Remgro’s spreads make it smoother in rough times

● Rama, Flora and the rest of Remgro’s spreads business made tough economic conditions a bit easier to swallow for the Stellenbosch-based investment holding company the past year.

But policy uncertainty still sticks in the throat of the group, with stakes in everything from banking and food production to infrastructure and alcoholic beverages.

Remgro CEO Jannie Durand laments the billions that have fled South African bond and equity markets in the past 12 months, and points at the uncertainty around the shape and form of the plans for the National Health Insurance (NHI), land reform and debt relief.

“Various proposed regulatory changes will also change the landscape for Remgro’s major investments,” he said in a statement accompanying the group’s full-year results.

As the largest shareholder in private hospital owner Mediclinic, banking group FirstRand and sugar and chicken producer RCL Foods, Remgro has serious skin in the game.

Headline earnings per share declined 4.2% to R14.49 for the year to end-June, while the group’s NAV per share was down 9.3%.

One analyst, who preferred not to be named, thinks the detrimental first- and second-round effects of NHI and debt relief are yet to be seen.

“The company is exposed to SA, which is in for a rough ride.”

Remgro, chaired by Johann Rupert, has its origins in the Rupert family’s Rembrandt tobacco group, which was later restructured into an investment company more focused on SA, and an international luxury goods business known as Richemont.

In a flat economy, Remgro’s star performers were FirstRand, owner of FNB and WesBank; and Rand Merchant Investment Holdings, with its stakes in Discovery, Outsurance and Momentum Metropolitan. These businesses could keep chipping away at the market share of other financial institutions.

But the lack of growth in other divisions was mostly because the government “dropped the ball”, Durand told Business Times.

Though President Cyril Ramaphosa’s government is doing better than his predecessor’s, “the pace of execution has its own rhythm and that rhythm is a slow one”, said Durand.

As a result, consumer products were a big headache for the business because its contribution to profit dropped 43% to R918m in the year to end-June.

Drinks business Distell contributed slightly less than the previous year.

Sugar was responsible for much of the pain as cheap imports flooded the market after a new tariff had been agreed on, but was not announced in the Government Gazette. The result was a sudden rush of imports from India, where sugar production is subsidised by the state, said Durand.

Other local factors were also a drag on business.

The introduction of the health promotion levy — Treasury-speak for the new sugar tax on soft drinks — has led to a dramatic drop in the consumption of sugar as beverage manufacturers changed their recipes or trimmed can sizes to limit the effect on their bottom line.

Lower demand for sugar domestically forced producers to export at a loss, he said.

Remgro has a 77.5% stake in RCL, best known for its brands Selati sugar and Rainbow chicken.

Asked whether now might not be an opportune time to buy out and delist RCL, he said: “We cannot commit more capital to this business in times of such uncertainty.”

Combining RCL with its spreads business is also not an option at this time.

Remgro sold its 26% stake in the South African business of consumer goods giant Unilever back to the global group last year. This left Remgro with a tidy pile of cash and with 100% of the spreads business Siqalo, which owns Rama, Flora and Stork, among others.

“We’ve been able to give the business more attention and better focus,” Durand said. And the result was a R332m contribution to headline earnings.

The pace of execution [by Ramaphosa’s government] has its own rhythm and that rhythm is a slow one Jannie Durand

Remgro CEO