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Unaudited results for the six months ended 31 December 2018 and cash dividend declaration
REMGRO LIMITED
Registration number 1968/006415/06
ISIN ZAE000026480 Share code REM
INTERIM REPORT
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED
31 DECEMBER 2018 AND CASH DIVIDEND DECLARATION
SALIENT FEATURES
Headline earnings per share, excluding option remeasurement -2.7%
Headline earnings per share -3.3%
Interim dividend per share +5.4%
Intrinsic net asset value per share R230.23
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 31 December 30 June
R million 2018(1, 2) 2017 2018
ASSETS
Non-current assets
Property, plant and equipment 14 648 6 741 13 626
Investment properties 119 130 119
Intangible assets 25 167 4 873 18 427
Investments - Equity accounted 74 878 80 184 73 722
- Available-for-sale - 2 937 3 067
- Financial assets at fair value through
other comprehensive income 3 315 - -
Financial assets at fair value through
profit and loss 151 - -
Retirement benefits 578 204 737
Loans 395 573 697
Deferred taxation 190 22 158
119 441 95 664 110 553
Current assets 43 710 23 179 40 375
Inventories 11 453 3 645 10 967
Biological agricultural assets 697 619 807
Debtors and short-term loans 10 179 5 730 8 599
Financial assets at fair value through
other comprehensive income 156 - -
Financial assets at fair value through
profit and loss 144 - -
Investment in money market funds 5 494 5 849 3 996
Cash and cash equivalents 15 364 7 227 12 169
Other current assets 66 93 93
43 553 23 163 36 631
Assets held for sale 157 16 3 744
Total assets 163 151 118 843 150 928
EQUITY AND LIABILITIES
Stated capital 13 416 13 416 13 416
Reserves 94 047 78 933 84 865
Treasury shares (577) (189) (183)
Shareholders' equity 106 886 92 160 98 098
Non-controlling interest 15 730 3 009 15 348
Total equity 122 616 95 169 113 446
Non-current liabilities 25 888 18 161 25 891
Retirement benefits 204 183 195
Long-term loans 19 926 16 278 20 316
Deferred taxation 5 750 1 473 5 268
Derivative instruments 8 227 112
Current liabilities 14 647 5 513 11 591
Trade and other payables 12 116 4 625 9 904
Short-term loans 2 171 741 1 557
Other current liabilities 360 147 130
Total equity and liabilities 163 151 118 843 150 928
Net asset value per share (Rand)
- At book value R189.21 R162.59 R173.04
- At intrinsic value R230.23 R265.84 R256.97
(1.) Since 11 May 2018 and 2 July 2018, Remgro consolidates its investments in Distell and Siqalo Foods, respectively,
and therefore, certain line items are not directly comparable with the prior periods. Refer to "Comparison with the prior
periods" under "Comments" for further detail.
(2.) Refer to "Change in accounting policies" under "Comments" for the impact of the implementation of new accounting
standards.
SUMMARY CONSOLIDATED INCOME STATEMENT
Six months ended Year ended
31 December 31 December 30 June
2018 2017 2018
R million Restated(1)
CONTINUING OPERATIONS
Sales 30 316 14 046 31 115
Inventory expenses(1) (17 368) (8 102) (17 814)
Staff costs (4 223) (2 522) (5 641)
Depreciation (639) (362) (810)
Other net operating expenses(1) (5 386) (2 319) (5 590)
Trading profit 2 700 741 1 260
Dividend income 27 48 112
Interest received 648 414 886
Fair value adjustment on exchangeable bonds' option 106 134 261
Finance costs (795) (614) (1 266)
Net impairment of investments, assets and goodwill (773) 645 (201)
Net impairment of loans (64) - (1)
Profit on sale and dilution of investments 55 120 5 188
Consolidated profit before tax 1 904 1 488 6 239
Taxation (868) (272) (423)
Consolidated profit after tax 1 036 1 216 5 816
Share of after-tax profit of equity accounted investments 1 857 2 736 2 893
Net profit for the period from continuing operations 2 893 3 952 8 709
DISCONTINUED OPERATIONS(2)
Profit for the period from discontinued operations 8 318 279 490
Net profit for the period 11 211 4 231 9 199
Attributable to:
Equity holders 10 297 4 131 8 943
Continuing operations 1 979 3 852 8 453
Discontinued operations 8 318 279 490
Non-controlling interest 914 100 256
11 211 4 231 9 199
EQUITY ACCOUNTED INVESTMENTS
Share of after-tax profit of equity accounted
investments
Profit before taking into account impairments and
non-recurring items 4 231 5 380 10 035
Net impairment of investments, assets and goodwill (2 032) (1 170) (5 935)
Profit on the sale of investments 453 108 505
Recycling of foreign currency translation reserves 5 1 647
Other headline earnings adjustable items 16 12 13
Profit before tax and non-controlling interest 2 673 4 331 5 265
Taxation (659) (1 096) (1 499)
Non-controlling interest (157) (220) (383)
1 857 3 015 3 383
Continuing operations 1 857 2 736 2 893
Discontinued operations - 279 490
(1.) The amounts previously reported in the Income Statement for six months ended 31 December 2017 for "inventory
expenses" and "other net operating expenses" were restated. Previously "inventory expenses" were incorrectly
understated and "other net operating expenses" incorrectly overstated by R1 298 million. The restatement had no
impact on trading profit, earnings or headline earnings.
(2.) On 30 June 2018 the investment in Unilever was transferred from "investments - equity accounted" to "assets held
for sale" (refer to the section dealing with "Investment activities"). Profit from discontinued operations consists of the
equity accounted earnings of Unilever as well as the profit on its subsequent disposal. The six months ended
31 December 2017 has been represented accordingly.
HEADLINE EARNINGS RECONCILIATION
Six months ended Year ended
31 December 31 December 30 June
R million 2018 2017 2018
CONTINUING OPERATIONS
Net profit for the period attributable to
equity holders (earnings) 1 979 3 852 8 453
Impairment of equity accounted investments 773 - 580
Reversal of impairment of equity accounted investments - (654) (529)
Impairment of available-for-sale investments - - 44
Impairment of property, plant and equipment - 8 71
Profit on sale and dilution of equity accounted investments (58) (6) (5 156)
Loss on sale and dilution of equity accounted investments 3 2 52
Profit on sale of available-for-sale investments - (116) (116)
Profit on disposal of property, plant and equipment (126) (45) (114)
Recycling of foreign currency translation reserves - - (10)
Impairment of intangible assets - - 34
Loss on sale of subsidiary - - 42
Non-headline earnings items included in equity accounted
earnings of equity accounted investments 1 549 1 039 4 726
- Profit on disposal of property, plant and equipment (9) (10) (44)
- Profit on the sale of investments (475) (147) (583)
- Loss on the sale of investments 22 39 78
- Impairment of investments, assets and goodwill(1) 2 032 1 170 5 935
- Recycling of foreign currency translation reserves (5) (1) (647)
- Other headline earnings adjustable items (16) (12) (13)
Taxation effect of adjustments 114 32 32
Non-controlling interest 25 6 (35)
Headline earnings from continuing operations 4 259 4 118 8 074
DISCONTINUED OPERATIONS
Net profit for the period attributable to
equity holders (earnings) 8 318 279 490
Profit on sale of equity accounted investment(2) (8 318) - -
Non-headline earnings items included in equity accounted
earnings of equity accounted investments
- Loss on disposal of property, plant and equipment - 9 12
- Taxation effect of adjustments - - (3)
Headline earnings from discontinued operations - 288 499
Total headline earnings from continuing and
discontinued operations 4 259 4 406 8 573
Option remeasurement (106) (134) (261)
Headline earnings, excluding option remeasurement 4 153 4 272 8 312
(1.) "Impairment of investments, assets and goodwill" from equity accounted investments for the six months ended
31 December 2018 includes Remgro's portion of the impairments of Mediclinic's properties and trade names in
Switzerland and its investment in Spire of R1 954 million (2017: R830 million).
