Investment reviews

  • Air Products South Africa PROPRIETARY Limited (Air Products SOUTH AFRICA)

    Air Products South Africa has a September year-end, but its results for the twelve months ended 31 March 2014 have been included in Remgro’s results for the period under review. Air Products South Africa’s contribution to Remgro’s headline earnings for the year under review increased by 21% to R217 million (2013: R180 million).

    Turnover for Air Products South Africa’s twelve months ended 31 March 2014 increased by 13% to R1 902 million (2013: R1 682 million), while the company’s operating profit for the same period increased by 18% to R617 million (2013: R525 million). This increase is mainly as a result of increased volumes of bulk liquid and packaged gas products, albeit at a modest pace.

    Air Products South Africa is the largest manufacturer of industrial gases in Southern Africa. Air Products South Africa also imports and distributes a variety of specialty gases and chemical products that are supplied to a wide range of industries, including steel, chemicals, oil refining, resource minerals, glass, pulp and paper, food packaging as well as general manufacturing, fabrication and welding.

    Although new contracted long-term capacity was brought online during the period, large tonnage gas volumes continue to disappoint. Demand from the steel, chemicals and resources sectors continue to be negatively impacted by low economic activity and disrupted production.

    Bulk liquid and cylinder gas volumes have shown modest, but erratic, growth and continue to be negatively impacted by labour unrest in a number of market sectors.

  • Kagiso Tiso Holdings PROPRIETARY Limited (KTH)

    KTH is a leading black-owned investment company with a strong and diversified asset portfolio covering the resources, industrial, media, financial services, healthcare, property and information technology sectors.

    KTH has a June year-end and therefore its results for its year ended 30 June 2014 have been included in Remgro’s results for the year under review. KTH’s contribution to Remgro’s headline earnings for the year under review amounted to R71 million (2013: R36 million).

    KTH’s net profit attributable to equity owners has, however, decreased to a loss of R97 million (2013: R428 million profit) mainly due to net impairments on certain investments of R257 million (2013: R36 million) and a non-recurring gain of R233 million on disposal of investments during the previous year, which are both accounted for outside of headline earnings.

    Income from equity accounted investments increased by R80 million to R604 million, with major contributions from its investments in MMI Holdings Limited and Kagiso Strategic Investments Limited. Operating profit increased by R56 million due to strong performances from Kagiso Media and Kagiso Asset Management, but it was partially offset by higher net finance costs due to the full impact on finance costs for the current period related to the raising of bonds in the previous year and the incurring of debt to partially finance the buyout of minorities of Kagiso Media.

    Results for the year under review were also impacted by positive fair value adjustments on equity investments in Exxaro Resources Limited (Exxaro) and AECI Limited as well as preference shares in MMI Holdings Limited, offset by negative adjustments on Adcock Ingram Holdings Limited and Aveng Limited.

    KTH has a well-defined investment and business strategy, a sound asset and capital base and an experienced and diverse management team which positions the group as a leading black-owned and managed investment company.

  • Total South Africa PROPRIETARY Limited (Total SOUTH AFRICA)

    Total South Africa has a December year-end, but its results for the twelve months ended 30 June 2014 have been included in Remgro’s results for the year under review. Total South Africa’s contribution to Remgro’s headline earnings for the year under review amounted to R233 million (2013: R258 million).

    Total South Africa’s turnover for the twelve months ended 30 June 2014 increased by 18.7% to R44 818 million (2013: R37 767 million), while operating profit decreased to R1 232 million (2013: R1 400 million). The results were negatively impacted by an increase of R200 million in the site rehabilitation provision during the current period, slightly offset by higher stock revaluation gains of R94 million (2013: R64 million), as the international oil price increased from US $103 per barrel, at 30 June 2013, to US $114 per barrel at 30 June 2014.

    The increase in turnover is mainly due to the increase in the retail margin of 35 cents per litre, announced by the Department of Energy in December 2013. Retail sales of petroleum products in the period under review increased by 2.2% compared to the previous period.

