Remgro’s R12.3bn cash balance positioned for a tough 18 months — with more acquisition opportunities
Investment holdings company Remgro saw headline earnings rocket 125% to R6.5bn for the year to end June 2022, coming off a low base in 2021 that had been hit by the pandemic, civil unrest in KwaZulu-Natal and continuous power interruptions.
Remgro chief executive Jannie Durand says despite the extreme events of 2021, Remgro managed to deliver a robust recovery, with most financial metrics ahead of pre-pandemic levels.
The group has been on the acquisition trail over the past year, with the recently announced cash acquisition of Mediclinic, as well as Distell, Community Investment Ventures Holdings (CIVH) and Rand Merchant Investment transactions. The Mediclinic, Distell and CIVH transactions are still subject to regulatory approvals.
Despite the evident challenges and negative outlook on a global scale, Remgro believes its track record of prudent management and strong financial position stand it in good stead to weather the current storms.
The company is sitting on around R12.3-billion in cash.
Durand says a portion of this will go towards increasing its 44% stake in Mediclinic to 50% when the deal goes through.
“However, we really want to have buying power on the balance sheet. We fully expect some very tough times over the next 12 to 18 months — markets are tight, inflation is high, interest rates are rising. So, our two focus points are to ensure the companies are well capitalised… and the other thing is that you sometimes pick up good opportunities in difficult times.
“We’re always looking for opportunities for further acquisitions, and that cash on the balance sheet ensures we are ready if an opportunity arises,” Durand said.
The results for the year under review were positively impacted by TotalEnergies’ favourable stock revaluations, CIVH turning profitable and lower finance costs due to the redemption of the exchangeable bonds during March 2021.
The increase is partly offset by a lower contribution from RMI, due to the unbundling of its investments in Discovery and Momentum Metropolitan, as well as the disposal of its investment in the Hastings Group during the year under review.
Total earnings increased 270% to R13.1-billion, mainly due to Remgro’s portion of the profits realised by RMI on the unbundling of its investments in Discovery and Momentum Metropolitan (R4.7-billion) and the disposal of its investment in Hastings (R1.5-billion).
Compared with the reported headline earnings from continuing operations for the 2019 financial year of R5.5-billion — which represents a reasonable comparison to a pre-pandemic period — headline earnings increased by 17%, which indicates that the earnings of most of Remgro’s underlying investee companies have substantially recovered to pre-pandemic levels.
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Shareholders saw dividends jump 67% to R1.50, although Durand admits there is “some lag between the earnings and the cash dividend”.
Management expects further improvements in terms of cash generation in the year ahead, and “if things stay the same”, dividends are fully expected to grow further in 2023.
The infrastructure portfolio, including Grindrod, Dark Fibre and CIVH, moved from a loss of R376-million to a profit of R613-million. Durand noted that Grindrod mainly runs the privatised port in Maputo.
“The efficiency and what they can handle compared to the South African ports is unbelievable… there’s a valuable lesson there,” he said.
With regard to the Heineken/Distell deal, Remgro declined to accept a cash offer for its majority stake in Capevin, which will house the group’s Scotch whisky business. Commenting on this, Durand said management still sees value in Capevin.
“We’re happy to have unlisted shares. We see a lot of growth opportunities for the combined company with Heineken and Distell, with particularly exciting prospects into the rest of Africa,” he said.
Although shareholders by and large approved the Remgro buy-out of Mediclinic this week, Durand says there are still some significant regulatory hoops to jump through.
“We are not expecting any showstoppers, but the process is likely to take some time. Until that happens, Mediclinic will remain as it is. It is part of our current strategy to move towards more unlisted assets,” he said.
Durand kept mum on the potential disposal of the 25% stake in TotalEnergies. “We can only say that we are reviewing all our investments, including that one (TotalEnergies).
“If you just look at total results, they are great, with great margins. The demand has picked up, so from that perspective, the company has done well,” he said. BM/DM