(2.) "Profit on sale of equity accounted investments" consists of the profit realised on the disposal of Unilever.
EARNINGS AND DIVIDENDS
Six months ended Year ended
31 December 31 December 30 June
Cents 2018 2017 2018
Headline earnings per share
- Basic 752.1 777.5 1 512.6
Continuing operations 752.1 726.7 1 424.6
Discontinued operations - 50.8 88.0
- Diluted 744.2 772.8 1 504.5
Continuing operations 744.2 722.0 1 416.5
Discontinued operations - 50.8 88.0
Headline earnings per share, excluding option
remeasurement
- Basic 733.4 753.9 1 466.5
Continuing operations 733.4 703.1 1 378.5
Discontinued operations - 50.8 88.0
- Diluted 725.5 749.1 1 458.4
Continuing operations 725.5 698.3 1 370.4
Discontinued operations - 50.8 88.0
Earnings per share
- Basic 1 818.3 729.0 1 577.9
Continuing operations 349.5 679.7 1 491.4
Discontinued operations 1 468.8 49.3 86.5
- Diluted 1 814.8 725.2 1 567.5
Continuing operations 346.8 676.0 1 481.1
Discontinued operations 1 468.0 49.2 86.4
Dividends per share
Ordinary 215.00 204.00 532.00
- Interim 215.00 204.00 204.00
- Final - - 328.00
SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended Year ended
31 December 31 December 30 June
R million 2018 2017 2018
Net profit for the period 11 211 4 231 9 199
Other comprehensive income, net of tax 1 687 (2 774) (311)
Items that may be reclassified subsequently to the
income statement:
Exchange rate adjustments 616 (1 182) 2 012
Fair value adjustments on financial assets for the period - (2) (149)
Deferred taxation on fair value adjustments - 12 55
Reclassification of other comprehensive income to the
income statement (1) (98) (206)
Other comprehensive income of equity accounted
investments 1 571 (1 694) (2 127)
Items that will not be reclassified to the income
statement:
Fair value adjustments on financial assets for the period (259) - -
Deferred taxation on fair value adjustments 63 - -
Remeasurement of post-employment benefit obligations (147) - 189
Deferred taxation on remeasurement of post-
employment benefit obligations 22 - (53)
Change in reserves of equity accounted investments (178) 190 (32)
Total comprehensive income for the period 12 898 1 457 8 888
Total comprehensive income attributable to:
Equity holders 12 087 1 356 8 374
Non-controlling interest 811 101 514
12 898 1 457 8 888
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months ended Year ended
31 December 31 December 30 June
R million 2018 2017 2018
Balance at the beginning of the period 113 446 95 302 95 302
Change in accounting policies(1) (1 116) - -
Restated balance at the beginning of the period 112 330 95 302 95 302
Total comprehensive income for the period 12 898 1 457 8 888
Dividends paid (2 251) (1 747) (2 934)
Transactions with non-controlling shareholders (58) 63 40
Other movements 9 7 18
Long-term share incentive scheme reserve 84 87 182
Purchase of treasury shares by wholly owned
subsidiary (396) - -
Non-controlling shareholders' interest in acquisition of
subsidiary - - 11 953
Non-controlling shareholders' interest in disposal of
subsidiary - - (3)
Balance at the end of the period 122 616 95 169 113 446
(1.) Refer to "Change in accounting policies" under "Comments" for the impact of the implementation of new accounting
standards.
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended Year ended
31 December 31 December 30 June
R million 2018 2017 2018
Cash generated from/(utilised by) operations 3 678 (211) 2 096
Interest received 648 414 879
Taxation paid (578) (204) (657)
Dividends received(1) 1 812 2 205 3 789
Finance costs (744) (570) (1 159)
Cash available from operating activities 4 816 1 634 4 948
Dividends paid (2 251) (1 747) (2 934)
Net cash inflow/(outflow) from operating activities 2 565 (113) 2 014
Investing activities(1, 2) 845 (128) 2 208
Financing activities (906) (58) 78
Net increase/(decrease) in cash and cash equivalents 2 504 (299) 4 300
Exchange rate profit/(loss) on foreign cash 206 (268) 213
Cash and cash equivalents at the beginning of the period 11 985 7 472 7 472
Cash and cash equivalents at the end of the period 14 695 6 905 11 985
Cash and cash equivalents - per statement of
financial position 15 364 7 227 12 169
Bank overdraft (669) (322) (184)
(1.) The dividend received from RMI in respect of the reinvestment alternative (refer to the section dealing with "Investment
activities"), amounting to R300 million (2017: R292 million), is not included in "Dividends received" and "Investing
activities" for cash flow purposes.
(2.) "Investing activities" includes the R4 900 million cash received on the disposal of the investment in Unilever, an increase
in money market funds of R1 498 million, as well as investments in the CIV group and Prescient (refer to the section
dealing with "Investment activities").
ADDITIONAL INFORMATION
Six months ended Year ended
31 December 31 December 30 June
2018 2017 2018
Number of shares in issue
- Ordinary shares of no par value 529 217 007 529 217 007 529 217 007
- Unlisted B ordinary shares of no par value 39 056 987 39 056 987 39 056 987
Total number of shares in issue 568 273 994 568 273 994 568 273 994
Number of shares held in treasury
- Ordinary shares repurchased and held in treasury (3 375 334) (1 432 501) (1 389 033)
564 898 660 566 841 493 566 884 961
Weighted number of shares 566 303 849 566 682 343 566 773 693
In determining earnings per share and headline earnings per share the weighted number of shares was taken
into account.
31 December 31 December 30 June
R million 2018 2017 2018
Equity accounted investments
Associates 71 074 74 451 70 735
Joint ventures 3 804 5 733 2 987
74 878 80 184 73 722
Equity accounted investment reconciliation
Carrying value at the beginning of the period 73 722 80 883 80 883
Change in accounting policies(1) (1 093) - -
Restated balance at the beginning of the period 72 629 80 883 80 883
Share of net attributable profit 1 857 3 015 3 383
Dividends received (1 824) (2 304) (4 259)
Exchange rate differences 359 (940) 1 779
Investments made 1 200 447 675
Derecognition of equity accounted investments in Distell
and Capevin - - (3 885)
Transfer of Unilever to non-current assets held for sale - - (3 588)
Businesses acquired - - 968
Grindrod and Grindrod Shipping
(impairment)/impairment reversal (773) 654 487
Equity accounted movements on reserves 1 393 (1 504) (2 145)
Other movements 37 (67) (576)
Carrying value at the end of the period 74 878 80 184 73 722
Long-term loans
20 000 Class A 7.7% cumulative redeemable
preference shares 3 510 3 513 3 512
10 000 Class B 8.3% cumulative redeemable
preference shares 4 380 4 383 4 382
Exchangeable bonds with an effective interest
rate of 4.5% 6 216 5 533 6 090
Various other loans 7 108 3 084 7 533
21 214 16 513 21 517
Short-term portion of long-term loans (1 288) (235) (1 201)
19 926 16 278 20 316
Additions to and replacement of property,
plant and equipment 1 122 336 1 153
Capital and investment commitments(2) 6 506 1 330 4 366
(Including amounts authorised, but not yet contracted for)
Guarantees and contingent liabilities 8 25 9
Dividends received from equity accounted
investments set off against investments 1 824 2 304 4 259
Refer to the section dealing with "Investment
activities" for more detail on related party
transactions.
(1.) Refer to "Change in accounting policies" under "Comments" for the impact of the implementation of new accounting
standards.
(2.) Capital and investment commitments at 31 December 2018 include an amount of R2 007 million (30 June 2018:
R2 459 million) from Distell, as well as additional investment commitments to CIVH (R1 633 million) and Milestone
China Opportunities Fund IV (R1 293 million).
Fair value remeasurements
The following methods and assumptions are used to determine the fair value of each class of financial instruments:
- Financial instruments available-for-sale, at fair value through other comprehensive income, at fair value through
profit and loss and investment in money market funds: fair value is based on quoted market prices or, in the
case of unlisted instruments, appropriate valuation methodologies, being discounted cash flow, liquidation
valuation and actual net asset value of the investment.
