FINANCIAL REPORT
Our portfolio continued to deliver a resilient set
of results despite the impact of a subdued macroeconomic
environment, underpinned by our strong capital
allocation
strategy.

Notes to the summary financial statements

for the year ended 30 June 2022

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.

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. During the year under review various other interpretations and amendments became effective, but their implementation had no impact on the results of either the current or prior years. 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 
2022 
30 June 
2021 
   Net profit for the year attributable to equity holders (earnings) 13 139  3 550 
   – Impairment of equity accounted investments(1) 193  22 
   – Reversal of impairment of equity accounted investments(1) (361) (1 154)
   – Impairment of property, plant and equipment  106  97 
   – Reversal of impairment of property, plant and equipment  (253) (3)
   – Impairment of intangible and other assets  162  – 
   – Bargain purchase gain  –  (8)
   – Profit on sale and dilution of equity accounted investments  (395) (29)
   – Loss on sale and dilution of equity accounted investments  12 
   – Profit on disposal of property, plant and equipment  (83) (249)
   – Loss on disposal of property, plant and equipment  23  17 
   – Loss on disposal of intangible assets  (12) – 
   – Non-headline earnings items included in equity accounted earnings of equity accounted investments  (6 189) 468 
   – Profit on disposal of property, plant and equipment  (67) (31)
   – Profit on sale of investments(2) (6 298) (70)
   – Loss on sale of investments  76 
   – Impairment of investments, assets and goodwill  190  507 
   – Other headline earnings adjustable items  (15) (14)
   – Taxation effect of adjustments  135  (11)
   – Non-controlling interest  28  173 
   Headline earnings  6 494  2 885 
           

  (1) Refer to “Net impairments of equity accounted investments” here for further details.
  (2) “Profit on sale of investments” from equity accounted investments for the year ended 30 June 2022 includes Remgro’s portion of the profit realised by RMI on the unbundling of its investments in Discovery and Momentum Metropolitan (totalling R4 667 million) and the disposal of its investment in Hastings (R1 465 million).

3.

Earnings and dividends

   Cents  30 June 
2022 
30 June 
2021 
   Headline earnings per share       
   – Basic  1 150.6  510.6 
   – Diluted  1 141.4  508.1 
           
   Earnings per share       
   – Basic  2 327.9  628.3 
   – Diluted  2 312.5  625.5 
           
   Dividends per share       
   Ordinary  150.00  90.00 
   – Interim  50.00  30.00 
   – Final  100.00  60.00 
           

4.

Intangible assets

   R million  30 June 
2022 
30 June 
2022 
   Carrying value at the beginning of the year  20 680  21 067 
   Additions  172  143 
   Disposals  (11) – 
   Businesses acquired  91  59 
   Impairments  (162) – 
   Amortisation  (509) (495)
   Foreign exchange translation  (91)
   Transfers and other  (3)
   Carrying value at the end of the year  20 275  20 680 
           

5.

Investments – equity accounted

   R million  30 June 
2022 
30 June 
2021 
   Associates  43 317  44 756 
   Joint ventures  7 454  5 451 
   Investments – Equity accounted  50 771  50 207 
   Loans to equity accounted investments – Current  15  94 
      50 786  50 301 
           
  

Equity accounted investments reconciliation 

     
   Carrying value at the beginning of the year  50 301  50 991 
   Share of net attributable profit/(loss) 10 980  1 618 
   Dividends received  (1 687) (928)
   Discovery dividend in specie(1) (8 561) – 
   Momentum Metropolitan dividend in specie(1) (2 056) – 
   Exchange rate differences  (244) (2 727)
   Investments made(2) 2 163  1 830 
   Grindrod Shipping disposed(1) (756) – 
   Net impairments  168  1 132 
   Net allowances on loans  (121)
   Equity accounted movements on reserves  729  (1 398)
   Other movements  (252) (96)
   Carrying value at the end of the year  50 786  50 301 
           

  (1) Refer to “Investment activities” here for further detail.
  (2) The year under review includes an investment in CIVH amounting to R2 124 million (2021: R1 636 million).

