Reports to shareholders


The South African economy continues to underperform compared to most of the world economies. Unprecedented industrial action has markedly reduced the GDP growth outlook for 2014. External headwinds, including renewed growth concerns in our major trading partners, are also holding back the domestic economy.

Despite some encouraging signs, the global economy is not yet out of the woods. In the United States (US), GDP growth rebounded sharply in the second quarter of 2014 after an unexpectedly poor start to the year. The job market continues to heal, with employment growth averaging above 200 000 over the last six months. At the same time, overall wage growth and broader consumer inflation remain tame. The environment of better underlying growth momentum, which is as yet not threatening price stability, provides the US central bank (Fed) with the leeway to keep their policy interest rate at historic lows in the foreseeable future. However, signs of improved growth mean that financial markets are now more certain that the Fed will start to increase the policy interest rate in the second half of 2015. This has resulted in a significant strengthening of the US dollar against other major and emerging market currencies, including the rand. After reaching fresh record highs in mid-2014, global stock markets have lost ground of late.

Eurozone growth remains pedestrian, but financial markets are a lot more sanguine about future prospects. However, consumer inflation remains very low. This has raised concern that the eurozone may suffer Japan’s fate since the 1990s of prolonged weak personal consumption and GDP growth. As a result, the European Central Bank (ECB) injected additional stimulus by cutting the policy interest rate closer to zero. In a bid to unlock the credit channel, the ECB also offered cheap loans to the commercial banking sector.

The outlook for the Chinese economy has arguably become the issue that investors are most concerned about. Given the country’s outsized impact on important commodity prices, including iron ore, Chinese growth is crucial from a South African perspective. A major concern is that China’s traditional growth model of rapidly rising exports and fixed investment (recently fuelled by credit and rising debts) has run its course. Investments have increasingly become unproductive, while concerns are rife about a potential property sector bubble. Recent weak data releases emphasised that a difficult rebalancing period lies ahead. This is likely to be accompanied by slower growth than was the case in the last decade.

Besides Chinese fortunes, a possible escalation of the standoff between Russia and the West on the Ukraine crisis and faster than expected US policy interest rate rises are important short-term risks for the global economy.

Domestically, GDP growth forecasts for 2014 have been halved from around 3% at the end of 2013 towards 1.5%. This mainly reflects the negative impact of the unprecedented five-month strike in the platinum mining sector between January and June. The strike was followed by prolonged industrial action in the metals and engineering sector. Besides the production declines caused by the work stoppages, the loss of income to the striking workers also had a ripple effect through the economy.

Amongst other factors, the weak GDP growth outlook is likely to prevent government from achieving its budget deficit target for 2014/15. Because of this, credit rating agency Standard & Poor’s downgraded South Africa’s rating to BBB– on 13 June 2014. The unsettled domestic economic environment has been an important driver of a sustained weaker rand exchange rate. After averaging R9.65/$ in 2013, the rand weakened further to an average of R10.70/$ in the first half of 2014 and R10.98/$ in September.

The softer currency has been a major factor in pushing consumer inflation above the South African Reserve Bank’s (SARB) target of 6% year on year. In reaction to the expectation that the target breach could be prolonged, the SARB raised the repo policy interest rate by 50bps in January 2014. This move was followed up by a 25bps increase in July 2014. The decision to raise the repo rate by 25bps instead of the normal 50bps was informed by the deteriorating GDP growth outlook. Further rate hikes are expected in 2015.

Assuming less industrial action and somewhat improved global growth in 2015, domestic GDP growth should pick up again. However, growth is set to remain below South Africa’s long-run average of 3.5% in the foreseeable future.

the intrinsic net asset value per share increased by 20.1%


Remgro is fully committed to managing its business in a sustainable way and upholding the highest standards of ethics and corporate governance practices. The Board of Directors is ultimately accountable for the performance of the Company, appreciating that strategy, risk, performance and sustainability are inseparable.

Our governance framework is based on the principles contained in King III and we are satisfied that the Company has met the majority of the principles during the year under review. We further believe that the Board’s current members possess the required collective skills, experience and diversity to carry out its responsibilities, to achieve the Group’s objectives and create shareholder value over the long term.


For the year under review headline earnings per share increased by 58.2% from 817.1 cents in 2013 to 1 292.4 cents. It should be noted that the results for the comparative year were materially influenced by the once-off charges relating to the refinancing by Mediclinic of its Swiss and South African debt during October 2012. Remgro’s share of these once-off items amounted to a loss of R1 312 million. In order to enable shareholders to make a meaningful comparison with the results of the prior year, headline earnings and headline earnings per share are also presented by excluding Remgro’s share of the Mediclinic refinancing costs.

On a comparable basis, headline earnings per share increased by 20.5% from 1 072.6 cents in 2013 to 1 292.4 cents for the year under review.

Remgro’s intrinsic net asset value per share increased by 20.1% from R204.83 at 30 June 2013 to R245.96 at 30 June 2014. The biggest contributor to this increase was RMBH/FirstRand, whose share of intrinsic net asset value (before any potential CGT) increased by 35.6% year on year from R21.9 billion to R29.7 billion. As at 30 June 2014, 22% of Remgro’s intrinsic net asset value was represented by unlisted investments.

Compared to the high level of corporate activity in the previous year, the 2014 financial year was used to consolidate the position of certain investee companies. In this regard RCL Foods acquired the remaining 35.8% minority interest in Foodcorp and also stabilised its balance sheet by replacing its offshore debt with a local facility. During January 2014 RCL Foods also acquired TSB from Remgro, thereby further diversifying its earnings stream and adding to its already strong portfolio of brands. Remgro’s equity interests in Distell, Grindrod, RCL Foods and TSB were diluted as a result of the restructuring of their BEE shareholdings during the year under review.


Mr J W Dreyer has retired as an executive director from the Board of Remgro with effect from 31 December 2013. The Board wishes to thank him for his valuable contribution over many years.

We extend our sincere appreciation to all who contributed to the performance of the Group over the past year: the shareholders for their continued confidence; the managing directors and all colleagues in the various Group companies for their co-operation and support; all other directors, officials and employees for their dedication; and all parties concerned for services rendered.

Johann Rupert



17 September 2014