- Derivative instruments: the fair value of derivative instruments is determined by using appropriate valuation
methodologies and mark-to-market valuations.
Financial instruments measured at fair value, are disclosed by level of the following fair value hierarchy:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - Inputs (other than quoted prices included within level 1) that are observable for the asset or liability,
either directly (as prices) or indirectly (derived from prices); and
Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The following table illustrates the fair values of financial assets and liabilities that are measured at fair value,
by hierarchy level:
R million Level 1 Level 2 Level 3 Total
31 December 2018
ASSETS
Non-current assets
Financial assets at fair value through
other comprehensive income 1 333 17 1 965 3 315
Financial assets at fair value through
profit and loss - - 151 151
Current assets
Financial assets at fair value through
other comprehensive income 156 - - 156
Financial assets at fair value through
profit and loss - - 144 144
Derivative instruments - 5 - 5
Investment in money market funds 5 494 - - 5 494
6 983 22 2 260 9 265
LIABILITIES
Non-current derivative instruments - 8 - 8
Current derivative instruments - 27 23 50
- 35 23 58
31 December 2017
ASSETS
Available-for-sale 1 093 - 1 844 2 937
Derivative instruments - 8 - 8
Investment in money market funds 5 849 - - 5 849
6 942 8 1 844 8 794
LIABILITIES
Non-current derivative instruments - 227 - 227
Current derivative instruments - 14 49 63
- 241 49 290
30 June 2018
ASSETS
Available-for-sale 934 41 2 092 3 067
Derivative instruments - 12 - 12
Investment in money market funds 3 996 - - 3 996
4 930 53 2 092 7 075
LIABILITIES
Non-current derivative instruments - 112 - 112
Current derivative instruments - 34 43 77
- 146 43 189
The following table illustrates the reconciliation of the carrying value of level 3 assets at the beginning and end
of the period:
Financial assets
at fair value Financial assets
through other at fair value
comprehensive through Derivative
R million income profit and loss instruments Total
ASSETS
Balances on 1 July 2018 2 092 - - 2 092
Transfer from level 2 40 - - 40
Additions 92 295 - 387
Disposals (394) - - (394)
Exchange rate adjustments 89 - - 89
Fair value adjustments through other
comprehensive income 46 - - 46
Balances on 31 December 2018 1 965 295 - 2 260
LIABILITIES
Balances on 1 July 2018 - - 43 43
Put option exercised - - (20) (20)
Balances on 31 December 2018 - - 23 23
Level 3 financial assets consist mainly of investments in the Milestone China entities (Milestone) and the Pembani
Remgro Infrastructure Fund (PRIF) amounting to R1 509 million and R241 million respectively. These investments
are all valued based on the fair value of each investment's underlying assets, which are valued using a variety of
valuation methodologies. Listed entities are valued at the last quoted share price on the reporting date, whereas
unlisted entities' valuation methods include discounted cash flow valuations, appropriate earnings and revenue
multiples.
Milestone's fair value consists of listed investments (21%), cash and cash equivalents (1%), and unlisted
investments (78%). Unlisted investments included at transaction prices in Milestone's fair value amounted to
R543 million, while its remaining six unlisted investments were valued at R634 million. PRIF's main assets are the
investments in ETG Group, Octotel, RSAWeb, Lumos Global and GPR Leasing. ETG Group was valued at its last
traded price used for the acquisition of an interest by a third party, while the other investments were valued using
the discounted cash flow method.
Changes in the valuation assumptions of the above unlisted investments will not have a significant impact on
Remgro's financial statements as the underlying assets of the funds in which Remgro made its investments are
widely spread.
Disaggregated revenue information
Six months ended Year ended
31 December 31 December 30 June
R million 2018 2017 2018
Consumer products
Distell 14 424 - 4 219
RCL Foods 13 265 12 765 24 426
Siqalo Foods 1 405 - -
Industrial
Wispeco 1 222 1 076 2 265
Media and sport
Other media and sport interests - 205 205
Consolidated 30 316 14 046 31 115
COMMENTS
1. ACCOUNTING POLICIES
The interim report is prepared in accordance with the recognition and measurement principles of
International Financial Reporting Standards (IFRS), including IAS 34: Interim Financial Reporting, and the
SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by the Financial Reporting Standards Council, and in accordance with the
requirements of the Companies Act (No. 71 of 2008), as amended, and the Listings Requirements of the
JSE Limited. The financial statements have been prepared under the supervision of the Chief Financial
Officer, Neville Williams CA(SA). The interim report has not been audited or reviewed.
These financial statements incorporate accounting policies that are consistent with those of the previous
financial periods, with the exception of the implementation of IFRS 9: Financial Instruments and IFRS 15:
Revenue from Contracts with Customers. Refer to "Change in accounting policies" for further detail on the
implementation of these standards and amendments.
During the period under review various other interpretations and amendments became effective, but their
implementation had no impact on the results of either the current or prior periods.
2. CHANGE IN ACCOUNTING POLICIES
This section explains the impact of the adoption of IFRS 9: Financial Instruments and IFRS 15: Revenue
from Contracts with Customers on the Group's financial statements.
A. Impact of the adoption of IFRS 9: Financial Instruments
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of
financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets
and hedge accounting. IFRS 9 was adopted without restating comparative information in accordance with
the transitional provisions (IFRS 9, paragraphs 7.2.15 and 7.2.26). The adjustments arising from the new
standard are therefore not reflected in the statement of financial position as at 30 June 2018, but are
recognised in the opening statement of financial position on 1 July 2018.
1. Classification and measurement
- Loans and receivables
Loans and receivables are classified as financial assets at amortised cost. The implementation of IFRS 9
had no impact on the classification of these assets. It is the Group's business model to hold these
instruments for collection of cash flows, and the cash flows represent solely payments of principal and
interest.
- Equity investments previously classified as available-for-sale
The Group elected to present changes in the fair value of all its equity investments previously classified
as available-for-sale in other comprehensive income as these investments are held as long-term
investments and are not expected to be sold in the short to medium term. As a result, assets with a fair
value of R3 067 million were reclassified from available-for-sale financial assets to financial assets at
fair value through other comprehensive income and the related fair value gains of R661 million remains
in the fair value reserve on 1 July 2018. Any subsequent remeasurements of these instruments will be
reflected in other comprehensive income and no portion will be transferred to the income statement.
Dividends from these investments are accounted for in profit and loss.
- Borrowings, derivatives and hedging activities
The adoption of IFRS 9 had no impact on the Group's classification and measurement of borrowings,
derivatives and the Group's hedging activities.
2. Impairment of financial assets
The impact on the Group's results from the adoption of IFRS 9 relate solely to the new impairment
requirements. The Group's financial assets carried at amortised cost consist of:
- Current trade and other receivables related to sales of goods;
- Trade and other receivables - non-current;
- Cash and cash equivalents; and
- Loans receivable.
The impact of the change in impairment methodology on the Group's total equity is disclosed below. The
adjustment arose from changes in the impairment provisions for the Group's current trade and other
receivables.
The Group's subsidiaries apply the IFRS 9 simplified approach to measuring expected credit losses on its
current trade receivables, which calculates the loss allowance on a lifetime basis. The Group has credit
guarantee insurance in place where management of each business unit deems it necessary. The Group's
credit policies requires each new customer to be analysed individually for creditworthiness before delivery
and payment terms are offered.
To measure the expected credit loss, trade receivables have been grouped based on shared characteristics
and days past due. The calculation of the expected credit loss takes into account any insurance cover in
place.
Reconciliation of the loss allowance for trade receivables as at 30 June 2018 to 1 July 2018:
Trade
receivables
impairment
R million provision
Closing impairment provision (as calculated under IAS 39) - 30 June 2018 135
Amount restated in opening equity 25
Opening impairment provision (as calculated under IFRS 9) - 1 July 2018 160
Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there
is no reasonable expectation of recovery include, amongst others:
- the failure of a debtor to engage in a repayment plan with Group;
- the failure to make contractual payments for a period of greater than the number of days past due as
set by each business unit; and/or
- a legal process has not enabled recovery.
