1.  BASIS OF PREPARATION 

The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Limited (JSE) for summary financial statements, and the requirements of the Companies Act applicable to summary financial statements. The JSE requires summary financial statements to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34: Interim Financial Reporting.  s

The accounting policies applied in the preparation of the consolidated financial statements from which the summary consolidated financial statements were derived are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements. The financial statements have been prepared under the supervision of the Chief Financial Officer, Neville Williams CA(SA). 

The summary consolidated financial statements do not contain all the information and disclosures required in the consolidated financial statements. The summary consolidated financial statements have been extracted from the audited consolidated financial statements upon which PricewaterhouseCoopers Inc. has issued an unqualified report. The audited consolidated financial statements and the unqualified audit report are available for inspection at the registered office of the Company. 

2.   HEADLINE EARNINGS RECONCILIATION 
   R million  30 June 
2016  
30 June 
2015 
   Net profit for the year attributable to equity holders (earnings)  5 386  8 715 
   Plus/(minus):       
   – Net impairment of equity accounted investments(1) 1 862  99 
   – Impairment of other investments  –  79 
   – Net impairment of property, plant and equipment  37  94 
   – Impairment of intangible assets(1) 644  – 
   – Impairment of assets held for sale  16 
   – Profit on sale and dilution of equity accounted investments(2) (2 349) (984)
   – (Profit)/loss on sale of other investments  (153) 288 
   – Recycling of foreign currency translation reserves  51  – 
   – Net surplus on disposal of property, plant and equipment  (7) (5)
   – Loss on disposal of biological agricultural assets  – 
   – Non-headline earnings items included in equity accounted earnings of equity accounted investments  633  (231)
   – Net surplus on disposal of property, plant and equipment  (27) (111)
   – Profit on the sale of investments  (216) (271)
   – Net impairment of investments, assets and goodwill  809  213 
   – Other non-recurring and capital items  67  (62)
   – Taxation effect of adjustments  (87) (50)
   – Non-controlling interest  (146) (25)
   Headline earnings  5 887  7 996 
   Once-off costs  788  – 
   Option remeasurement  730  – 
   Headline earnings, excluding once-off costs and option remeasurement(3)  7 405  7 996 
  (1) “Net impairment of equity accounted investments” and “Impairment of intangible assets” primarily consist of the impairment of the investment in Grindrod of R1 861 million and an impairment in RCL Foods’ Milling business amounting to R643 million, respectively. The carrying value of Grindrod has exceeded its market value for a prolonged period; therefore, the investment was impaired to its market value on 30 June 2016 of R1 986 million.
  (2) For the year under review “Profit on sale and dilution of equity accounted investments” primarily consists of a profit of R2 262 million realised on the dilution of Remgro’s interest in Mediclinic as part of the Al Noor transaction, while the comparative year included a profit of R958 million realised on the dilution of Remgro’s interest in Mediclinic due to a book-build exercise.
(3) Included in headline earnings for the year under review are once-off transaction costs incurred with the Mediclinic rights issue and Al Noor Hospitals Group plc (Al Noor) transaction amounting to R788 million, of which R402 million is Remgro’s own costs and R386 million is Remgro’s share of Mediclinic’s transaction costs (“once-off costs”), as well as a fair value adjustment of R730 million, relating to the increase in value of the bondholders’ exchange option (accounted for as a derivative liability) of the bonds (“option remeasurement”) that were issued during March 2016 to partially refinance the foreign bridge funding that was raised for the Al Noor transaction. The bonds are exchangeable into Mediclinic plc shares and/or cash and fair value adjustments on the option (reflecting inter alia the movement in the underlying Mediclinic plc share price) are expected to cause volatility in headline earnings during its five-year term. 

3.  EARNINGS AND DIVIDENDS 
   Cents  30 June 
2016  
30 June 
2015 
   Headline earnings per share       
   – Basic  1 143.9  1 555.0 
   – Diluted  1 139.2  1 541.8 
           
   Headline earnings per share, excluding once-off costs
and option remeasurement 
     
   – Basic  1 438.9  1 555.0 
   – Diluted  1 434.1  1 541.8 
           
   Earnings per share       
   – Basic  1 046.6  1 694.9 
   – Diluted  1 042.5  1 680.9 
           
   Dividends per share       
   Ordinary  460.00  428.00 
   – Interim  185.00  169.00 
   – Final  275.00  259.00 
           
4.  INVESTMENTS      
   (Refer Annexures A and B)      
   R million       
   Equity accounted investments       
   Associated companies  73 418  52 869 
   Joint ventures  5 147  4 962 
      78 565  57 831 
           
