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).