 

Net impairments of equity accounted investments and loss allowances on loans

Reversal of impairments/(impairments) were recognised for the following investments:
   R million  30 June 
2022 
30 June 
2021 
   Business Partners(1) (193) (22)
   Grindrod(2) 361  488 
   Grindrod Shipping  –  607 
   Other impairments and loss allowances  (62)
      169  1 011 
           

  (1) The investment’s fair value declined further mainly due to an increase in the tradability discount applied to the valuation thereof.
  (2) Grindrod’s listed share price recovered significantly (85% increase year-on-year) following much improved trading results mainly due to the recovery in the logistics and port and terminals sectors in which it operates.

 

At 30 June 2022, the listed market value of the investment in Mediclinic was R29 568 million, which significantly exceeded the carrying value of R26 681 million. The company’s share price was also positively affected during June 2022 by Remgro and Mediterranean Shipping Company’s cash offer to the other Mediclinic shareholders of £5.04 per Mediclinic share. Based on the volume weighted average price for the year ended 30 June 2022, the fair value of the investment amounted to R23 296 million. Remgro also performed a value in use calculation and concluded that no further impairment of the investment is required. Included in the carrying value of the investment is an impairment of R3 898 million which arose following regulatory changes in the investments’ Switzerland business that affected its profitability since the 2019 financial year. Subsequently, the business was also severely impacted by the Covid-19 pandemic. While the Switzerland business is adapting to the new business environment and is recovering after the pandemic, its profitability has not yet improved sufficiently to warrant a (partial) reversal of the impairment.

At 30 June 2021, the listed market value of the investment in Mediclinic was R19 358 million, which was significantly lower than the carrying value of R24 581 million. At that date Remgro also performed a value in use calculation and concluded that no additional impairment of the investment is required as its recoverable amount exceeded its carrying value. There were also no indicators that required the consideration of a reversal of impairment.

The value in use calculation is based on a discounted cash flow model. The calculation requires the use of estimates in respect of cash flows, growth and discount rates and it assumes a stable regulatory environment. These estimates are based on publicly available information such as analysts’ consensus forecast and guidance provided by Mediclinic in its annual results. Given that Mediclinic, in terms of London Stock Exchange listing requirements and its Disclosure Guidance and Transparency Rules, must monitor such publicly available information for reasonability against its internal budgets and forecast and publish guidance should there be a significant deviance, management has comfort that the estimates used in the discounted cash flow calculation are reasonable. Cash flow projections for a five-year period were estimated and reflect management’s best view of future earnings.

The discount and terminal growth rates used for the business segments are as follows:

      30 June 2022  30 June 2021 
   Discount 
rate 
Terminal 
growth 
rate 
Discount 
rate 
Terminal 
growth 
rate 
   South Africa  12.8  5.0  12.7  4.5 
   Switzerland  6.0  1.6  5.1  1.6 
   Middle East  8.7  3.5  8.7  3.0 
                 

 

The value in use model is sensitive to changes in the discount rate, long-term growth rate and projected cash flows. Increases in the discount rate or decreases in the short-term cash flow projections or terminal growth rate could give rise to an impairment charge in future.

Sensitivity analysis of assumptions used in the impairment test:

      Movement 
in discount 
rates 
Movement 
in growth 
rates 
   South Africa (%) +0.50  -0.50 
   Switzerland (%) +0.25  -0.25 
   Middle East (%) +0.50  -0.50 
   Potential impairment based on value in use as recoverable amount (R million) 1 795  2 216 
           

 

Mediclinic operates in three regions. Each of its operations were separately valued as the economic indicators for each area vary. Accordingly, the sensitivity analysis takes account thereof.

Share of after-tax profit of equity accounted investments

   R million  30 June 
2022 
30 June 
2021 
   Profit before taking into account impairments and non-recurring items  6 826  3 404 
   Net impairment of investments, assets and goodwill  (190) (507)
   Profit/(loss) on the sale of investments  6 297  (6)
   Other headline earnings adjustable items  15  14 
   Profit before tax and non-controlling interest  12 948  2 905 
   Taxation  (1 605) (1 111)
   Non-controlling interest  (363) (176)
      10 980  1 618 
           

6.

