REPORT OF THE BOARD OF DIRECTORS
FOR THE YEAR ENDED 30 June 2020

Dear Shareholder

The Board has pleasure in reporting on the activities and financial results for the year under review.

Nature of activities

The Company is an investment holding company. Cash income is derived mainly from dividends and interest. The consolidated Annual Financial Statements of the Company and its subsidiaries also incorporate the equity accounted attributable income of associates and joint ventures.

The Group’s interests consist mainly of investments in financial services; healthcare; consumer products; industrial; infrastructure as well as media and sport.

Results

*	Headline earnings from continuing operations is calculated by excluding the equity accounted income of RMB Holdings Limited due to the unbundling of the investment.
**	A final dividend of 50 cents (2019: 349 cents) per share was declared after the year-end and was therefore not provided for in the Annual Financial Statements. The final dividend is subject to dividend tax.

INVESTMENT ACTIVITIES

The material investment activities during the year under review were as follows:

FIRSTRAND LIMITED (FIRSTRAND) AND RMB Holdings LIMITED (RMH)

On 19 November 2019, Remgro announced its intention to pursue the distribution to shareholders, in full or in part, of Remgro’s exposure to FirstRand and RMH. In parallel with this, RMH announced that it had made the strategic decision to restructure the RMH portfolio of assets and liabilities, which would include the distribution of its shareholding in FirstRand to its shareholders (FirstRand Unbundling).

However, on 31 March 2020 Remgro announced that it will proceed with the full distribution of its 28.2% interest in RMH (RMH Unbundling) and during April 2020 a detailed terms announcement was distributed to shareholders. Remgro’s investment in RMH was previously classified as an associate and accounted for using the equity method. With effect from 31 March 2020 the investment met the criteria to be classified as a disposal group under IFRS 5 and was classified as a non-current asset held for distribution. On 8 June 2020 Remgro distributed 397 447 747 ordinary shares in RMH to shareholders in the ratio of 0.69939 RMH ordinary shares for every 1 Remgro share held. The market value of the interim dividend in specie amounted to R23 855 million and an accounting profit of R7 360 million was realised on the distribution.

On 31 March 2020 Remgro also announced that it will retain its 3.9% direct interest in FirstRand (being 219 828 140 FirstRand ordinary shares). Remgro’s investment in FirstRand was previously classified as an associate and accounted for using the equity method. With effect from 8 June 2020 Remgro ceased to have significant influence over FirstRand, due to among others the RMH Unbundling, and the investment was classified as a financial asset at fair value through other comprehensive income. In future only dividend income will be accounted for FirstRand in the income statement. The market value of the investment on that date amounted to R9 927 million and an accounting profit of R4 228 million was realised on the reclassification of the investment.

With the RMH Unbundling, Remgro’s investment view on its 3.9% stake in FirstRand has changed, and the stake is now viewed as a portfolio investment. In line with this view it was decided to enter into a hedging transaction on part of this stake, whilst still maintaining full downside risk and upside potential on the majority of the stake. Remgro entered into a zero cost collar hedging transaction with Nedbank Limited (Nedbank) during June 2020 for 60 000 000 of the FirstRand shares that it owns. At the same time, Remgro entered into a script lending transaction with Nedbank to optimise the pricing of the zero cost collar. Remgro will be allowed to vote these shares at the FirstRand Annual General Meeting and is entitled to any dividends declared. However, all dividends received on FirstRand shares for which Nedbank holds a direct or indirect short position for the purpose of hedging its exposure under the zero cost collar (to maximum of 60 000 000 FirstRand shares), will be transferred to Nedbank. The reference price of the zero cost collar is R40.51 and it expires in two years. The strike prices vary between R36.46 and R51.97 on the put options and call options, respectively. These FirstRand shares are hedged on a 1:1 basis and the zero cost collar is recognised at fair value with changes in the fair value accounted for in other comprehensive income. The zero cost collar was valued as an asset at R101 million on 30 June 2020.

On 8 June 2020, 3 297 213 Remgro ordinary shares were held as treasury shares. As a result of the RMH Unbundling, Remgro received 2 306 037 RMH ordinary shares, which also qualified Remgro to receive 3 025 266 FirstRand ordinary shares on 29 June 2020 as a result of the FirstRand Unbundling. Both these investments were classified as financial assets at fair value through other comprehensive income and only dividend income will in the future be accounted for in the income statement.

MILESTONE CHINA FUNDS

During the year under review, Remgro invested a further $2 million in Milestone China Opportunities Fund III (Milestone III) and received distributions of $46 million, thereby increasing its cumulative investment to $100 million and cumulative distributions received to $71 million. As at 30 June 2020 the fair value of Remgro’s investment in Milestone III amounted to $72 million.