   EQUITY ACCOUNTED INVESTMENT RECONCILIATION       
   Carrying value at the beginning of the year  57 831  52 169 
   Share of net attributable profit  6 250  7 228 
   Dividends received  (3 900) (3 077)
   Investment in Mediclinic  18 246  – 
   Dilutionary effects  1 886  772 
   Exchange rate differences  (1 274) 93 
   Grindrod impairment  (1 861) – 
   Other movements  1 387  646 
   Carrying value at the end of the year  78 565  57 831 
          
5.  ASSETS and liabilities HELD FOR SALE      
   During the current financial year Remgro sold its 29.9% shareholding in Spire to Mediclinic, subsequent to Mediclinic’s successful rights issue.Total assets and liabilities are  –  (175)
   Investment  –  8 275 
   Trade and other creditors  –  (8 276)
   Derivative instruments  –  (174)
           
   Various other assets and liabilities classified as held for sale  29  242 
   Assets  29  259 
   Liabilities  –  (17)
           
      29  67 
           
6.  LONG-TERM LOANS      
   20 000 Class A 7.7% cumulative redeemable preference shares  3 512  – 
   10 000 Class B 8.3% cumulative redeemable preference shares  4 382  – 
   Exchangeable bonds with an effective interest rate of 4.5%  6 380  – 
   Various other loans  3 672  3 687 
      17 946  3 687 
   Short-term portion of long-term loans  (147) (140)
      17 799  3 547 
           
7.   Additions to and replacement of property, plant and equipment 1 273  853 
           
8.   Capital and investment commitments 1 999  5 847 
   Mediclinic rights issue  –  4 135  
   Various other commitments  1 999  1 712  
   (Including amounts authorised but not yet contracted for)      
           
9.   Guarantees and contingent liabilities 241  316 
           
10.   Dividends received from equity accounted investments set off against investments 3 900  3 077 
           
11.  Dividends received from AssociateClassified as asset Held for sale 149  – 
           
12.  EQUITY ACCOUNTED INVESTMENTS    
   Share of after-tax profit of equity accounted investments       
   Profit before taking into account impairments, non-recurring and capital items  8 875  8 332 
   Net impairment of investments, assets and goodwill  (809) (213)
   Profit on the sale of investments  216  271 
   Other non-recurring and capital items  (67) 62 
   Profit before tax and non-controlling interest  8 215  8 452 
   Taxation  (1 709) (1 129)
   Non-controlling interest  (256) (95)
      6 250  7 228 
13.    Fair value remeasurements

The following methods and assumptions are used to determine the fair value of each class of financial instruments:

  • Financial instruments available-for-sale and investment in money market funds: Fair value is based on quoted market prices or, in the case of unlisted instruments, appropriate valuation methodologies, being discounted cash flow, liquidation valuation or actual net asset value of the investment.
  • Derivative instruments: The fair value of derivative instruments is determined by using appropriate valuation methodologies and mark-to-market valuations.

Financial instruments measured at fair value are disclosed by level of the following fair value hierarchy:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 – Inputs (other than quoted prices included within level 1) that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and

Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The following table illustrates the fair values of financial assets and liabilities that are measured at fair value, by hierarchy level: 

  
  
   R million  Level 1   Level 2   Level 3   Total  
   30 June 2016             
   Assets             
   Available-for-sale  1 260  –  2 148  3 408 
   Derivative instruments  –  – 
   Investment in money market funds  1 050  –  –  1 050 
      2 310  2 148  4 466 
   Liabilities             
   Non-current derivative instruments  –  1 197  –  1 197 
   Current derivative instruments  –  63  54  117 
      –  1 260  54  1 314 
                 
   30 June 2015              
   Assets             
   Available-for-sale  902  –  1 591  2 493 
   Derivative instruments  –  10  –  10 
   Investment in money market funds  986  –  –  986 
      1 888  10  1 591  3 489 
   Liabilities             
   Current derivative instruments  –  190  –  190 
   The following tables illustrate the reconciliation of the carrying value of level 3 assets and liabilities from the beginning to the end of the year: 
   R million  30 June 
2016 
30 June 
2015
   Assets: Available-for-sale       
   Balances at the beginning of the year  1 591  1 762 
   Additions  174  375 
    Disposals  (53) (484)
   Exchange rate adjustments  236  148 
   Fair value adjustments through comprehensive income  200  (210)
   Balances at the end of the year  2 148  1 591 
   R million  30 June 
2016 
30 June 
2015
  Liabilities: Derivative instruments       
  Balances at the beginning of the year  –  – 
  Additions  54  – 
  Balances at the end of the year  54  – 
  

There were no transfers between the different levels.