Long-term loans

   R million  30 June 
2022 
30 June 
2021 
   20 000 Class A 7.5% cumulative redeemable preference shares(1) 3 509  3 508 
   10 000 Class B 7.8% cumulative redeemable preference shares(1) 4 329  4 313 
   Various other loans  5 835  7 076 
      13 673  14 897 
   Short-term portion of long-term loans  (1 980) (2 919)
      11 693  11 978 

7. 

Additions to and replacement of property, plant and equipment 

3 077  2 081 
           

8. 

Capital and investment commitments 

6 208  5 818 
   (Including amounts authorised but not yet contracted for)      
           

9. 

Guarantees and contingent liabilities(2)

25  3 692 
           

10. 

Dividends received from equity accounted investments set off against investments 

12 304  928 
           

  (1) Remgro’s debt covenant, which relates to the Class A and B cumulative redeemable preference shares, is based on net debt at the centre. As Remgro is in a net cash position, the debt covenant is comfortably met.
  (2) Remgro issued a guarantee to Rand Merchant Bank for a loan facility, which was granted to CIVH to fund the Vumatel acquisition. CIVH has since settled the loan and Remgro had no exposure on 30 June 2022 (30 June 2021: R3 594 million).

11.

Fair value remeasurements

 

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

  • Financial instruments at fair value 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 values of derivative instruments, which are included in financial instruments at FVPL, are 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 2022             
  

Assets 

           
   Non-current assets             
   Financial assets at FVOCI  18 248  –  2 402  20 650 
   Financial assets at FVPL  –  –  242  242 
   Current assets             
   Financial assets at FVPL  –  78  –  78 
   Investment in money market funds  5 700  –  –  5 700 
      23 948  78  2 644  26 670 
  

Liabilities 

           
   Current instruments at FVPL  –  33  –  33 
   Hedge derivatives  –  51  –  51 
      –  84  –  84 
   30 June 2021             
  

Assets 

           
   Non-current assets             
   Financial assets at FVOCI  11 933  2 406  14 342 
   Financial assets at FVPL  –  –  214  214 
   Current assets             
   Financial assets at FVPL  –  83  –  83 
   Investment in money market funds  5 010  –  –  5 010 
      16 943  86  2 620  19 649 
  

Liabilities 

           
   Current instruments at FVPL  –  471  –  471 
                 
 

The following table illustrates the reconciliation of the carrying value of level 3 assets at the beginning and end of the year:


   R million  Financial 
assets at 
FVOCI 
Financial 
assets at 
FVPL 
Total 
  

Assets 

        
   Balances at 1 July 2021  2 406  214  2 620 
   Additions  243  –  243 
   Disposals  (258) –  (258)
   Exchange rate adjustment  176  28  204 
   Fair value adjustments through other comprehensive income  (165) –  (165)
   Balances at 30 June 2022  2 402  242  2 644 
              
 

Level 3 financial assets consist mainly of investments in the Milestone China entities (Milestone) and PRIF amounting to R835 million (2021: R1 273 million) and R615 million (2021: R368 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’ valuation methods include discounted cash flow valuations, appropriate earnings and revenue multiples.

Milestone’s fair value consists of listed investments (27%), cash and cash equivalents (1%) and unlisted investments (72%) (2021: 33%, 5% and 62%, respectively). Unlisted investments included at transaction prices in Milestone’s fair value amounted to R217 million (2021: R649 million), while its remaining unlisted investment was valued at R376 million (2021: R140 million). PRIF’s main assets are the investments in ETG Group, Lumos Global, Solar Saver, Icolo, Zimborders, GridX and Medallion. ETG Group was valued using a market-based approach, specifically the comparable company method (Enterprise value/EBITDA), while the other investments were valued using the discounted cash flow method.

The investments in LifeQ, Bolt and Asia Partners (a diversified investment vehicle) were valued at R240 million, R210 million and R398 million, respectively, at 30 June 2022 (2021: R186 million, R336 million and R152 million).

Remgro’s unlisted investments classified as level 3 financial instruments are widely held. Accordingly, changes in the assumptions used to value the above-mentioned unlisted investments will not have a significant impact on Remgro’s financial statements

12.

