Johann Rupert’s Remgro feels the pain

Remgro’s performance struggled in its 2024 financial year, as corporate actions and the poor performance of some of its investments saw its profit drop by more than 70%.

This was revealed in Remgro’s results for the year through June 2024, which were released on Thursday.

Remgro said the 2024 financial year was challenging, and the continued focus on concluding and integrating a series of transformative corporate actions was still impacting its results.

“While strong contributions were made by some of Remgro’s investee companies, considerable work still needs to be done to bed down the operational performance of a number of its key investments,” the company said. 

“Remgro remains committed to the portfolio repositioning and optimisation, enabled by the aforementioned corporate actions, and the ultimate benefits of this journey for the group.” 

“Even as the current unsatisfactory performance overshadows continued progress on some of its key strategic initiatives, Remgro maintains a disciplined and long-term approach in deploying and managing its resources.”

Remgro’s headline earnings decreased by 20% from R7.06 billion to R5.65 billion, while headline earnings per share (HEPS) decreased by 18.8% from 1,254 cents to 1,018 cents. 

The difference between HEPS and headline earnings represents the impact of shares repurchased during the 2023 financial year and the beginning of 2024.

Remgro said many of the macroeconomic challenges of the past 18 months remained for a large part of the year under review, in some instances exacerbated by the volatility experienced in the lead-up to the National Elections in May 2024. 

However, the company highlighted several macroeconomic improvements, including improving inflation, fewer incidents of load-shedding, and a reduction in fuel prices.

It said this, together with the establishment of the Government of National Unity, has improved global investor sentiment towards South Africa.

“Against the improving macroeconomic context, this set of results is not reflective of the potential of Remgro’s portfolio,” Remgro CEO Jannie Durand said. 

“The trading results of Heineken Beverages Holdings were the consequence of a number of operational challenges as well as a persistently challenging consumer environment.” 

“As a result, and despite the company’s current challenges being situation-specific, it has significantly contributed to the material decline in headline earnings.” 

In response to these challenges, Remgro said it will continue to make gradual progress in its strategic initiatives and has, to date, seen early indications of positive momentum. 

This can be seen in the considerably improved performances of both RCL Foods and Rainbow Chicken.

The company said a key priority remains embedding the recent corporate actions, and a significant driver of the decline in headline earnings is the effect of this process, the majority of which are non-recurring items.

For the current and comparative years, these corporate actions and their negative impact on headline earnings amounts to R766 million – 2023 saw a positive impact of R581 million – and includes the following:

• Remgro’s portion of the IFRS 3 amortisation and depreciation charges amounting to R257 million (2023: R56 million) relating to the Distell/Heineken transaction, as well as Remgro’s portion of transaction costs amounting to R196 million, which were incurred by Distell in 2023.
• Remgro’s portion of an increase in a redemption liability amounting to R344 million (2023: decrease in liability of R338 million), relating to Mediclinic’s acquisition of Hirslanden La Colline Grangettes SA
• Remgro’s portion of transaction costs amounting to R165 million (2023: R612 million), which were incurred in respect of the acquisition, through Remgro’s 50% interest in Manta Bidco, which is jointly owned by Remgro and MSC Mediterranean Shipping Company SA
• A foreign exchange gain of R522 million relating to the Mediclinic acquisition in 2023.
• Remgro’s portion of a debt forgiveness gain amounting to R227 million was accounted for by Kagiso Tiso Holdings in 2023 as part of the disposal of its investment in Actom Investment Holdings 
• A dividend received from the Pembani Remgro Infrastructure Fund of R358 million relating to its disposal of the ETG Group in the comparative year.

Remgro explained that, excluding the impact of the above-mentioned corporate actions, the muted headline earnings performance resulted from mixed operational performances from investee companies, of which the most significant are:

• Increased contributions from RCL Foods, TotalEnergies Marketing South Africa, OUTsurance, Siqalo Foods and Air Products South Africa due to improved operating performances
• An increased loss contributed by Heineken Beverages of R297 million, partly offset by a higher contribution from Capevin Holdings of R65 million, compared to Distell’s contribution of R751 million in 2023
• A lower contribution from Community Investment Ventures Holdings is mainly due to higher finance costs resulting from increased interest rates and higher maintenance and security costs to ensure high network uptime.

This saw Remgro’s total earnings amount to R1.24 billion, down significantly from the R9.62 billion recorded in 2023. 

Its net profit for the year fell from R5.70 billion to R1.28 billion – a 78% decrease.

This decrease in earnings is mainly due to the decrease in headline earnings, the impairment of Remgro’s investment in Heineken Beverages (R4.26 billion), and Remgro’s portion of the impairments of Heineken Beverages’ goodwill created through the Distell/Heineken transaction (R1.05 billion). 

For the 2023 financial year, Remgro accounted for a profit on disposal of R3.38 billion in respect of the Distell/Heineken transaction. 

The decrease was partially offset by the profit realised on the disposal of the investment in DC Foods, Remgro’s portion of the profit realised by RCL Foods on the disposal of its Vector Logistics business and Remgro’s portion of the profit realised by Capevin on the termination of the Gordon’s Gin agreement.

Remgro’s intrinsic net asset value per share increased by 1.0% from R248.47 on 30 June 2023 to R251.01 on 30 June 2024. 

Based on these results, Remgro declared a final gross dividend of 184 cents per share, up 10% from the amount declared last year.