The prevailing business environment in SA is one of the most difficult it has faced since the year 2000, investment holding company Remgro says.
The firm that has investments in energy, healthcare, fibre, financial services and food said this when releasing its results to end-June on Thursday. It warned that the disruption to business operations directly affects consumers and runs the risk of increased social instability, due to the undoing of livelihoods and rise in poverty levels.
“With low levels of expected economic growth — combined with the breakdown of state infrastructure relating to energy, transport and logistics, and the slow pace of economic reforms to date — the urgency to address these issues cannot be overstated.”
The problems highlighted by Remgro include power cuts, high inflation, elevated interest rates, hikes in the price of electricity, foreign exchange volatility, geopolitical tension, crime, corruption and the eroding confidence of foreign investors.
“All of these features, compounded together, have created what is probably one of the most difficult business environments to operate in since Remgro’s inception,” the investment holding company chaired by Johann Rupert said.
But despite these challenges, the company improved its intrinsic net asset value (NAV) per share, its main performance measurement, 16.6% to R248.47, and rewarded shareholders by hiking its dividend 60% to R2.40 a share.
Investment holding companies, once the darling of the finance community, have fallen out of favour in recent years and many trade at about a 30% or more discount to how they measure their underlying NAV.
Remgro previously held stakes in companies that shareholders could own directly such as alcoholic beverages producer Distell and multinational hospital group Mediclinic.
It is working to unlock its discount to NAV and reduce the number of publicly traded companies it holds by taking them private or selling noncore stakes. It wants to give shareholders a reason to buy Remgro shares — allowing them to invest in assets such as Mediclinic or Capevin, which owns Distell’s Scotch whisky assets, that they cannot buy another way.
In the past year it took Mediclinic, which owns hospitals in Switzerland and SA, private in a deal with Swiss-based MSC Mediterranean Shipping that runs hospitals on its cruise ships. It hopes to benefit and grow the business in partnership with the Swiss player.
It sold most of Distell, where it had a major shareholding, to Heineken but retained the whisky assets in CapeVin. Capevin sold the licence to produce Gordon’s Gin back to owner Diageo in a deal that it confirmed on Thursday was worth R100m.
Remgro also sold its stake in Grindrod Shipping to Taylor Maritime Investments and unbundled its stake in Grindrod Limited, a port and logistics firm, directly to shareholders. It said this was unlocking value as they were noncore assets.
Companies that are privately owned now account for 72% of Remgro’s portfolio, which is up from 68% at end of the 2022 financial year.
However, its discount to NAV sat at about 40% at the June year-end, up slightly from 39% last year, which suggests the corporate actions had not yet done anything about the discount.
Remgro CEO Jannie Durand said the increased number of private holdings was poised to unlock value for shareholders. “The finalisation of the Mediclinic and Distell-Heineken transactions marks another inflection point in Remgro’s history. The value of Remgro’s unlisted portfolio has now increased to more than 70%. This has materially increased Remgro’s scarcity factor and positioned it for further growth and value-unlock for shareholders.”
Remgro also invested in its share price by buying back R1bn worth of shares in the 2023 financial year. Companies use share buybacks as a way of reinvesting in the company and improving the share price especially if they believe it is undervalued.
Its focus for 2024 is to get Competition Tribunal approval for the proposed merger of the fibre business of SA’s largest telecoms provider, Vodacom, with its fibre business, Community Investment Venture Holdings (CIVH), which owns Vumatel and Dark Fibre Africa (DFA). This is after the Commission Commission recommended the deal be blocked.
Remgro, established in the 1940s by Rupert’s father Anton, has grown over the years as it diversified its investments. It has a 50% stake in Mediclinic, 30.6% in Outsurance, 57% in CIVH and 18.8% in Heineken.
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