3. Debt instruments
The debt instruments classified as measured at amortised cost at 30 June 2018 are considered to have a
low credit risk. The loss allowance calculated for these were therefore limited to 12 months' expected losses
and was immaterial. The debt instruments are considered to have a low credit risk when they have a low
risk of default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near
term.
The loss allowances for financial assets are based on assumptions pertaining to risk of default and expected
loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the
impairment calculation, based on past experience, existing market conditions as well as forward looking
estimates at the end of each reporting period.
B. Impact of the adoption of IFRS 15: Revenue from Contracts with Customers
In accordance with the transition provisions in IFRS 15, the Group has applied the modified retrospective
application option, and certain adjustments are therefore recognised in the opening statement of financial
position on 1 July 2018.
1. Accounting for payments to customers for non-distinct goods and services
The adoption of IFRS 15 has required the Group to identify separate performance obligations in contracts
with customers. The Group makes payments or provides products to customers linked to a loyalty program
and distribution of sales and marketing related functions carried out by them. These costs have previously
been included in expenditure items in the income statement, but is now accounted for against revenue.
This change had no impact on net profit.
2. Accounting for refunds
When the customer has a right to return the product within a given period, the Group is obliged to refund
the purchase price. The Group recognises revenue when the goods have been formally accepted by the
customer or the goods have been delivered and the time period for rejection had expired as there is
uncertainty about the possibility of return. When goods are returned, revenue is derecognised and the
customer credited with value of the goods originally delivered.
In terms of IFRS 15, a refund liability for the estimated expected refunds of R19 million outstanding to
customers was recognised as an adjustment to trade and other payables on 1 July 2018. Simultaneously,
the Group has a right to recover the product from the customer where the customer exercises his right of
return, which right is included in trade and other receivables amounting to R12 million at 1 July 2018. The
asset is measured by reference to the former carrying value of the product. The costs to recover the
products are not material as the products are usually returned during the normal distribution process.
C. Impact of the adoption of IFRS 9 and IFRS 15 on equity accounted investments
Remgro's equity accounted investments followed the same transitional arrangements as described above.
The impact of the implementation of IFRS 9 from equity accounted investments on Remgro's statement of
financial position was a decrease amounting to R795 million in both equity accounted investments and
reserves. The amendment that had the largest impact was applying the expected credit losses on FirstRand
Limited's (FirstRand) results, which in turn affected RMB Holdings Limited's (RMH) statement of financial
position on 1 July 2018. The implementation of IFRS 9 by these two companies reduced Remgro's carrying
value of equity accounted investments and reserves by R735 million.
The impact of the implementation of IFRS 15 amounted to a reduction in the carrying value of equity
accounted investments and reserves of R298 million, of which R289 million is attributable to SEACOM
Capital Limited (SEACOM). SEACOM adjusted the accounting of its indefeasible right of use contracts
which included the obligation to provide services at various capacities across two networks and with
different pricing structures for which cash is received in advanced.
D. Impact of the adoption of IFRS 9 and IFRS 15 on the consolidated statement of financial position
The following table shows the adjustments recognised for each individual line item. Line items that were
not affected by the changes have not been included. As a result, the sub-totals and totals disclosed cannot
be recalculated from the numbers provided.
30 June 2018 1 July 2018
Consolidated statement of financial As previously
position (extract) presented IFRS 9 IFRS 15 Restated
ASSETS
Non-current assets
Investments - Equity accounted 73 722 (795) (298) 72 629
- Available-for-sale 3 067 (3 067) - -
- Financial assets at fair value
through other comprehensive
income - 3 067 - 3 067
Current assets
Debtors and short-term loans 8 599 (25) 12 8 586
Total assets 150 928 (820) (286) 149 822
EQUITY AND LIABILITIES
Reserves 84 865 (805) (298) 83 762
Shareholders' equity 98 098 (805) (298) 96 995
Non-controlling interest 15 348 (9) (4) 15 335
Total equity 113 446 (814) (302) 112 330
Deferred taxation 5 268 (6) (3) 5 259
Trade and other payables 9 904 - 19 9 923
Total equity and liabilities 150 928 (820) (286) 149 822
3. COMPARISON WITH THE PRIOR PERIODS
On 2 July 2018 the Unilever Spreads business, Siqalo Foods Proprietary Limited (Siqalo Foods), became
a wholly owned subsidiary of Remgro (refer to "Investment activities" for further detail). Furthermore and
as previously reported, Remgro holds the majority of voting rights in Distell Group Holdings Limited (Distell)
since 11 May 2018, which resulted in the investment in Distell being consolidated from that date.
As a result of the above transactions, certain line items in the statement of financial position and income
statement are not directly comparable with the prior periods. The initial accounting for these business
combinations has not yet been completed and the provisional fair values at the acquisition dates were as
follows:
At acquisition date
Siqalo
Foods Distell
R million 02 July 2018 11 May 2018
Property, plant and equipment 495 6 608
Intangible assets 1 710 10 169
Inventories 124 7 765
Debtors and short-term loans - 2 149
Cash and cash equivalents less bank overdraft - 1 306
Other net assets - 1 229
Long-term loans - (4 378)
Deferred taxation (assets and liabilities) (506) (3 693)
Trade and other payables (14) (3 857)
Non-controlling interest - (11 893)
Fair value of net assets acquired 1 809 5 405
Goodwill 5 191 3 535
Total purchase consideration 7 000 8 940
Siqalo Foods and Distell's revenue contributions for the period under review are R1 405 million and
R14 424 million (30 June 2018: R4 219 million), respectively.
4. RESULTS
Headline earnings
For the period under review, headline earnings decreased by 3.3% from R4 406 million to R4 259 million,
while headline earnings per share (HEPS) also decreased by 3.3% from 777.5 cents to 752.1 cents.
Included in headline earnings for the period under review is a positive fair value adjustment amounting to
R106 million (2017: R134 million), relating to the decrease in value of the bondholders' exchange option
of the exchangeable bonds (option remeasurement). Excluding the option remeasurement, headline
earnings decreased by 2.8% from R4 272 million to R4 153 million, whereas HEPS decreased by 2.7%
from 753.9 cents to 733.4 cents. The decrease in headline earnings, excluding option remeasurement, is
mainly due to lower earnings from Total South Africa Proprietary Limited (Total), Community Investment
Ventures Holdings Proprietary Limited (the CIV group), RCL Foods Limited (RCL Foods) and the exclusion
of Unilever South Africa Holdings Proprietary Limited (Unilever) due to its disposal. The decrease is partly
offset by the inclusion of Siqalo Foods and higher contributions from Mediclinic International plc
(Mediclinic), Grindrod Limited (Grindrod) and the banking platform, as well as higher interest income.
Contribution to headline earnings by reporting platform
Year
ended
31 Dec % 31 Dec 30 June
R million 2018 Change 2017 2018
Banking 1 775 5.8 1 678 3 525
Healthcare 623 27.9 487 1 556
Consumer products 932 (18.2) 1 140 1 605
Insurance 582 (7.0) 626 1 228
Industrial 412 (25.2) 551 971
Infrastructure (20) (162.5) 32 57
Media and sport 8 144.4 (18) (47)
Other investments 15 (48.3) 29 66
Central treasury
- finance income 397 53.3 259 524
- finance costs (459) (1.5) (452) (891)
- option remeasurement 106 (20.9) 134 261
Other net corporate costs (112) (86.7) (60) (282)
Headline earnings 4 259 (3.3) 4 406 8 573
Option remeasurement (106) (134) (261)
Headline earnings, excluding option
remeasurement 4 153 (2.8) 4 272 8 312
Refer to Annexures A and B for the segmental information.
