Remgro suffers faltering Mediclinic investment

Investment holding group Remgro reported a 15% decline in intrinsic net asset value per share to R257.79 for the six months to December 2016 on the back of a 38,7% drop in the market value of its Mediclinic stake. The London-listed business represents its single biggest investment. The underperforming Middle East division was impacted by a number of operational and regulatory factors, including the new insurance co-payment requirements, doctor vacancies and delayed facility openings.

During October 2016 Remgro completed a rights issue whereby 48 110 637 new Remgro ordinary shares and 3 550 635 B ordinary shares were issued at a subscription price of R192.50 per share for a total consideration of R9 944.8 million. The dilutive effect of this rights issue is another factor behind the decline in net asset value per share. Headline earnings rose 29.7% to R4.69 billion. Earnings increased 56,5% to R5,2 billion.

Remgro declared an interim dividend of 194c, up 4.3% from the previous period. According to CEO Jannie Durand, the modest rise in dividends - alingned to the increase in headline earnings - did not indicate that there would be any slowdown in acquisition activity and it was reiterated that the firm was constantly looking for deals.

Grindrod, an infrastructure investment, contribution to Remgro's headline earnings amounted to a loss of R18 million against a profit of R43 million in 2015. The loss was attributed mainly to the result of the continuation of weak commodity markets and low drybulk shipping rates during the period.

Long-serving former CFO Leon Crouse retired in March 2016, after 30 years with the group in some capacity, and was succeeded by corporate head of finance Neville Williams. A respected member of the CFO SA community, as a CFO Awards 2016 nominee and a member of the 2017 judging panel, Crouse was an instrumental part of the team that unbundled Swiss luxury goods business Compagnie Financière Richemont AG from the Rembrandt group to form the separately listed Richemont and was the fifth staff member of Vodacom.

Originally established in the 1940s by the late Dr Anton Rupert as a tobacco manufacturer and listed on the JSE since 1956, investment holding company Remgro's portfolio has evolved substantially and currently includes more than 30 investee companies. It has interests in banking, insurance, media and sport, among other sectors, and was one of the founders of Vodacom.

Durand concluded: "The economic climate and political environment remain tough and volatile. Remgro continues to support its existing investments and invest in businesses that have a solid track record to ensure acceptable long-term returns on capital invested."