    The company is intensifying its investments regarding the health, safety, environment and quality constraints, at its depots as well as at its service stations. In particular, Total South Africa has continued its project to make sure all its service stations are fully compliant with Total Group norms, which are more onerous than those for the South African industry.

    Natref (in which Total South Africa has an interest of 36.4%) experienced an improvement in refining margins by the end of the period under review, when compared to the twelve months ended 30 June 2013, due to favourable foreign exchange rate impacts. However, this was offset by the negative market effect caused by unfavourable market prices for gas oil and gasoline products.

  • PGSI Limited (PGSI)

    PGSI has a December year-end, but its results for the twelve months ended 30 June 2014 have been included in Remgro’s results for the year under review. PGSI’s contribution to Remgro’s headline earnings for the year under review amounted to R72 million (2013: R10 million), which includes a positive fair value adjustment of R38 million (2013: negative adjustment of R7 million) on the con-version right attached to PGSI preference shares. This conversion right was exercised during the year under review, increasing Remgro’s interest in PGSI from 28.5% to 37.7%.

    PGSI’s turnover for the period under review increased by 7.3% from R3 398 million to R3 645 million, while its operating profit increased to R250 million (2013: R100 million). The increase in operating profit was driven by slightly improved economic conditions both in the global and domestic markets combined with a number of business initiatives to contain overhead costs, improve overall market performance and to drive manufacturing efficiencies.

    The main operating subsidiary in South Africa, PG Group, supplies glass to the building and automotive industries. Conditions in the building industry remain fragile, where there is significant excess capacity servicing both the commercial and residential sectors. The group’s expansion into Africa has assisted the growth in sales.

    The business has focused on rationalising its operations and its distribution network to reduce overhead costs and focus on higher margin products. This has resulted in growth in building glass profits through the period under review, and an ongoing review of the current structures is expected to further reduce costs going forward. The automotive glass business has been assisted by the weaker rand which has had a positive impact on the results, increasing export profitability and increasing competitiveness in the local market. The aftermarket sector, which is very competitive, remains vulnerable given the contraction in the economy following the continued strike action. Furthermore, the relatively high inflation and increased interest rates have impacted consumer confidence, resulting in negative growth in new car sales in the last six months. The export vehicle build has shown marginal growth in the period under review.

    The difficult market conditions have been further exacerbated by increases in energy and labour costs. The current levels of the rand will have a positive impact on the business, with improved export profitability and reduced imported volumes. The group is reviewing its structures to focus on substantially reducing the cost of servicing its customers and increasing yields at all manufacturing facilities aided by a technical agreement signed with Saint Gobain of France. The benefits of these strategies are expected to deliver positive growth in the years ahead.

  • Wispeco Holdings PROPRIETARY Limited (Wispeco)

    Turnover for the year ending 30 June 2014 increased by 25% to R1 486 million (2013: R1 193 million). This growth in turnover was driven by increased sales volumes and higher sales prices resulting from input cost increases and a weaker local currency. Headline earnings for the year increased by 67% to R107 million (2013: R64 million). This improvement was achieved as a result of the higher sales volume, which in turn supported higher gross margins through economies of scale and continuous improvement in production efficiencies.

    Processing of recycled aluminium remains an important focus area for Wispeco. A decision was taken to increase throughput in the recycling of post-industrial and post-consumer scrap for the production of in-house extrusion billet. More than half of Wispeco’s extrusion output is now produced from recycled aluminium.

    Recycling of aluminium requires a mere 5% of the energy to produce virgin aluminium from alumina, resulting in the accreditation of the EcoSpecifier green rating to Wispeco’s products.

    Wispeco continues to strive for world-class standards in all of its operating divisions. Management actively drives productivity improvement programmes at all levels in the organisation. The company acquired new premises in Alrode and will be installing two further extrusion press lines over the next 18 months. A key focus area remains the development of industry skills and in this regard 179 people were trained during the past year, including 10 deaf youths from previously disadvantaged communities.