The investment holding company founded by Anton Rupert in the 1940s has swung into a loss, which it blames on a mixture of macroeconomic and geopolitical instability compounded by South Africa’s power crisis, breakdown in state infrastructure, lumbering economic and structural reforms, high interest rates and the erosion of foreign investment confidence.

Remgro, listed by Forbes as the ninth biggest publicly traded company in South Africa and the 1436th in the world in 2015, says its headline earnings per share for the six months ending 31 December 2023 are down by 39.1% (from 626 cents to 381 cents) and headline earnings had diminished by 13.1%.

Certainly, its results tell a sad tale of loss after loss — primarily related to the Distell-Heineken merger, and a disappointing contribution from Community Investment Ventures Holdings (CIVH), the parent of Vumatel and Dark Fibre Africa, which has reported a 96.7% plunge in headline earnings. CIVH contributed a meagre R6-million to Remgro’s headline earnings — down from R184-million over the same six-month period in 2022.

Remgro attributes this decrease in earnings mainly due to higher finance costs resulting from increased interest rates. Vumatel, which is heavily indebted, hiked revenue for the six months to 30 September 2023 by 11% to R1.82-billion, driven by its fibre infrastructure expansion programme and subscriber uptake growth. Vuma’s Reach network (aimed at the lower-income market) has expanded by 11%, with Reach homes exceeding a million and subscribers increasing by 20%. In the same period, Dark Fibre Africa’s (DFA) revenue increased 3% to R1.34-billion.

Vodacom’s plans to acquire up to 40% of CIVH’s newly created wholly owned subsidiary, Maziv, which holds its current interests in Vumatel and DFA, are in jeopardy after the Competition Commission recommended in August 2023 that the Tribunal prohibits the proposed transaction. The Tribunal is set to hear the matter in May.

The deal would dilute Remgro’s indirect interest in DFA and Vumatel while also obtaining an indirect interest in the Vodacom assets.

Remgro and CIVH say they remain committed to the proposed transaction and believe that should the proposed transaction ultimately be permitted, it will deliver significant benefits to South consumers and the economy. “These include the very real and tangible positive social impacts relating to critical issues such as the democratisation of the internet in lower-income areas, greater access to cheaper fibre to the greater South Africa, as well as the potential for job creation, and broader growth of the economy.

The group is hopeful that the proposed transaction will be given the green light, Remgro CEO Jannie Durand said: “We, together with the CIVH and Vodacom management teams, fundamentally believe in the value of this transaction; the benefits for all stakeholders that stand to be unlocked through its successful completion. These benefits include the very real and tangible positive social impact relating to critical issues such as the democratisation of the internet in rural and lower-income areas by means of providing cheaper fibre to the greater South Africa; the potential for job creation, and economic growth for our country.”

Grin and beer it

Heineken Beverages is another loss-maker: It cost Remgro R208-million over the period, which is partly offset by Capevin’s contribution of R57-million.

But Remgro says Heineken Beverages’ volumes were affected by lower industry growth, rolling blackouts, a shift from premium to a mainstream portfolio (Heineken’s portfolio was heavily focussed on premium products), and a difficult competitive environment.

Margins were also negatively affected by non-recurring expenses related to integration and supply chain issues.

“As a result of these challenges the first half-year period of trading for Heineken Beverages is not deemed to be an accurate reflection of the long-term prospects of the business — meaningful insights from the results will only be forthcoming following a longer trading period for the combined business,” the group insisted.

TotalEnergies incurred a loss of R262-million over the period under review (2022: a loss of R144 million).

Remgro’s intrinsic net asset value per share — a measure of what an asset is worth — as at 31 December 2023 had declined by 4.6% to R236.95 since 30 June 2023. Headline earnings were down by 40.1% from R3.53-billion to R2.1-billion, while headline earnings per share decreased by 39.1%.

In a company statement, Remgro said the second half of the 2023 calendar year was marked globally by macroeconomic and geopolitical instability, unrelenting inflationary pressures and weak economic growth. In South Africa, local problems such as the collapse of state infrastructure, rolling blackouts, slow growth, high interest rates and declining investor confidence compounded global pressures.

“The compounded effects of all these factors have been felt across Remgro’s portfolio companies, creating an incredibly challenging operating environment for its businesses to navigate. As a group, Remgro has worked hard to mitigate the external pressures to the extent that it can.”

Such a challenging climate has required a “disciplined focus” on factors within the group’s control, it said, while still looking for longer-term growth opportunities. It has focused on Remgro’s core and growth assets, including Mediclinic, Heineken Beverages, CIVH, RCL Foods and Siqalo Foods, which it said has yielded varying levels of success.

“The operating environment is starting to show signs of moderation, and Remgro remains well positioned to take advantage of the opportunities that this economic cycle offers, however, Remgro’s immediate priority is driving performance in its underlying portfolio companies and unlocking sustainable value for its shareholders.”

Remgro’s most significant investments are in Mediclinic (50% stake), OUTsurance (30.6%), CIVH (57%), Heineken Beverages (18.8%), RCL Foods (80.2%), FirstRand (2.2%), Discovery (7.7%), Siqalo Foods (100%), Air Products (50%), TotalEnergies (24.9% interest) and Kagiso Tiso (43.5). DM