Level 3 financial assets consist mainly of investments in the Milestone China entities (Milestone), the Kagiso Infrastructure Empowerment Fund (KIEF) and the Pembani Remgro Infrastructure Fund (PRIF) amounting to R1 534 million, R306 million and R228 million respectively. These investments are all valued based on the fair value of each investment’s underlying assets, which are valued using a variety of valuation methodologies. Listed entities are valued at the last quoted share price on the reporting date, whereas unlisted entities’ methods include discounted cash flow valuations, appropriate earnings and revenue multiples.

Milestone’s fair value consists of listed investments (32%), cash and cash equivalents (7%) and unlisted investments (61%). 86% of the unlisted investments were valued at cost as Milestone’s management considers the transaction price to be the fair value of the investments, while the remaining 14% was valued at approximately R121 million. KIEF’s investments were valued using the discounted cash flow method. PRIF’s main asset is the investment in ETG Group and it was valued using appropriate revenue and earnings multiples based on peer group companies to determine a price-to-book valuation.

Changes in the valuation assumptions of the above unlisted investments will not have a significant impact on Remgro’s financial statements. 

14.  Related party transactions
  

Mediclinic International Limited (Mediclinic)

Facilitation of Mediclinic’s acquisition of Spire

During June 2015 Remgro entered into an agreement with funds managed by Cinven to acquire 119 923 335 Spire Healthcare Group plc (Spire) shares (equivalent to a 29.9% shareholding in Spire) at a price of £3.60 per share for a total purchase consideration of £431.7 million (excluding transaction costs). The transaction was concluded early in July 2015 and Remgro financed the transaction through a combination of its own cash and external funding.

In conjunction with the above transaction, Remgro and Mediclinic concluded an agreement whereby Mediclinic would acquire Remgro’s interest in Spire, subject to Mediclinic raising the appropriate funds in order to conclude such a transaction. During August 2015 Mediclinic raised R10.0 billion through a rights issue in terms of which 111 111 111 new Mediclinic shares were issued at a price of R90.00 per share. Remgro, by following its rights and by underwriting the balance of the rights issue, subscribed for an additional 51 342 886 Mediclinic shares totalling R4.6 billion. Following the successful conclusion of the rights issue, Mediclinic acquired Remgro’s shareholding in Spire during August 2015 for an amount of R8.6 billion, equal to the purchase price, transaction and funding costs. Remgro thus effectively only facilitated the acquisition of Spire by Mediclinic. 

  

Combination of Mediclinic and Al Noor

Hospitals Group plc (Al Noor)On 14 October 2015 Mediclinic and Al Noor agreed on the terms for the combination of their respective businesses (the “Combination”) pursuant to which Al Noor offered to acquire 100% of the issued share capital of Mediclinic. The transaction was concluded on 15 February 2016 and given the relative size of Mediclinic and Al Noor, the Combination was classified as a reverse takeover of Al Noor. The combined group was renamed Mediclinic International plc (Mediclinic plc) and it retained its premium listing on the Main Market of the London Stock Exchange (LSE). Mediclinic plc also obtained an inward secondary listing on the main board of the Johannesburg Stock Exchange (JSE) and it was admitted to the FTSE 100 index of the LSE. Mediclinic shareholders received 0.625 Al Noor shares for every Mediclinic share held by them, based on the five-day volume weighted average price up to and including 1 October 2015 of the Mediclinic shares on the JSE and of the Al Noor shares on the LSE (which was £5.20 and £8.32, respectively). As a result of the reverse takeover, Remgro realised a profit on the dilution of the interest in Mediclinic amounting to R2 262 million.

In addition to the Al Noor shares received by Remgro and as an indivisible component of the Combination, Remgro also subscribed for an additional 72 115 384 shares in Al Noor at a subscription price of £8.32 per share for an aggregate amount of £600.0 million during February 2016 (the “Remgro Subscription”).

RAND MERCHANT BANK (RMB)

Remgro obtained bridge financing from RMB to partly fund the above-mentioned transactions. The bridge financing was partly replaced by long-term debt of which fixed rate cumulative redeemable preference shares amounting to R3 500 million were issued to RMB. 

15.  EvENTS AFTER YEAR-END
  

INVENFIN Proprietary Limited (INVENFIN)

  

On 27 July 2016 Remgro (through its wholly owned subsidiary, Invenfin) acquired a 30% stake in Dynamic Commodities Proprietary Limited (Dynamic Commodities) for R80 million. Dynamic Commodities is an export-focused company that produces high-quality frozen desserts, snacks and value-added “fresh frozen” fruit. During August 2016, Invenfin also acquired a 30% stake in Joya Brands Proprietary Limited, a sweets manufacturer, for R50 million.

Other than the above-mentioned transactions, there were no other significant transactions subsequent to 30 June 2016.