Commentary on reporting platforms' performance
Banking
The headline earnings contribution from the banking platform amounted to R1 775 million (2017:
R1 678 million), representing an increase of 5.8%. FirstRand and RMH reported headline earnings growth
of 6.1% and 5.7% respectively. RMH reported lower growth due to higher funding costs.
On a normalised basis, which excludes certain non-operational and accounting anomalies, and is a better
reflection of underlying performance, FirstRand and RMH reported earnings growth of 7.1% and 6.7%
respectively. These increases are mainly due to growth in both net interest income, underpinned by solid
growth in advances and deposits, and non-interest revenue due to strong fee and commission income
growth. This growth in earnings was partly offset by an increase of 16% in non-performing loans, in part
reflecting strong book growth, as well as reflecting the IFRS 9 impairment provisioning methodology
resulting in an increase in credit impairment charges.
Healthcare
Mediclinic's contribution to Remgro's headline earnings amounted to R623 million (2017: R487 million),
representing an increase of 27.9%. As previously reported, Mediclinic's contribution for the comparative
period included an accelerated amortisation charge of R171 million relating to the rebranding of all the Al
Noor facilities to Mediclinic. Excluding the impact of the accelerated amortisation in the comparative period,
Mediclinic's contribution to Remgro's headline earnings would have decreased by 5.3% from R658 million
to R623 million. In British pound terms Mediclinic's contribution, excluding the accelerated amortisation,
decreased by 8.6% mainly due to a lower contribution from the Switzerland division, partly offset by a
stronger performance by the Southern Africa and Middle East operating divisions.
Switzerland's underperformance was a direct result of recent regulatory changes in the Swiss healthcare
market which impacted all providers. These changes included the implementation of national outpatient
tariff (TARMED) reductions and the outmigration of identified clinical treatments, transferring from an
inpatient to an outpatient tariff across many cantons. Steps have been taken to improve the current
financial performance through securing revenue growth, reducing costs and driving efficiency savings in
different areas of the business. Additional medium term actions include improving service differentiation
across insurance categories, doctor recruitment initiatives and advancing the outpatient delivery model.
Consumer products
The contribution from consumer products to Remgro's headline earnings amounted to R932 million (2017:
R1 140 million), representing a decrease of 18.2%.
RCL Foods' contribution to Remgro's headline earnings decreased by 26.5% to R366 million (2017:
R498 million). This decrease is mainly due to significant challenges within the Sugar and Chicken business
units resulting from lower prices realised, mainly due to oversupply, and higher commodity and transport
costs. Profitability in the Chicken business unit was hampered by dumped imports entering the market
leading to lower pricing and an increase in feed costs. The Sugar business unit was impacted by reduced
domestic sugar consumption, brought about by, inter alia, the implementation of the Health Promotion Levy
(sugar tax), and the continued volumes of dumped imports, resulting in a shift in sales mix towards raw
(unrefined) exports. Export prices were significantly lower than local prices due to suppressed worldwide
sugar prices. The Groceries cluster however, delivered solid growth, benefiting from volume and margin
increases in the Grocery and Pies portfolios and market share gains in several categories.
Distell's contribution to headline earnings amounted to R399 million (2017: R354 million), representing an
increase of 12.7%. Note that the comparative period included the contribution from Capevin Holdings
Limited. Distell reported headline earnings growth, adjusted for retrenchment and restructuring costs, the
Tanzania Distilleries Limited once-off losses in the comparative period and foreign exchange movements,
of 6.6%, mainly due to solid revenue growth in the South African and other African markets. In addition to
Distell's contribution, Remgro also accounted for amortisation and depreciation charges of R24 million
relating to the additional assets identified when Remgro obtained control over Distell on 11 May 2018.
On 2 July 2018 Unilever acquired Remgro's 25.75% shareholding in Unilever in exchange for Unilever's
Spreads business in Southern Africa, namely Siqalo Foods, as well as a cash consideration of
R4 900 million. As a result, no headline earnings contribution was accounted for Unilever (2017:
R288 million), however, Siqalo Foods' contribution to Remgro's headline earnings for the period under
review amounted to R231 million. In addition to Siqalo Foods' contribution, Remgro also accounted for
amortisation and depreciation charges of R40 million relating to the additional assets identified when
Remgro obtained control over Siqalo Foods.
Insurance
Rand Merchant Investment Holdings Limited's (RMI) contribution to Remgro's headline earnings decreased
by 7.0% to R582 million (2017: R626 million). On a normalised basis, RMI reported a decrease of 8.2% in
earnings mainly due to lower contributions from Discovery Holdings Limited (Discovery) and OUTsurance
Holdings Limited (OUTsurance). Discovery's contribution to RMI decreased by 16.6% due to significant
spend on new initiatives, a spike in large mortality claims at Discovery Life and the negative impact of the
transition from IAS 39 to IFRS 9. OUTsurance's contribution decreased by 5.8% due to exceptionally low
claims in the comparative period, higher natural peril claims in Australia, corrective pricing measures to
recognise lower accident frequencies and significant investments in new business growth activities. The
contribution of MMI Holdings Limited increased by 5.7% and that of Hastings Group Holdings plc decreased
by 8.9%.
Industrial
Air Products South Africa Proprietary Limited's (Air Products) contribution to Remgro's headline earnings
increased by 22.5% to R174 million (2017: R142 million). This increase is mainly due to an improvement
in gas volumes and successful cost containment initiatives.
Total's contribution to Remgro's headline earnings amounted to R101 million (2017: R258 million). Included
in the contribution to headline earnings for the period under review are unfavourable stock revaluations
amounting to R75 million (2017: favourable stock revaluations of R135 million). These revaluations are the
result of the volatility in the Brent Crude price and the rand exchange rate. Excluding these revaluations,
the contribution increased by 43.1% from R123 million to R176 million. This increase is mainly due to an
increase in turnover resulting from higher sales volumes in the mining and reseller sector.
Kagiso Tiso Holdings Proprietary Limited's (KTH) and Wispeco Holdings Proprietary Limited's (Wispeco)
contributions to headline earnings amounted to R77 million and R52 million (2017: R73 million and
R62 million), while PGSI Limited (PGSI) contributed R8 million to Remgro's headline earnings (2017:
R16 million).
Infrastructure
The CIV group's contribution to Remgro's headline earnings amounted to a loss of R104 million (2017:
profit of R32 million). The results were negatively impacted by the acquisition of a 34.9% stake in Vumatel
Proprietary Limited (Vumatel), which was implemented during June 2018. Included in the CIV group's
results were finance costs amounting to R136 million, relating to the financing of the Vumatel acquisition,
as well as Vumatel's equity accounted losses amounting to R41 million. Excluding the aforesaid Vumatel
impact, the contribution to headline earnings decreased from a profit of R32 million to a loss of R11 million
mainly due to Dark Fibre Africa Proprietary Limited's (DFA) higher depreciation and finance costs as a
result of the expanding network. Despite the decrease in earnings, DFA's revenue increased by 18.2% to
R1 067 million (2017: R903 million) mainly due to strong growth in annuity revenue.
Grindrod's contribution to Remgro's headline earnings amounted to R101 million (2017: a loss of
R52 million). The increase is mainly due to improved results across core businesses, resulting from
increased commodity demand, whereas the comparative period included stock impairments in the rail
assembly business, due to the closure of this business unit, and losses from the shipping division.
During June 2018 Grindrod completed the separate listing of its shipping division and Remgro received
Grindrod Shipping Holdings Limited (Grindrod Shipping) shares as a dividend in specie. Grindrod
Shipping's contribution to Remgro's headline earnings amounted to a loss of R18 million (included in the
2017 contribution of Grindrod: R62 million).
Remgro's share of SEACOM's loss amounted to R1 million (2017: a profit of R32 million). This decrease is
mainly due to a once-off realisation of deferred revenue relating to the early termination of long-term
contracts in the comparative period, as well as the negative impact of the implementation of IFRS 15 in the
period under review.