Segment revenue

      Year ended 30 June 
   R million  2022  2021 
   Consumer products       
   Distell  34 134  28 254 
   RCL Foods  34 744  31 536 
   Siqalo Foods  3 546  3 088 
   Industrial       
   Wispeco  3 598  2 925 
   Other  74  – 
   Total revenue  76 096  65 803 
           

 

Disaggregated revenue information

      Year ended 30 June 
   R million  2022  2021 
   Distell       
   Spirits  13 680  11 127 
   Wine  7 422  6 880 
   Cider and ready-to-drinks  13 012  10 223 
   Other  20  24 
      34 134  28 254 
   RCL Foods(1)      
   Food Division  21 221  19 769 
   Groceries  6 006  5 522 
   Baking  6 214  5 849 
   Sugar  9 001  8 398 
   Rainbow  11 385  10 336 
   Vector Logistics  3 692  3 154 
   Sales between RCL Foods’ business units  (1 581) (1 766)
   Group  190  195 
      34 907  31 688 
   Siqalo Foods       
   Spreads  3 546  3 088 
   Wispeco       
   Extrusions and related products  3 050  2 545 
   Other  548  380 
      3 598  2 925 
   Other  74  – 
   Elimination of intersegment revenue  (163) (152)
   Total revenue  76 096  65 803 
           

  (1) RCL Foods performed a strategic review of its portfolio. It resulted in Rainbow being established as a separate division while Groceries, Baking and Sugar were grouped as the Food Division.

13.

Related party transactions

 

Mediclinic International plc (Mediclinic)

On 4 August 2022 the boards of Manta Bidco Limited (Bidco), MSC Mediterranean Shipping Company SA (MSC), Remgro and Mediclinic announced that they have reached agreement on the terms of a recommended cash offer by Bidco to acquire the entire issued and to be issued ordinary share capital of Mediclinic, other than the Mediclinic shares Remgro already owns (the Acquisition). Remgro currently holds 328 497 888 Mediclinic ordinary shares (representing an interest of approximately 44.6%). Bidco is a newly formed company, which is jointly owned by Remgro and MSC.

In terms of the Acquisition, Mediclinic shareholders will receive 504 pence per Mediclinic share (the offer price). The offer price represents a premium of 35% to the Mediclinic share price on 25 May 2022 of 373 pence, the day prior to the initial offer. Bidco reserves the right to reduce the offer price by future Mediclinic dividends (including the 3 pence per Mediclinic share declared by Mediclinic on 25 May 2022, payable on 26 August 2022), distributions or other returns of value in instances where current Mediclinic shareholders retain the right to such dividends, distributions or other returns of value declared, made or paid.

Remgro, MSC and Bidco have also entered into a subscription and rollover agreement, in terms of which Remgro will sell its existing Mediclinic shares to Bidco in exchange for shares in Bidco and subscribe for further shares in Bidco for approximately£201 million (representing an additional indirect interest in Mediclinic of approximately 5.4%). MSC will also subscribe for shares in Bidco (representing an indirect interest in Mediclinic of 50.0%). The share subscription in Bidco will enable the Acquisition. Bidco’s issued share capital will be held equally by Remgro and MSC. Remgro currently accounts for its investment in Mediclinic as an equity accounted investment and, following the completion of the Acquisition, Remgro will also account for its 50% interest in Bidco (being an indirect 50.0% interest in Mediclinic) as an equity accounted investment. The Acquisition is still subject to various conditions precedent.

Rand Merchant Investment Holdings Limited (RMI)

On 20 September 2021, RMI announced its decision to restructure its investment portfolio by the distribution of all the shares held by it in its two life insurance-focused assets, Discovery Limited (Discovery) and Momentum Metropolitan Holdings Limited (Momentum Metropolitan) (the RMI Unbundling), and on 8 December 2021, RMI also announced the disposal of its 30% stake in Hastings Group Holdings plc (Hastings) for R14.6 billion.

The RMI Unbundling was completed during April 2022 and Remgro received 51 254 365 Discovery shares (7.7% interest), in the ratio of 10.91799 Discovery shares for every 100 RMI shares held, and 122 908 061 Momentum Metropolitan shares (8.6% interest), in the ratio of 26.18136 Momentum Metropolitan shares for every 100 RMI shares held. The market values of these investments at that time amounted to R8 561 million and R2 056 million, respectively, and both the investments were classified as financial instruments at fair value through other comprehensive income. In future only dividend income will be accounted for these investments in the income statement.

