current portfolio of investments includes the provision of overburden drilling and blasting, mobile crane hire and exploration drilling services as well as an operational anthracite mine.
Our strategy is to invest in businesses across the market that have good investment characteristics and yield attractive returns on capital. Investments are managed on standalone, ring-fenced, bases with Unicorn providing support to these investments through capital allocation, investment decisions and strategy.
THE UNICORN ICON
The name Unicorn suggests a brand name that is very unique in the industry, so we created an icon that is just as unique as its name. We combined the Knight figure on a chess board with the iconic horn of a unicorn to create an icon with meaning. Finding rare and exceptional investment opportunities are what we are aiming for. But finding these are as difficult as finding the mythical unicorn creature. This icon represents the unique and elusive characteristics of this mythical creature combined with the prowess, strength and power of the Knight chess piece. The reason for using the chess piece icon is to suggest intelligence and strategy that is related to the game of chess. Unicorn Capital Partners is a brand that takes a considered and strategic approach to business and investments to achieve the best possible results.
The Unicorn restructuring exercise that started in October 2015 and was completed during 2017, was aimed at dealing with the tremendous challenges faced by the company. At this point in our journey, we are satisfied that we have been able to consistently deliver on our strategic objectives during this time. However, we have not been able to deliver the most important objective, which is returning to profitability. As a result, it remains our number one priority and objective.
From an investment perspective, each of the CEO’s of the operating companies is entrusted with a portfolio of assets to manage. Their single most important task is to do whatever is required and ethical to maximise the return on these assets, which we measure as earnings before interest and tax (EBIT) over average assets deployed. From a Unicorn perspective, we then have the final word on financial leverage, capital structure, capital allocation and long-term strategy, effectively adding the “I” and the “T” to get to “EAIT”. It is a structure which we believe gives management enough autonomy to take full ownership while at the same time ensures that nobody gets carried away when times are good.
This is the model we will apply to all future investments. It is a much more hands-on investment model when compared to your traditional private equity and investment holding company models. We see value in being close to our investments, which enables us to participate in critical decisions that can either potentially create or prevent the destruction of significant future value for shareholders.
Our approach to financial leverage would always start with an in-depth understanding of each company’s industry dynamics, operating characteristics and individual capital requirements. We would then determine a conservative and sustainable long-term debt-to-assets cap, which when combined with return on assets will deliver an attractive return on equity. Given the key financial characteristics of our key operating company investments, a relatively high return on assets could be sustained across the board for the next couple of years. As a result, the introduction of some financial leverage to the individual operating company’s balance sheets could significantly enhance the return on assets to deliver above average returns on equity. However, considering the risks related to mining and mining services companies mean that we have no intention of ever losing a night’s sleep because of excessive levels of debt.
For JEF and Ritchie we have set a maximum debt cap of 25-30% of assets, including working capital finance. Given Geosearch’s relatively low asset value, a fairly small amount of debt will mean a relatively high debt to assets percentage. As a result we will only make use of working capital finance until such time that we are satisfied that the business is generating profits on a sustainable basis. Nkomati’s balance sheet will appear excessively leveraged given the IDC and shareholder loans but is relatively low risk compared to bank debt.