Media and sport
Media and sport primarily consist of the interests in eMedia Investments Proprietary Limited (eMedia
Investments) and various sport interests, including an interest in the Blue Bulls rugby franchise and
Stellenbosch Academy of Sport Properties Proprietary Limited.
eMedia Investments' contribution to Remgro's headline earnings increased to R11 million (2017:
R3 million). This increase is mainly due to an increase in revenue, as well as a lower investment into the
multi-channel business (Openview and e.tv multichannel).
Other investments
The contribution from other investments to headline earnings amounted to R15 million (2017: R29 million),
of which Business Partners Limited's contribution was R29 million (2017: R29 million).
Central treasury and other net corporate costs
Finance income amounted to R397 million (2017: R259 million). This increase is mainly due to higher
average cash balances as a result of the Unilever disposal. Finance costs amounted to R459 million (2017:
R452 million). The positive fair value adjustment of R106 million (2017: R134 million) relates to the
decrease in the value of the exchange option of the exchangeable bonds. Other net corporate costs
amounted to R112 million (2017: R60 million). The increase in other net corporate costs is mainly due to
the utilisation of corporate taxation credits in the comparative period.
Earnings
Earnings increased by 149.3% to R10 297 million (2017: R4 131 million). This increase is mainly due to
the profit realised on the Unilever disposal of R8 318 million. This increase is partly offset by Remgro's
portion of the impairments of Mediclinic's properties and trade names in Switzerland and its investment in
Spire Healthcare Group plc of R1 954 million (2017: R830 million).
5. INTRINSIC NET ASSET VALUE
Remgro's intrinsic net asset value per share decreased by 10.4% from R256.97 at 30 June 2018 to
R230.23 at 31 December 2018. The closing share price at 31 December 2018 was R194.74
(30 June 2018: R204.29) representing a discount of 15.4% (30 June 2018: 20.5%) to the intrinsic net asset
value. Refer to Annexure B for full details.
6. INVESTMENT ACTIVITIES
The most important investment activities during the period under review were as follows:
Unilever
On 2 July 2018 Unilever acquired Remgro's 25.75% shareholding in Unilever in exchange for Unilever's
Spreads business in Southern Africa, as well as a cash consideration of R4 900 million, representing a total
transaction value of R11 900 million. This transaction valued the Unilever Spreads business at
R7 000 million. The Unilever Spreads business was transferred to Siqalo Foods, which became a wholly
owned subsidiary of Remgro on 2 July 2018.
Remgro's investment in Unilever was previously classified as an associate and accounted for using the
equity method. With effect from 2 July 2018, Remgro consolidated Siqalo Foods at 100.0%, while the
investment in Unilever, with a carrying value of R3 582 million, was disposed of for a consideration of
R11 900 million, realising an accounting profit on the disposal of investment of R8 318 million.
In terms of IFRS 3: Business Combinations the purchase price of Siqalo Foods was R7 000 million. The
preliminary fair value of the underlying assets acquired and liabilities assumed at the effective date were:
intangible assets of R1 710 million, property, plant and equipment of R495 million, and other net liabilities
of R396 million. The balance of R5 191 million, being the difference between the purchase price and Siqalo
Foods' identifiable net assets, was allocated to goodwill.
The fair value adjustment to Siqalo Foods' statement of financial position relates mainly to the recognition
of brands (inter alia Rama, Stork and Flora) and non-contractual customer relationships. The amortisation
of these additional assets will result in an annual after-tax expense of R80 million included in headline
earnings. The impact on headline earnings for the six months ended 31 December 2018 amounted to
R40 million.
Community Investment Ventures Holdings Proprietary Limited (CIVH)
During July 2018, CIVH repurchased 6.3% of its shares from a shareholder, which increased Remgro's
interest in CIVH to 54.5% (30 June 2018: 51.0%). On 29 August 2018 and 27 September 2018 Remgro
subscribed for 10 834 CIVH shares amounting to R324 million and 16 596 CIVH shares amounting to
R490 million, respectively, in terms of two CIVH rights issues. These share subscriptions did not alter
Remgro's interest in CIVH.
Prescient China Equity Fund (Prescient)
During October 2018, Remgro invested $50 million in Prescient. Prescient was launched during
October 2018 and Remgro and Reinet Investments S.C.A. provided the seed capital. Prescient, which uses
a systematic, quantitative approach to seek long term capital growth, invests in listed stocks in the Chinese
market and is benchmarked to the Shanghai Shenzhen CSI 300 index.
Milestone Capital Strategic Holdings Limited (MCSH)
Remgro previously invested $43 million in MCSH, consisting of an interest bearing loan of $38 million and
an investment of $5 million. During August 2018 MCSH repaid the loan and interest amounting to
$42 million and Remgro disposed of its investment in MCSH for a total purchase consideration of
$28 million. The purchase consideration was settled with cash amounting to $6 million, 10 714 310 Li Ning
Company Limited (Li Ning) shares valued at $12 million and JHL Biotech, Inc. bonds (JHL bonds) valued
at $10 million.
During December 2018 and January 2019, Remgro disposed of 607 500 Li Ning shares for $1 million and
10 106 810 Li Ning shares for $11 million, respectively. The JHL bonds are held in escrow and will be
utilised as Remgro's first contribution towards Milestone China Opportunities Fund IV (the Fund). Remgro
committed up to a maximum amount of $100 million to the Fund during the period under review.
RMI
On 11 September 2018 RMI declared its final dividend for the year ended 30 June 2018, which included an
alternative to the cash dividend of either receiving a scrip distribution or reinvesting the cash dividend by
subscribing for new RMI ordinary shares. Remgro elected to reinvest its cash dividend amounting to
R300 million, and received 7 894 998 new RMI ordinary shares at R38.00 per share.
RCL Foods
During December 2018 Remgro acquired a further 7 042 924 RCL Foods shares for a total amount of
R115 million. This transaction marginally increased Remgro's effective interest in RCL Foods to 77.5%
(30 June 2018: 77.0%).
Premier Team Holdings (PTH) and Saracens Copthall LLP (Copthall)
On 24 October 2018, Remgro entered into an agreement in terms of which it disposed of its 50.0% interest
in PTH (the entity that owns the Saracens rugby club) for a nominal amount with the right to sell its 49.5%
interest in Copthall (the entity that houses the Saracens club's stadium, Allianz Park) after three years for
GBP8 million. The combined transaction gave Remgro the ability to completely exit the Saracens Group.
Remgro's investments in PTH and Copthall were previously classified as associates and accounted for
using the equity method. With effect from 24 October 2018, Remgro disposed of its investment in PTH and
derecognised its associated investment in Copthall. The right to sell Copthall is classified as a financial
instrument with fair value movements accounted for through profit and loss.
Other
Other smaller investments amounted to R145 million.
Events after 31 December 2018
There were no significant transactions subsequent to 31 December 2018.
7. INFORMATION REGARDING UNLISTED INVESTMENTS
Siqalo Foods
Siqalo Foods owns the trademarks for Rama, Flora, Stork, Rondo and other spreads related brands in the
Southern African Customs Union (SACU) countries, as well as a production facility. The business was
acquired on 2 July 2018 as part of the consideration received on the disposal of Remgro's 25.75%
shareholding in Unilever.
During the period under review, Unilever continued to act as principal as part of its obligation under the
transition agreement. Siqalo Foods will assume full operational accountability by the end of March 2019.
Siqalo Foods' contribution to Remgro's headline earnings for the six months under review amounted to
R231 million. The spreads business generated higher headline earnings mainly due to lower overhead
charges by Unilever during the transition agreement period, a better gross margin realisation from lower
cost inputs, as well as strong underlying volume growth during the period.
Air Products
Air Products has a September year-end and its results for the six months ended 30 September 2018 have
been included in Remgro's results for the period under review. Air Products' contribution to Remgro's
headline earnings for the period under review increased by 22.5% to R174 million (2017: R142 million).
Turnover for Air Products' six months ended 30 September 2018 increased by 7.8% to R1 609 million
(2017: R1 492 million), while the company's operating profit for the same period increased by 12.4% to
R490 million (2017: R436 million).
