Reports to shareholders
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INTRODUCTION

Remgro’s intrinsic net asset value is the best indicator of the value added for our shareholders. Over the year under review the intrinsic net asset value per share has increased by 20.1% from R204.83 at 30 June 2013 to R245.96 at 30 June 2014. Over the same period the JSE all share index has increased by 28.7%, while Remgro’s share price grew by 21.1%. Refer to the tables on page 23 where the relative performances are set out in more detail.

This report aims to provide shareholders with a better understanding of the methodology behind the calculation of the intrinsic net asset value, especially relating to the valuation of our unlisted investments. A summary of our investing activities during the year under review is also provided.

INTRINSIC net asset VALUE

The intrinsic net asset value of the Group includes valuations of all investments, incorporating subsidiary and associated companies and joint ventures, either at listed market value or, in the case of unlisted investments, at directors’ valuation. The net assets of wholly owned non-investment subsidiary companies consist mainly of monetary items (included at book value) and property (included at fair value).

The following factors are taken into account in determining the directors’ valuation of unlisted investments:

  • Market value and earnings yield of similar listed shares, taking into account that the marketability of unlisted investments is limited and, in some cases, also the tradeability
  • Growth potential and risk
  • Underlying net asset value
  • Profit history
  • Cash flow projections

COMPOUND GROWTH RATE OF 20.8% PER ANNUM OF INTRINSIC NET ASSET VALUE SINCE UNBUNDLING OF BAT IN 2008

Remgro share price

Rand per share

It is the policy of Remgro not to apply a control premium to the valuation of investments where it holds a majority interest. Where Remgro holds a minority interest a 10% tradeability discount is applied.

Remgro’s unlisted investments were valued as follows:

Air Products South Africa

The discounted cash flow method was used to value this investment. No tradeability discount is applied to the valuation due to the 50% shareholding.

Business Partners

The net asset value was used.

CIV group

The discounted cash flow method was used.

Kagiso Tiso Holdings

The annual external valuation was used.

PGSI

The discounted cash flow method was used.

PRIF

The annual external valuation was used.

Sabido

A historical price-earnings ratio was used.

Seacom

The discounted cash flow method was used.

Total South Africa

The discounted cash flow method was used.

Unilever South Africa

The discounted cash flow method was used.

Wispeco

The discounted cash flow method was used.

Refer to the table below for a detailed analysis of Remgro’s intrinsic net asset value.

RELATIVE PERFORMANCE OF INTRINSIC NET ASSET VALUE AND REMGRO INTERNAL RATE OF RETURN (IRR)

The tables below compare the relative performance of the Remgro intrinsic net asset value per share with certain selected JSE indices. No account has been taken of dividends paid by Remgro.


* Effective 28 October 2008, Remgro traded without its unbundled interest in BAT.

The following table compares Remgro’s IRR with that of certain selected JSE indices. For this purpose it has been assumed that dividends have been reinvested in either Remgro shares or in the particular index, depending on the specific calculation.

INVESTment ACTIVITIES

During the year under review RCL Foods acquired the remaining 35.8% interest in Foodcorp for a total consideration of R521 million. During January 2014 RCL Foods also acquired TSB from Remgro for a total purchase consideration of R4.0 billion, which was settled through the issue of 230.9 million new RCL Foods shares to Remgro. RCL Foods also raised an additional R790 million of capital during February 2014 through a pro rata offer to qualifying minority shareholders and issued 19.6 million new RCL Foods shares with the implementation of TSB’s BEE scheme at RCL Foods shareholding level and the restructuring of the existing RCL BEE shareholding. The above transactions increased Remgro’s effective interest in RCL Foods to 77.7% (2013: 75.9%).

During May 2014 Remgro participated in Grindrod’s accelerated bookbuild offering and thereby invested an additional net amount of R551 million in Grindrod. Grindrod also restructured its BEE shareholding and issued 64 million new Grindrod shares to strategic black investors. As a result of these transactions, Remgro’s interest in Grindrod decreased to 22.6% (2013: 25.0%).

During January 2014 Distell restructured its BEE transaction and issued 15.0 million new shares to BEE shareholders. This transaction diluted Remgro’s effective interest in Distell from 33.4% to 31.0%.

During February 2014 Remgro also exchanged its direct interest of 1.8% in Caxton for a 6.1% indirect interest through special purpose vehicles.

On the international front, we also invested a further R258 million in the Milestone Capital Funds, increasing Remgro’s total investment in China to R1.1 billion.

The following table represents the cash effects of Remgro’s investing activities for the year to 30 June 2014. These activities exclude the investing activities of Remgro’s operating subsidiaries, i.e. RCL Foods Limited and Wispeco Holdings Limited.

INVESTment commitments

The table below summarises the investment commitments of Remgro as at 30 June 2014.

INTRINSIC net asset VALUE

Jannie Durand

Chief Executive Officer

Stellenbosch

17 September 2014