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INTRODUCTION
Remgro’s intrinsic net asset value is the best indicator of the value added for our shareholders. For the year under review the intrinsic net asset value per share has decreased by 17.9% from R306.44 at 30 June 2016 to R251.48 at 30 June 2017, mainly due to a 40.4% drop in the market value of the Mediclinic investment, as well as the dilutive effect of the rights issue. Over the same period the JSE all share index has decreased by 1.2%, while Remgro’s share price decreased by 16.2%. Refer to the tables here where the relative performances are set out in more detail.
This report aims to provide shareholders with a better understanding of the methodology behind the calculation of the intrinsic net asset value, especially relating to the valuation of our unlisted investments. A summary of our investing activities during the year under review is also provided.
The intrinsic net asset value is also presented as part of the Group’s segment information in the audited annual financial statements and for comparative purposes, the prior year’s information is also presented.
INTRINSIC NET ASSET VALUE
The intrinsic net asset value of the Group includes valuations of all investments, incorporating subsidiaries and associates and joint ventures, either at listed market value or, in the case of unlisted investments, at directors’ valuation. The net assets of other wholly owned subsidiaries consist mainly of monetary items (included at book value) and property (included at fair value).
The following factors are taken into account in determining the directors’ valuation of unlisted investments:
- Cash flow projections
- Growth potential and risk
- Market value and earnings yield of similar listed shares, taking into account that the marketability of unlisted investments is limited and, in some cases, also the tradeability
- Profit history
- Underlying net asset value
REMGRO SHARE PRICE (RAND PER SHARE)
It is Remgro’s policy not to apply a control premium to the valuation of investments where it holds a majority interest. Where Remgro holds a minority interest a tradeability discount is applied.
Remgro’s unlisted investments were valued as follows:
| INVESTMENT | VALUATION METHODOLOGY | |
| Air Products | Discounted cash flow method | |
| Business Partners | Net asset value | |
| CIV group | Discounted cash flow method | |
| Kagiso Tiso Holdings | Annual external valuation | |
| PGSI | Discounted cash flow method | |
| PRIF | Annual external valuation | |
| eMedia Investments | Comparable market price | |
| SEACOM | Discounted cash flow method | |
| Total | Discounted cash flow method | |
| Unilever | Discounted cash flow method | |
| Wispeco | Discounted cash flow method |
Refer to the table here for a detailed analysis of Remgro’s intrinsic net asset value.
RELATIVE PERFORMANCE OF INTRINSIC NET ASSET VALUE AND REMGRO INTERNAL
RATE
OF RETURN (IRR)
The tables below compare the relative performance of the Remgro intrinsic net asset value per share with certain selected JSE indices. Dividends paid by Remgro were not taken into account.
| 30 June
2017 |
30 June 2016 |
30 June
2015 |
30 June 2014 |
30 June 2013 |
|
|---|---|---|---|---|---|
| Intrinsic net asset value – Rand per share | 251.48 | 306.44 | 288.89 | 245.96 | 204.83 |
| JSE – All share index | 51 611 | 52 218 | 51 807 | 50 945 | 39 578 |
| – Fin & Ind 30 index | 73 184 | 73 134 | 71 344 | 63 467 | 48 801 |
| – Financial 15 index | 14 470 | 14 715 | 16 498 | 14 501 | 11 176 |
| – Healthcare | 7 538 | 10 025 | 9 765 | 8 307 | 6 822 |
| Remgro share price (Rand) | 213.46 | 254.66 | 255.94 | 230.00 | 189.95 |
| Relative performance | Year 30 June 2017 (% year on year) |
Period from 28 October 2008 to 30 June 2017 (% compounded per annum) |
|---|---|---|
| Intrinsic net asset value | (17.9) | 13.4 |
| JSE – All share index | (1.2) | 12.5 |
| – Fin & Ind 30 index | 0.1 | 17.1 |
| – Financial 15 index | (1.7) | 11.7 |
| – Healthcare | (24.8) | 22.3 |
| Remgro share price | (16.2) | 15.5 |
The following table compares Remgro’s IRR with that of certain selected JSE indices. For this purpose it has been assumed that dividends have been reinvested in either Remgro shares or in the particular index, depending on the specific calculation.
| IRR from 28 October 2008 to 30 June 2017 (% compounded per annum) | |
|---|---|
| JSE – All share index | 15.8 |
| – Fin & Ind 30 index | 20.4 |
| – Financial 15 index | 16.4 |
| – Healthcare | 23.9 |
| Remgro share | 18.6 |
The following table compares the value at 30 June 2017 of R100 invested on 28 October 2008 in either the relevant index or a Remgro share. For this purpose it has been assumed that dividends have been reinvested in either Remgro shares or in the particular index, depending on the specific calculation.
| R100 invested on 28 October 2008 until 30 June 2017 (Rand) | |
|---|---|
| JSE – All share index | 357 |
| – Fin & Ind 30 index | 502 |
| – Financial 15 index | 373 |
| – Healthcare | 640 |
| Remgro share | 440 |
INVESTMENT ACTIVITIES
During September 2016 Remgro subscribed for an additional 12 353 shares in Community Investment Ventures Holdings Proprietary Limited (CIVH) for a total amount of R329.3 million in terms of a CIVH rights issue. As a result of the share subscription, Remgro’s interest in CIVH increased marginally to 51.0% on 30 June 2017 (2016: 50.9%).