Following the RMI Unbundling and the Hastings disposal, RMI’s remaining assets consisted mainly of its 89.1% investment in OUTsurance Holdings Limited.

Distell Group Holdings Limited (Distell)

On 15 November 2021, Distell and Heineken International B.V. (Heineken) announced their intention to combine the Heineken Southern African business, including an interest in Namibia Breweries Limited, with the bulk of the Distell business (consisting of its cider, other RTDs and spirits and wine business) in a new unlisted entity controlled by Heineken and referred to as Newco. The proposed transaction will include the unbundling by Distell of the unlisted shares in Distell’s subsidiary, Capevin Holdings Proprietary Limited (Capevin), which holds Distell’s remaining assets, including its Scotch whisky business. The proposed transaction will also include an offer by Newco to Distell shareholders to acquire their Distell shares for R165 per share and/or unlisted shares in Newco, or a combination thereof and an offer by Heineken to Distell shareholders to acquire their Capevin shares for R15 per share. The proposed transaction was approved by the Distell shareholders on 15 February 2022. During September 2022, the Namibian Competition Commission approved the transaction with conditions and the Competition Commission of South Africa recommended it to the Competition Tribunal with various conditions attached. Once all the regulatory approvals have been obtained, shareholders will still be required to make an election.

Remgro intends to elect to receive Newco shares for its Distell shares and is accordingly expected to be a significant shareholder in Newco. Furthermore, Remgro does not intend to accept the cash offer to be made by Heineken for the Capevin shares that it will receive and is therefore expected to retain a controlling shareholding in Capevin.

Community Investment Ventures Holdings Proprietary Limited (CIVH)

During July 2021, Remgro subscribed for 67 364 shares in CIVH for a total amount of R2 124 million in terms of a rights issue. The proceeds of the rights issue was used to reduce the CIVH group’s debt and to facilitate further growth. This share subscription and a share repurchase to exit one of the minorities during the year increased Remgro’s interest in CIVH from 55.2% at 30 June 2021 to 57.0% at 30 June 2022.

On 10 November 2021, Remgro advised its shareholders that CIVH and Vodacom Proprietary Limited (Vodacom) reached an agreement in terms of which Vodacom will, through a combination of assets of approximately R4.2 billion and cash of at least R6.0 billion, acquire up to 40% of the ordinary shares of a newly created wholly owned subsidiary of CIVH (namely Infraco), which will hold inter alia CIVH’s current interests in Vumatel and DFA. As a result of the proposed transaction, Remgro’s indirect interest in DFA and Vumatel will dilute with the entrance of Vodacom as a shareholder, but Remgro will also obtain an indirect interest in the assets contributed by Vodacom. The proposed transaction is still subject to various conditions precedent, inter alia regulatory approvals.

Grindrod Shipping Holdings Limited (Grindrod Shipping)

On 25 November 2021, Remgro agreed to dispose of its investment in Grindrod Shipping (included under the Infrastructure platform under Other infrastructure investments) and the investment, which was previously classified as an equity accounted investment, was reclassified as a non-current asset held for sale. The transaction was concluded during January 2022 and Remgro sold its 4 329 580 Grindrod Shipping shares for a gross consideration of R1 191 million.

Invenfin Proprietary Limited (Invenfin) (a wholly owned subsidiary of Remgro)

During October 2021, Invenfin Investments 2 Proprietary Limited (an 88.7% held subsidiary of Invenfin) entered into an agreement for the disposal of its full 50.5% interest in Ad Dynamo Proprietary Limited (Ad Dynamo). The total disposal consideration amounted to R245 million. As one of Africa’s largest digital media sales houses, Ad Dynamo partners exclusively with a number of leading global digital platforms to drive their revenue growth in Africa.

Other

For other related party transactions refer to note 5 and 10.

14.

Events after year-end

 

Grindrod Limited (Grindrod)

On 26 September 2022 Remgro approved the unbundling of its investment in Grindrod to its shareholders as a dividend in specie in terms of Section 46 of the Income Tax Act, in the ratio of 30.70841 Grindrod shares for every 100 Remgro shares held. The expected distribution date is 17 October 2022.

Other than the above-mentioned events, there were no other significant events subsequent to 30 June 2022.

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