Johann Rupert-controlled investment heavyweight Remgro, whose earnings were battered by government-imposed measures to contain the Covid-19 pandemic, says it is not yet clear if the recovery under way is sustainable.
“It has been bad. Overall, the consumer got hurt, and we are not sure how quickly things will recover,” says Remgro CEO Jannie Durand, who was describing the effect of the lockdown on businesses in the investment holding company’s portfolio in its latest earnings report.
His comments come amid worries about a prolonged economic downturn that would further squeeze consumer finances with all big banks having already set aside billions to prepare for a wave of defaults on credit cards and other loans.
Consumers were already choking under dangerously high household debt — which stood at about 70% of disposable income — when the economic crisis triggered large-scale layoff and forced multiple companies to impose deep pay cuts on millions of the working population.
Headline earnings — the primary measure of profit that strips out certain one-off items — for the year ending June fell 61% to R3.16bn, while Remgro’s net asset value per share stood at R154.47 at June 30. A final dividend of 50c per share was declared.
Durand cited the negative impact on four substantial investments in the portfolio, noting that the ban on alcohol sales led to the obliteration of revenue of about R2bn a month at Distell, a business that “was doing quite well before the lockdown”.
“We had record sales when the ban was lifted, but how sustainable is it? We just don’t know at this point,” says Durand.
The pandemic also had a severe effect on the group’s investments in Mediclinic with its hospitals near empty as people cancelled elective surgeries and shunned visits.
“People are still scared of going back to hospitals in SA, but Switzerland has seen a resumption,” Durand says.
RCL Foods, that among a range of products provides poultry to the quick-service restaurants (QSRs) such as KFC and Nandos, saw a sharp decline in demand that led to a situation where RCL almost ran out of space to store chicken.
Durand says the recovery is evident in sales but at levels nowhere near what was seen pre-Covid.
Similarly, with many people forced to work from home, Remgro’s stake in Total was affected by the reduction in commuter traffic, affecting sales.
The year was most notable for the group’s unbundling of its 28% interest in RMB Holdings (RMH), which saw Remgro distribute 397.4-million shares in RMH to Remgro shareholders in early June.
Remgro has retained its nearly 4% direct stake in FirstRand and hedged its exposure to 25% of its stake in the financial conglomerate for a period of two years, a move Durand describes as “prudent” given the market volatility at the time.
The group made small additions to its investment in RCL Foods, Pembani Remgro Infrastructure Fund, Bos Brands, as well as extending a loan of R100m to Community Investment Ventures Holdings (CIVH).
Remgro’s share price closed nearly 5% higher at R90.99 per share.
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