During the prior year Remgro received JHL Biotech, Inc. bonds (JHL bonds), valued at $10 million, from its disposal of its investment in Milestone Capital Strategic Holdings Limited. The JHL bonds were redeemed during January 2020 for a total consideration of $12 million.

COMMUNITY INVESTMENT VENTURES HOLDINGS PROPRIETARY LIMITED (CIVH)

During the 2019 financial year Remgro advanced a loan amounting to R100 million to CIVH and earned underwriting fees of R58 million on a CIVH rights issue. As previously reported, the loan and outstanding amount of the underwriting fee would be converted to CIVH shares. On 31 March 2020 Remgro invested a further R167 million in CIVH in exchange for the loan and outstanding underwriting fee, which marginally increased Remgro’s interest in CIVH to 54.7% (2019: 54.4%).

RCL Foods LIMITED (RCL Foods)

During June 2020 Remgro acquired a further 10 573 857 RCL Foods shares for a total amount of R100 million. At 30 June 2020 Remgro’s effective interest in RCL Foods was 77.1% (2019: 77.5%).

PEMBANI REMGRO INFRASTRUCTURE FUND (PRIF)

During the year under review Remgro invested a further R62 million in PRIF, thereby increasing its cumulative investment to R372 million. As at 30 June 2020 the fair value of Remgro’s investment in PRIF amounted to R341 million and remaining commitment to PRIF amounted to R278 million.

INVENFIN PROPRIETARY LIMITED (INVENFIN)

During the year under review Invenfin (a wholly owned subsidiary of Remgro) invested a further R103 million in Bos Brands Proprietary Limited.

Other

Other smaller investments amounted to R180 million.

Events after year-end

Distell Group HOLDINGS LIMITED (DISTELL)

On 12 July 2020 the South African government announced new measures to curb the spread of Covid-19. These measures included a ban on the sale of alcoholic beverages, which was lifted again from 18 August 2020 when Distell was allowed to trade again. Distell was still allowed to manufacture products in South Africa during the ban on the sale of alcohol and to continue with its normal export activities. Other major territories in which Distell operates have not been impacted to this extent and was able to trade mostly normally in line with general economic constraints in the various territories. Distell evaluated the adverse consequences of the alcohol ban on its liquidity forecast and concluded that it remains a going concern.

Other than the above-mentioned events, there were no other significant events subsequent to 30 June 2020.

CASH RESOURCES AT THE CENTRE

The Company’s cash resources at 30 June 2020 were as follows:

On 30 June 2020, approximately 25% (R4 350 million) of the available cash at the centre was invested in money market funds which are not classified as cash and cash equivalents on the statement of financial position. Refer to note 5 to the Annual Financial Statements for further details.

group financial review

COMPARISON WITH PRIOR YEAR

As a result of the unbundling of Remgro’s 28.2% interest in RMH, earnings and headline earnings measures are presented for continuing operations and discontinued operations. The investment in RMH is treated as a discontinued operation and, accordingly, discontinued operations include the equity accounted income of RMH for both financial years presented, as well as the profit realised on the RMH Unbundling. For the year under review the investment in RMH was equity accounted for the nine months to 31 March 2020 (2019: twelve months to 30 June 2019). Discontinued operations for the prior year also includes the profit realised on the disposal of Unilever South Africa Holdings Proprietary Limited (Unilever).

It should also be noted that with effect from 8 June 2020, Remgro ceased to have significant influence over FirstRand, due to among others the RMH Unbundling, and therefore the investment was reclassified from an equity accounted investment to an investment at fair value through other comprehensive income (FirstRand Reclassification). For the year under review the investment in FirstRand was equity accounted until 8 June 2020. In future only dividend income will be accounted for FirstRand in the income statement.

During the year under review the platforms under which the results of investee companies are being reported, were changed. Previously RMH and FirstRand were classified under Banking and Rand Merchant Investment Holdings Limited (RMI) was classified under Insurance. As a result of the RMH Unbundling, these investee companies are included under the Financial services platform. Comparative figures have been presented accordingly.

COVID-19

The Covid-19 pandemic caused a severe downturn in the global economy, as is evident from the decrease in headline earnings from continuing operations to R1 737 million (2019: R5 551 million) (refer to notes 3.1 and 3.2 to the Annual Financial Statements that is published on the Company’s website for further details). This event also served as an impairment indicator and, accordingly, all non-financial assets were tested for impairment. Significant impairment losses were accounted for property, plant and equipment, intangible assets and investments. Refer to notes 10.1, 10.3 and 4.4 to the Annual Financial Statements that is published on the Company’s website for further details. Furthermore, the grim financial outlook impacted debtors’ ability to repay their debts, thus leading to increased expected credit losses on loans and receivables (refer to notes 10.5 and 13.2 to the Annual Financial Statements that is published on the Company’s website for further detail). As an indirect consequence of the pandemic, the value of assets measured at fair value also decreased in line with the global recession.

