Squeaky-clean ap­peal

Finweek English Edition - - Companies & Markets - MARC HASENFUSS

IT’S ????? QUITE AMAZ­ING that brands once housed in the old Hunt Leuchars & Hep­burn (HL&H) food busi­ness have ended up strate­gi­cally po­si­tion­ing in­vest­ment com­pany Rem­gro to take a lu­cra­tive slice of South Africa’s house­hold spend­ing. HL&H held its own JSE list­ing un­til 2002 and at one stage housed the then prob­lem­atic Rain­bow Chicken busi­ness (which was un­bun­dled in the mid-Nineties so as not to de­tract from HL&H’s prof­itable brands, such as spice com­pany Robert­sons).

Cur­rently, some of the brands found in the orig­i­nal HL&H are now tucked away in sprawl­ing house­hold brands busi­ness Unilever South Africa Hold­ings. Last year Rem­gro swapped its 41% stake in Unilever Best­foods Robert­sons (UBR) – which in turn held 100% of Unilever South Africa Foods – for a strate­gic hold­ing in Unilever SA. That tran­spired when Unilever un­der­went a global re­struc­tur­ing, prompt­ing a merger of the com­pany’s SA foods and home/per­sonal care prod­ucts di­vi­sions.

So in late 2007 Rem­gro di­vested its 41% in­ter­est in UBR in ex­change for a 25,75% stake in the to­tal South African Unilever busi­ness. The new busi­ness – Unilever South Africa – com­prises the com­bined lo­cal foods and home/ per­sonal care prod­ucts di­vi­sions. The new ar­range­ment at Unilever is per­fect for Rem­gro – not only pan­der­ing to its strong brand phi­los­o­phy but also ex­pand­ing its food of­fer­ing with an ar­ray of well-known house­hold clean­ing and per­sonal care lines. Unilever’s brands in­clude Stork, Lipton, Glen, Rama, Knorr, Lux, Ponds, Surf, Omo, Skip, Sun­light, Sun­silk, Brute and Axe.

While Rem­gro’s latest an­nual re­port dis­closes that a rather nifty af­ter-tax cap­i­tal gain of al­most R1,2bn was re­alised on the Unilever trans­ac­tion, the prospects for hand­some longer-term re­turns from the new look Unilever look even more com­pelling. Rem­gro’s an­nual re­port shows in the year to end-March 2008 Unilever chipped in head­line earn­ings of R228,5m (against R210m the pre­vi­ous fi­nan­cial year).

Rem­gro also re­vealed that Unilever’s turnover grew 12% for the year, thanks mainly to prices in­creas­ing sub­stan­tially in sec­ond half 2007 to cover ris­ing in­put costs (mainly in oil-based prod­ucts, such as mar­garine, soaps and laun­dry pow­ders). Rem­gro in­di­cated that Unilever’s strong­est rev­enue growth came from its savoury & dress­ing (Knor­rox and Robert­sons), spreads, cheeses as well as culi­nary and skin­care cat­e­gories.

How­ever, Unilever’s laun­dry busi­ness (wash­ing pow­ders, fab­ric soft­en­ers, etc) came un­der pres­sure from in­creas­ing com­pe­ti­tion, which re­sulted in loss of mar­ket share.

Rem­gro’s stake in Unilever is val­ued at R3,6bn, mak­ing the in­vest­ment in house­hold brands one of the big­ger com­po­nents of Rem­gro’s broader in­dus­trial port­fo­lio. No doubt Unilever will be­come a far more prom­i­nent con­stituent of value and cash flow con­tri­bu­tion once Rem­gro fol­lows through on pro­pos­als to un­bun­dle or sep­a­rate off its in­ter­est in Bri­tish Amer­i­can To­bacco (BAT).

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