Remgro has blamed slow-paced economic and structural reforms and general erosion of foreign investor confidence in South Africa for the company’s plunge in earnings and net asset value for the half-year period ending December, 2023.
Interim headline earnings per share (Heps) in Remgro tumbled 39.1% to 381 cents while its earnings per share (eps) performance fell by a massive 161% into a 432 cents loss.
The company said it faced a slew of economic headwinds during the trading period under review from the South Africa and global operating framework.
In South Africa, said Remgro, the “unique and well-known challenges” of power-supply constraints, inefficiencies in transport and logistics as well as “the slow pace of economic and structural reforms and a general erosion of foreign investment confidence in the country” affected the company.
“The compounded effects of all these factors have been felt across Remgro’s portfolio companies, creating an incredibly challenging operating environment for its businesses to navigate,” the company said.
Remgro’s net asset value (NAV) per share fell during this period by 4% to R236.95 per share compared to June, 2023. Its Heps profitability for the period amounted to 381 cents.
Piet Viljoen, a fund manager at MW Investments, however, said “Remgro has grown its NAV per share by 5% per year” since 2010.
“Over the same period, the ALSI TR index has done 12% per annum. If you expect this underperformance to continue (and nothing in their recent capital allocation decisions indicates otherwise), then a fair discount to NAV is around 50%. And to make it an index-beating investment prospect, you need an even bigger discount,” he said.
Key drivers of the plunge in Remgro’s Heps relate to the difficult operating environment, particularly in relation to the trading results of Heineken Beverages.
There were also amortisation and depreciation charges for the period under review of R178 million relating to the additional assets identified when Heineken Beverages obtained control over Distell and Namibia breweries.
Remgro also absorbed a portion of the negative fair value adjustment (FVA) made by TotalEnergies on its Natref stock for the period under review which amounted to R377m.
It also incurred transaction costs amounting to R165m in respect of its Mediclinic acquisition among other key corporate actions for the period.
Although the company’s total earnings for the interim period translated to a loss of R2.3 billion against a profit of nearly R4bn a year earlier, Remgro’s interim dividend remained unchanged.
Remgro declared an 80 cents dividend for the half year to the end of 2023 out of income reserves. Shares in the company closed 4.64% down on the JSE at R130.98 yesterday.
Its lower earnings performance for the period was brightened up by “increased contributions from TotalEnergies, excluding the negative FVA on Natref’s stock, as well as RCL Foods and Siqalo Foods due to improved” operating performances.
The tough operating backdrop that Remgro faced in the period under review necessitated “a disciplined focus on factors within the group’s control” as it looked for for longer-term growth opportunities.
“This interim period has been characterised by consolidation and optimisation following Remgro’s shift in 2023 towards a larger unlisted portfolio. This process involved an intensified focus on driving turnaround and positive momentum in Remgro’s core and growth assets,” the company said.
It added that its immediate priority remains on driving higher performance in “underlying portfolio companies, and unlocking sustainable value” for shareholders.
Analysts said Remgro could undertake a rights issue to raise capital for its over-indebted fibre assets should its deal under its Community Investment Ventures Holdings (CIVH) with Vodacom fail to secure approvals at a time when capital expenditures have already been scaled back.
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