The Board will continue to monitor the effects of the Covid-19 pandemic on the Group. Based on the facts and circumstances known and the possible scenarios about how the Covid-19 pandemic and various levels of lockdown could evolve, management has determined that there is not a material uncertainty that may cast significant doubt upon Remgro’s ability to continue as a going concern.

CHANGE IN ACCOUNTING POLICY

During the year under review, Remgro adopted IFRS 16: Leases retrospectively from 1 July 2019, but has not restated comparatives for the 30 June 2019 reporting period as permitted under the specific transition provisions in the standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognised in the opening statement of financial position on 1 July 2019.

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases that had previously been classified as operating leases under the principles of IAS 17: Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at 1 July 2019. Under IAS 17, operating lease payments were expensed on a straight-line basis. Under IFRS 16, lease liabilities with corresponding right-of-use assets are recognised. Finance charges are accrued on the lease liabilities and the right-of-use assets are depreciated over their useful lives. Lease repayments are accounted for against the lease liabilities.

Refer to note 17 to the Annual Financial Statements for the full impact of the adoption.

Statement of financial position

The analysis of ”Equity employed” and ”Source of headline earnings” below reflects the sectors into which the Group’s investments have been classified. No adjustment has been made where investments are active mainly in one sector but also have interests in other sectors.

Income statement 

 

R million	30 June  2020	30 June  2019
Composition of headline earnings
Subsidiaries	(713)	763
Profits	783	1 612
Losses	(1 496)	(849)
Associates and joint ventures	3 880	7 432
Profits	5 060	7 835
Losses	(1 180)	(403)
	3 167	8 195

Share incentive schemeS

Remgro currently has three long-term incentive plans, i.e. the old Remgro Equity Settled Share Appreciation Right Scheme (SAR Scheme), the Remgro Share Appreciation Rights Plan (SAR Plan) and the Remgro Equity Settled Conditional Share Plan (CSP).

In terms of the SAR Scheme and SAR Plan, participants are offered Remgro ordinary shares to the value of the appreciation of their rights to a specified number of Remgro ordinary shares that can be exercised at different intervals but before the expiry of seven years from date of grant. The earliest intervals at which the share appreciation rights vest and are exercisable are as follows:

• One-third after the third anniversary of the grant date
• An additional third after the fourth anniversary of the grant date
• The remainder after the fifth anniversary of the grant date

In terms of the CSP, participants are awarded Remgro ordinary shares that will vest as follows:

• One-third after the third anniversary of the grant date
• An additional third after the fourth anniversary of the grant date
• The remainder after the fifth anniversary of the grant date

Vesting on both schemes are conditional on fulfilment of the employment period and achievement of performance conditions (where applicable).

Refer to note 8 to the Annual Financial Statements for further details on both schemes.

TREASURY SHARES

At 30 June 2019, 3 334 936 Remgro ordinary shares (0.6%) were held as treasury shares by a wholly owned subsidiary of Remgro. As previously reported, these shares were acquired for the purpose of hedging Remgro’s share schemes.

During the year under review 37 723 Remgro ordinary shares were utilised to settle Remgro’s obligation towards scheme participants.

At 30 June 2020, 3 297 213 Remgro ordinary shares (0.6%) were held as treasury shares.

Principal shareholder

Rupert Beleggings Proprietary Limited (Rupert Beleggings) holds all the issued unlisted B ordinary shares of the Company and is entitled to 42.62% (2019: 42.62%) of the total votes.

An analysis of the shareholders.

Subsidiaries and investments

Particulars of subsidiaries and equity accounted investments are disclosed in note 14 of the Annual Financial Statements.

Directors

The names of the Directorate and members of committees of the Integrated Annual Report.