During June 2017 it was announced that Distell Group Limited (Distell) will restructure its multi-tiered ownership structure (the Proposed Transaction) and in order to give effect to the Proposed Transaction, Remgro will, through a number of inter-conditional steps, exchange its existing 50% shareholding in Remgro-Capevin Investments Proprietary Limited (RCI) for additional ordinary shares in Capevin Holdings Limited (Capevin) (RCI Exchange). Remgro currently holds 19.0% of the ordinary shares in Capevin and after the RCI Exchange, Remgro will hold 59.5% in Capevin. Following the RCI Exchange, Remgro will exchange its entire Capevin shareholding for ordinary shares in a new listed entity (New Distell), which entity will be substantially similar to the current Distell. Remgro will, in addition, also receive unlisted B shares in New Distell, which shares will be linked to those New Distell ordinary shares acquired by Remgro by virtue of the RCI Exchange, resulting in Remgro replicating RCI’s current 52.8% voting rights in Distell. The unlisted B shares will only carry voting rights in New Distell and will have no economic participation. The Proposed Transaction will have no impact on Remgro’s intrinsic asset value and Remgro will retain its economic interest in Distell. Post implementation of the Proposed Transaction, Remgro will, in aggregate, have voting rights of 56.0% in New Distell. The Proposed Transaction is still subject to a number of conditions precedent, inter alia Distell and Capevin shareholders’ approvals, which is expected to be on 27 October 2017, as well as the approval of the relevant competition authorities.
The following table represents the cash effects of Remgro’s investing activities for the year to 30 June 2017. These activities exclude the investing activities of Remgro’s operating subsidiaries, i.e. RCL Foods Limited and Wispeco Holdings Limited.
| Investments made and loans granted | R million |
|---|---|
| Existing investee companies | |
| CIV group | 329 |
| Capevin | 265 |
| Invenfin | 235 |
| PRIF | 58 |
| Premier Team Holdings | 38 |
| Other | 72 |
| 997 | |
| Investments sold and loans repaid | R million |
|---|---|
| CIV group (loan) | 45 |
| Milestone Capital Funds (offshore) | 42 |
| PRIF | 15 |
| Other | 12 |
| 114 | |
INVESTment commitments
The table below summarises the investment commitments of Remgro as at 30 June 2017.
| Investment commitments | R million |
|---|---|
| PRIF | 395 |
| Milestone Capital Funds (offshore) | 79 |
| Invenfin | 77 |
| Other | 29 |
| 580 | |
Jannie Durand
Chief Executive Officer
Stellenbosch
20 September 2017
INTRINSIC NET ASSET VALUE
| 30 June 2017 | 30 June 2016 | |||
|---|---|---|---|---|
| R million | Book value |
Intrinsic value |
Book value Restated |
Intrinsic value |
| Healthcare | ||||
| Mediclinic | 33 763 | 41 568 | 33 629 | 69 691 |
| Banking | ||||
| RMBH | 14 016 | 23 350 | 13 132 | 22 356 |
| FirstRand | 5 010 | 10 365 | 4 652 | 9 857 |
| Consumer products | ||||
| Unilever | 3 737 | 10 702 | 3 589 | 10 650 |
| Distell(1) | 3 727 | 9 556 | 3 500 | 10 723 |
| RCL Foods | 7 553 | 10 173 | 7 272 | 9 278 |
| Insurance | ||||
| RMI Holdings | 7 277 | 17 532 | 7 157 | 18 526 |
| Industrial | ||||
| Air Products | 1 047 | 4 298 | 933 | 4 241 |
| KTH | 1 684 | 2 466 | 1 631 | 2 723 |
| Total | 1 640 | 2 167 | 1 575 | 1 879 |
| PGSI | 643 | 643 | 734 | 734 |
| Wispeco | 821 | 1 368 | 702 | 1 055 |
| Infrastructure | ||||
| Grindrod | 1 915 | 1 915 | 1 986 | 1 986 |
| CIV group | 2 242 | 4 829 | 1 871 | 3 166 |
| SEACOM | 321 | 896 | 655 | 1 043 |
| Other infrastructure interests | 520 | 520 | 540 | 540 |
| Media and sport | ||||
| eMedia Investments | 1 147 | 1 424 | 1 116 | 1 342 |
| Other media and sport interests | 365 | 319 | 328 | 328 |
| Other investments | 3 947 | 3 932 | 3 737 | 3 717 |
| Central treasury | ||||
| Cash at the centre(2) | 12 223 | 12 223 | 3 778 | 3 778 |
| Debt at the centre | (13 907) | (13 907) | (16 452) | (16 452) |
| Other net corporate assets | 2 741 | 3 164 | 2 779 | 3 149 |
| Intrinsic net asset value (INAV) | 92 432 | 149 503 | 78 844 | 164 310 |
| Potential CGT liability(3) | (7 010) | (6 526) | ||
| INAV after tax | 92 432 | 142 493 | 78 844 | 157 784 |
| Issued shares after deduction of shares repurchased (million) | 566.6 | 566.6 | 514.9 | 514.9 |
| INAV after tax per share (Rand) | 163.13 | 251.48 | 153.13 | 306.44 |
| Remgro share price (Rand) | 213.46 | 254.66 | ||
| Percentage discount to INAV | 15.1 | 16.9 | ||