The period under review saw some improvement in gas volumes, particularly in the On-sites and large
tonnage gases businesses, as well as some successful cost containment initiatives.
KTH
KTH is a leading black-owned investment company with a strong and diversified asset portfolio covering
the industrial, services, media, financial services and healthcare sectors.
KTH's contribution to Remgro's headline earnings for the period under review amounted to R77 million
(2017: R73 million). The increase in earnings was mainly due to positive equity accounting results from
investments, reduced operating costs for the group and a decrease in the net finance cost paid during the
period to R73 million (2017: R117 million).
KTH's profit attributable to ordinary shareholders amounted to R101 million (2017: R138 million loss). The
increase in attributable profit was driven by positive equity accounted results from investments and a
decrease in impairments recognised compared to the comparative period. The increase was partly offset
by the loss recognised on the disposal of XK Platinum Partnership and lower group revenue for the period.
The comparative period included an impairment of the investment in Actom Investment Holdings
Proprietary Limited of R412 million which was partly offset by the reversal of impairment of XK Platinum
Partnership (R146 million).
Income from equity accounted investments increased to R220 million (2017: R50 million), partly due to
significant losses recognised in the comparative period on certain equity accounted investments which
yielded positive returns during the period. The major contributors to equity accounted earnings during the
reporting period were the investments in MMI Holdings Limited, Fidelity Bank (Ghana) Limited, Eris
Property Fund and XK Platinum Partnership.
Total
Total has a December year-end and its results for the six months to 31 December 2018 have been included
in Remgro's results for the period under review. Total's contribution to Remgro's headline earnings for the
six months to 31 December 2018 amounted to R101 million (2017: R258 million).
Total's turnover for the six months ended 31 December 2018 increased by 30.8% to R39 505 million (2017:
R30 196 million), mainly due to the increase in the basic fuel price and increased sales volumes in the
mining and reseller sector during the period under review.
The results were negatively impacted by stock revaluation losses of R420 million (2017: gains of
R753 million) due to the sharp decrease in the average basic fuel price and in crude prices during the last
two months of the period under review.
Total experienced lower refining margins in comparison to 2017, due to the impact of the unfavourable
market environment. Natref's average refining margin indicator for the period under review decreased from
$54 per ton to $40 per ton mainly due to the significant increase in average Brent crude price of $71 per
barrel from $56 per barrel.
PGSI
PGSI's contribution to Remgro's headline earnings for the six months to 31 December 2018 amounted to
R8 million (2017: R16 million). PGSI's turnover for the period under review increased from R2 171 million
to R2 238 million. The group's normalised operating profit, which excludes the impact of asset impairments
and charges for the early adoption of new IFRS standards, decreased from R114 million to R93 million.
The group's main operating subsidiary in South Africa, PG Group, manufactures and supplies glass for the
building and automotive industries. The building glass businesses reported a decline in profits due to weak
domestic demand and growing pressure on selling prices in a competitive and oversupplied market. The
automotive businesses fared better despite economic pressures on consumers, lower claims from the
insurance sector and variable demand in export markets. Supplies to local automotive assembly operations
have been challenged by very competitive pricing, especially out of China. The Rest of Africa businesses
reported a decline in profitability with many regions impacted by weaker economic activity, as well as
political instability in some regions.
While the economic climate remains challenging, the group has made good progress in the areas of cost
reduction, manufacturing quality and performance efficiencies. Initiatives to focus on market requirements
and improve the service offering to its customers are progressing well.
Wispeco
Wispeco's turnover for the six months ended 31 December 2018 increased by 16.4% to R1 253 million
(2017: R1 076 million). This resulted mainly from higher selling prices linked to the combined effect of the
global price of aluminium and the rand-dollar exchange rate. Sales volumes for the period were slightly
higher in a subdued Southern African market. Despite higher import duties, price competition against
imports remains intense and margins are tight. Headline earnings for the period under review decreased
to R52 million (2017: R62 million).
Wispeco drives improvement of internal efficiencies and invests in state-of-the-art manufacturing processes
to remain cost effective and competitive against low cost imports. Opportunities to expand its distribution
footprint in Southern Africa are also pursued on an ongoing basis. Wispeco continues to lead the market
with product innovation and software solutions to support the sale of its products. The Crealco brand is
gaining prominence and is firmly positioned as the local benchmark for architectural aluminium products.
CIV group
Remgro has an effective interest of 54.5% in the CIV group, which is active in the telecommunications and
information technology (ICT) sector. The key operating company of the group is Dark Fibre Africa
Proprietary Limited (DFA), which constructs and owns fibre-optic networks. The CIV group also acquired a
34.9% interest in Vumatel Proprietary Limited (Vumatel) during June 2018. Vumatel is a leader in the Fibre-
to-the-Home (FTTH) market. Vumatel's FTTH network spans over 8 000 km over a residential area footprint
which it leases to Internet Services Providers (ISPs), who in turn sell internet products to the consumer.
DFA also has a 90.0% investment in an FTTH operator, South African Digital Villages (SADV), and a 100%
share in Sqwidnet, an Internet-of-Things (IOT) network provider.
The CIV group has a March year-end and therefore its results for the six months ended 30 September 2018
have been included in Remgro's results for the period under review. The CIV group's contribution to
Remgro's headline earnings for the period under review amounted to a loss of R104 million (2017:
R32 million profit). Included in the CIV group's results are finance costs amounting to R136 million, relating
to the financing of the Vumatel acquisition, as well as Vumatel's equity accounted losses amounting to
R41 million. Excluding the aforesaid Vumatel impact, the contribution to headline earnings decreased from
a profit of R32 million to a loss of R11 million mainly due to higher finance costs and depreciation as a
result of the expanding network.
DFA's revenue for the six months ended 30 September 2018 increased by 18.2% to R1 067 million (2017:
R903 million) mainly as a result of solid growth of 24.1% in annuity revenue. DFA's EBITDA for the period
under review increased by 9.5% to R597 million. The current book value of the fibre-optic network is in
excess of R9 billion (30 June 2018: R8 billion). DFA has thus far secured a healthy annuity income of
R152 million per month, with the majority thereof being on long-term contracts with customers.
DFA owns fibre network in all major metropolitan areas, as well as a number of smaller metropolitan areas,
including East London, Polokwane, Tlokwe, Emalahleni, George and Pietermaritzburg. At
30 September 2018, a total distance of 11 190 km (September 2017: 10 138 km) of fibre network had been
completed in the major metropolitan areas, small towns and on long-haul routes. The SADV network adds
another 2 500 km of fibre network.
The DFA revenue model is flexible to adapt to customers' needs and DFA either sells an indefeasible right
of use agreement, which is a lump sum in advance, or on an annuity basis with multi-year contracts of
mostly up to 15 years.
SEACOM
Remgro has an effective interest of 30.0% in SEACOM, which operates Africa's largest international data
network connecting Southern and Eastern Africa with Europe and Asia.
SEACOM has a December year-end and its results for the six months to 31 December 2018 have been
included in Remgro's results for the period under review. SEACOM contributed a loss of R1 million (2017:
headline profit of R32 million) to Remgro's headline earnings for the period under review.
SEACOM's core sales and revenue streams are generated from its established base of Service Provider
(wholesale) customers that also provide the basis for network scale, cost reductions and service innovation.
The Service Provider segment continues to see strong demand for international capacity from large Over
The Top providers and from the growth of Internet Protocol Transit traffic from local ISPs. The SEACOM
international and terrestrial networks are continuously upgraded to keep pace with this demand.
SEACOM Business provides the platform for future growth and improved profitability as the number and
size of corporate customers increases. Revenue for the period under review grew by 35.0%. SEACOM
Business has a healthy pipeline to continue to grow sales and revenue in 2019. In addition to organic
growth, SEACOM Business continues to make acquisitions of ISPs focused largely on the enterprise
market. The acquisitions have had a significantly positive contribution in the reporting period. SEACOM
Business continues to focus its investments on in-building fibre reticulation and terrestrial fibre to unlock
previously unserved areas. The acquisition of FibreCo Holdings Proprietary Limited will enable SEACOM
to grow its customer base, delivering large capacity services between key cities and towns in South Africa.