The following changes were effective 28 November 2019:

• Dr E de la H Hertzog retired as co-deputy Chairman and non-executive director from the Board;
• Mr G T Ferreira retired as the lead independent non-executive director from the Board;
• Mr F Robertson was appointed as co-deputy Chairman with Mr J Malherbe;
• Ms S E N De Bruyn was appointed as the lead independent non-executive director of the Board;
• Mr P J Neethling was appointed as a non-executive director, which director’s appointment will in terms of the Company’s Memorandum of Incorporation have to be confirmed by the shareholders at the next Annual General Meeting;
• Mr G G Nieuwoudt was appointed as an independent non-executive director and member of the Investment Committee, which director’s appointment will in terms of the Company’s Memorandum of Incorporation have to be confirmed by the shareholders at the next Annual General Meeting;
• Mr K M S Rantloane was appointed as an alternate independent non-executive director to Mr P K Harris, which alternate director’s appointment will in terms of the Company’s Memorandum of Incorporation have to be confirmed by the shareholders at the next Annual General Meeting; and
• Mr P J Moleketi was appointed as a member of the Remuneration and Nomination Committee.

The Board wishes to thank Dr E de la H Hertzog and Mr G T Ferreira for their valuable contributions over many years and wishes to welcome Messrs P J Neethling and G G Nieuwoudt as directors to the Company and Mr K M S Rantloane as an alternate director to Mr P K Harris.

In terms of the provision of the Memorandum of Incorporation, Mses S E N De Bruyn and M Lubbe, Messrs M Morobe, J P Rupert and N J Williams retire from the Board by rotation. These directors are eligible and offer themselves for re-election.

Directors’ interests

At 30 June 2020 the aggregate of the direct and indirect interests of the directors and their associates in the issued ordinary share capital of the Company amounted to 3.37% (2019: 2.53%).

Mr J P Rupert is a director of Rupert Beleggings which owns all the issued unlisted B ordinary shares.

An analysis of directors’ interests in the issued capital of the Company.

directors’ emoluments

The total directors’ fees for services rendered as directors during the past financial year amounted to R5.7 million (2019: R5.5 million).

Acquisition of shares of the Company

It is recommended that a general authority be granted to the Board to acquire, should circumstances warrant it, the Company’s own shares and to approve the acquisition of shares in the Company by any of its subsidiaries, subject to the provisions of the Companies Act (No. 71 of 2008), as amended, and the Listings Requirements of the JSE Limited.

A special resolution to grant this general authority to the Board is incorporated in the notice of the Annual General Meeting.

AUTHORITY TO PLACE ORDINARY SHARES UNDER THE CONTROL OF THE DIRECTORS

It is recommended that a general authority be granted to the Board to allot and issue ordinary shares, subject to the provisions of the Companies Act (No. 71 of 2008), as amended, the Memorandum of Incorporation and the Listings Requirements of the exchange operated by JSE Limited, provided that the aggregate number of ordinary shares to be allotted and issued is limited to 5% of the number of the unissued ordinary shares in the authorised share capital of the Company (being 23 539 150 ordinary shares). This authority cannot be used to issue shares for cash.

An ordinary resolution to grant this general authority to the Board is incorporated in the notice of the Annual General Meeting.

declaration of cash Dividend

Declaration of CASH Dividend No. 40

Notice is hereby given that a final gross dividend of 50 cents (2019: 349 cents) per share has been declared out of income reserves in respect of both the ordinary shares of no par value and the unlisted B ordinary shares of no par value, for the year ended 30 June 2020. The final dividend was adjusted downwards to take into account the RMH Unbundling and the impact of the Covid-19 pandemic.

A dividend withholding tax of 20% or 10 cents per share will be applicable, resulting in a net dividend of 40 cents per share, unless the shareholder concerned is exempt from paying dividend withholding tax or is entitled to a reduced rate in terms of an applicable double-tax agreement.

The total gross dividend per share for the year ended 30 June 2020 therefore amounts to 265 cents, compared to 564 cents for the year ended 30 June 2019.

The issued share capital at the declaration date is 529 217 007 ordinary shares and 39 056 987 B ordinary shares.
The income tax number of the Company is 9500-124-71-5.

Payment

The final dividend is payable on Monday, 16 November 2020, to shareholders of the Company registered at the close of business on Friday, 13 November 2020.

Share certificates may not be dematerialised or rematerialised between Wednesday, 11 November 2020, and Friday, 13 November 2020, both days inclusive.

In terms of the Company’s Memorandum of Incorpora­tion, dividends will only be transferred electronically to the bank accounts of shareholders, while dividend cheques are no longer issued. In the instance where shareholders do not provide the Transfer Secretaries with their banking details, the dividend will not be forfeited but will be marked as “unclaimed” in the share register until the shareholder provides the Transfer Secretaries with the relevant banking details for payout.

Secretary

The name and address of the Company Secretary.

Approval

The comprehensive Annual Financial Statements as well as the summary Annual Financial Statements have been approved by the Board.

Signed on behalf of the Board of Directors.

Johann Rupert Chairman Stellenbosch 28 September 2020	Jannie Durand Chief Executive Officer