Remgro CEO Jannie Durand has flagged the regulatory costs of doing deals as a deterrent to doing business and attracting international investment, saying if the merger of the group’s fibre assets in Vumatel with those of Vodacom had gone ahead 18 months ago the group would already have spent R3bn-R4bn of capex to roll out connectivity in areas of SA where it is needed.
But Durand said business had had some good conversations with the new trade, industry & competition minister Parks Tau, who has listened with “open ears” and was aware of the issues.
The two groups have waited nearly three years for an answer from the competition authorities on the fibre deal, with the Competition Commission having recommended against it but the Competition Tribunal yet to rule. Durand said he was hoping for an outcome by November.
The group’s merger of Distell with Heineken to form Heineken Beverages also took more than 18 months, while subsidiary Mediclinic also took a long time to obtain competition clearance for its recent deal, even though this posed no competition concerns. “The only people to win from these regulatory delays are the lawyers. They add nothing to GDP,” Durand said.
His comments add to the widespread criticism of the time and complexity involved in obtaining approval from competition authorities for deals, with recent guidelines from the Competition Commission making it clear that companies must jump a series of public interest hurdles even for deals that do not affect competition in the market.
Durand was speaking to Business Day on Thursday after Remgro posted a 20% decline in its headline earnings to R5.6bn for the year to end-June.
It was hit by steep costs on a series of “transformative corporate actions” it has undertaken over the past couple of years, as well as by disappointing operational performances at some of its investee companies — including Heineken Beverages, as well as in CVIH, which holds the Vumatel and Dark Fibre Africa interests, and at Mediclinic, whose Swiss operations faced challenges.
Excluding the negative impact of the corporate transactions, the group’s earnings would have declined by 1%, Durand said, with performance in the second half showing an improvement on the first half.
The group’s share trades at a discount of about 45% to its net asset value, as it has done for the past year or more, but Durand said globally investment holding companies were out of favour. “All we can do is make sure the underlying assets perform.”
Durand co-chairs the crime and corruption workstream of the partnership business forged with the government last June to tackle the energy, logistics and crime and corruption crises holding back SA’s economic growth. He said it was early days for the crime and corruption partnership but the new government of national unity had embraced the concept of working together and business had partnered on crime and corruption in areas where it could add value as business.
Law enforcement authorities’ biggest problem was a lack of skills, because they struggled to attract skilled, well-paid talent from the private sector. The idea was that business could assist with this at arm’s length, Durand said.
He also commented on the venture capital market, which he said was unfortunately not very sophisticated in SA. Remgro’s venture capital and growth subsidiary Invenfin had about R800m invested. SA had a huge talent pool but it was difficult for young entrepreneurs to get capital, Durand said. It was critical for a country to have an active venture capital market. A lot of the group’s investments had started small — including CIVH, where the first investment was just R5m-R10m.
Remgro increased its annual dividend by 10% despite its headline earnings falling almost 20% in what the investment holding company called a “challenging period”.
The group, which has investments in energy, healthcare, fibre, financial services, food and beverages, reported headline earnings decreased 20% to R5.65bn in the year to end-June and headline earnings per share fell 18.8% to 1,018c.
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