8. TREASURY SHARES
At 30 June 2018, 1 389 033 Remgro ordinary shares (0.3%) were held as treasury shares by a wholly
owned subsidiary of Remgro. As previously reported, these shares were acquired for the purpose of
hedging Remgro's share incentive scheme.
During the period under review Remgro repurchased a further 2 000 000 Remgro ordinary shares at an
average price of R198.07 per share for a total amount of R396 million, while 13 699 Remgro ordinary
shares were utilised to settle Remgro's obligation towards scheme participants who exercised the rights
granted to them.
At 31 December 2018, 3 375 334 (0.6%) Remgro ordinary shares were held as treasury shares.
CHANGES TO DIRECTORATE
Mr Anthony Edward Rupert has been appointed as a non-executive director of Remgro with effect from the close
of business on 29 November 2018.
DECLARATION OF CASH DIVIDEND
Declaration of Dividend No. 37
Notice is hereby given that an interim gross dividend of 215 cents (2017: 204 cents) per share has been declared
out of income reserves in respect of both the ordinary shares of no par value and the unlisted B ordinary shares
of no par value, for the half-year ended 31 December 2018.
A dividend withholding tax of 20% or 43 cents per share will be applicable, resulting in a net dividend of 172 cents
per share, unless the shareholder concerned is exempt from paying dividend withholding tax or is entitled to a
reduced rate in terms of an applicable double-tax agreement.
The issued share capital at the declaration date is 529 217 007 ordinary shares and 39 056 987 B ordinary shares.
The income tax number of the Company is 9500-124-71-5.
Dates of importance:
Last day to trade in order to participate in the dividend Tuesday, 9 April 2019
Shares trade ex dividend Wednesday, 10 April 2019
Record date Friday, 12 April 2019
Payment date Monday, 15 April 2019
Share certificates may not be dematerialised or rematerialised between Wednesday, 10 April 2019, and Friday,
12 April 2019, both days inclusive.
In terms of the Company's Memorandum of Incorporation, dividends will only be transferred electronically to the
bank accounts of shareholders, while dividend cheques are no longer issued. In the instance where shareholders
do not provide the Transfer Secretaries with their banking details, the dividend will not be forfeited, but will be
marked as "unclaimed" in the share register until the shareholder provides the Transfer Secretaries with the
relevant banking details for payout.
Signed on behalf of the Board of Directors.
Johann Rupert Jannie Durand
Chairman Chief Executive Officer
Stellenbosch
19 March 2019
DIRECTORATE
Non-executive directors
Johann Rupert (Chairman), E de la H Hertzog (Deputy Chairman),
J Malherbe (Deputy Chairman), S E N De Bruyn*, G T Ferreira*,
P K Harris*, N P Mageza*, P J Moleketi*, M Morobe*, F Robertson*,
A E Rupert
(* Independent)
Executive directors
J J Durand (Chief Executive Officer),
M Lubbe, N J Williams
CORPORATE INFORMATION
Secretary
D I Heynes
Listing
JSE Limited
Sector: Industrial - Diversified Industrial
Business address and registered office
Millennia Park, 16 Stellentia Avenue, Stellenbosch 7600
(PO Box 456, Stellenbosch 7599)
Transfer Secretaries
Computershare Investor Services Proprietary Limited,
Rosebank Towers, 15 Biermann Avenue, Rosebank 2196
(PO Box 61051, Marshalltown 2107)
Auditors
PricewaterhouseCoopers Inc.
Stellenbosch
Website
www.remgro.com
ANNEXURE A
COMPOSITION OF HEADLINE EARNINGS
Six months ended
R million 31 December 2018 31 December 2017
Banking
RMH 1 252 1 185
FirstRand 523 493
Healthcare
Mediclinic 623 487
Consumer products
Unilever - 288
RCL Foods 366 498
Distell(1) - entity contribution 399 354
- IFRS 3 charge(2) (24) -
Siqalo Foods - entity contribution 231 -
- IFRS 3 charge(2) (40) -
Insurance
RMI 582 626
Industrial
Air Products 174 142
Total 101 258
KTH 77 73
Wispeco 52 62
PGSI 8 16
Infrastructure
CIV group (104) 32
Grindrod 101 (52)
Grindrod Shipping (18) -
SEACOM (1) 32
Other infrastructure interests 2 20
Media and sport
eMedia Investments 11 3
Other media and sport interests (3) (21)
Other investments 15 29
Central treasury
Finance income 397 259
Finance costs (459) (452)
Option remeasurement 106 134
Other net corporate costs (112) (60)
Headline earnings 4 259 4 406
Weighted number of shares (million) 566.3 566.7
Headline earnings per share (cents) 752.1 777.5
Note
(1.) The comparative period includes the investment in Capevin Holdings Limited.
(2.) IFRS 3 charge represents the amortisation and depreciation expenses, net of tax, relating to the additional assets identified when Remgro
obtained control over these entities.
ANNEXURE B
COMPOSITION OF INTRINSIC NET ASSET VALUE
31 December 2018 30 June 2018
R million Book value Intrinsic value Book value Intrinsic value
Banking
RMH 15 736 31 359 15 385 30 123
FirstRand 5 586 14 412 5 486 14 045
Healthcare
Mediclinic(1) 29 758 19 676 29 373 31 329
Consumer products
Unilever - - 3 588 11 900
RCL Foods 8 541 9 444 8 128 11 534
Distell(1, 2) 9 280 7 502 9 110 9 674
Siqalo Foods(3) 7 191 5 959 - -
Insurance
RMI 8 930 17 107 8 479 17 285
Industrial
Air Products 1 053 3 831 1 026 4 158
Total 2 048 2 679 2 007 2 382
KTH 1 989 2 095 1 964 2 218
Wispeco 927 941 874 984
PGSI 695 759 692 692
Infrastructure
CIV group 3 122 5 563 2 301 4 940
Grindrod 1 065 1 065 1 624 1 624
Grindrod Shipping 326 326 623 623
SEACOM 45 858 353 870
Other infrastructure interests 265 265 256 256
Media and sport
eMedia Investments 877 802 866 866
Other media and sport interests 277 272 223 268
Other investments 4 353 4 460 4 060 4 196
Central treasury
Cash at the centre(4) 17 212 17 212 13 704 13 704
Debt at the centre (14 114) (14 114) (14 097) (14 097)
Other net corporate assets 1 724 2 191 2 073 2 536
Intrinsic net asset value (INAV) 106 886 134 664 98 098 152 110
Potential CGT liability(5) (4 606) (6 438)
INAV after tax 106 886 130 058 98 098 145 672
Issued shares after deduction of shares
repurchased (million) 564.9 564.9 566.9 566.9
INAV after tax per share (Rand) 189.21 230.23 173.04 256.97
Remgro share price (Rand) 194.74 204.29
Percentage discount to INAV 15.4 20.5
Notes
(1.) Remgro determined recoverable amounts for Mediclinic and Distell which are in excess of the investments' carrying values.
(2.) The prior year includes the investment in Capevin Holdings Limited.
(3.) The initial accounting for the Siqalo Foods business combination, including the allocation of goodwill, has not yet been completed. The impairment
assessment of goodwill will be performed at 30 June 2019 when the accounting for the acquisition has been finalised.
(4.) Cash at the centre excludes cash held by subsidiaries that are separately valued above (mainly RCL Foods, Distell, Siqalo Foods and Wispeco).
(5.) The potential capital gains tax (CGT) liability is calculated on the specific identification method using the most favourable calculation for investments
acquired before 1 October 2001 and also taking into account the corporate relief provisions. Deferred CGT on investments at fair value through
other comprehensive income is included in "other net corporate assets" above.
(6.) For purposes of determining the intrinsic net asset value, the unlisted investments are shown at directors' valuation and the listed investments are
shown at stock exchange prices.
Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Date: 19/03/2019 05:01:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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