Remgro : Results

Registration number 1968/006415/06

ISIN ZAE000026480

JSE and A2X Share code REM

INTERIM REPORT

UNAUDITED RESULTS

FOR THE SIX MONTHS ENDED

31 DECEMBER 2021

AND CASH DIVIDEND DECLARATION

SALIENT FEATURES
Headline earnings per share	+139.4%
Interim dividend per share	+66.7%
Intrinsic net asset value per share	R202.47

Contents

Introduction	1
Group financial review	2
Changes to directorate	10
Declaration of cash dividend	11
Composition of headline earnings	12
Composition of intrinsic net asset value	13
Group financial statements	14
Information on unlisted investments	26
Directorate	30
Corporate information	30

Introduction

Introduction

This first half of Remgro's financial year continued to be a rollercoaster, with the fallout of the July violent unrest and the threat of the fourth wave of the Covid-19 pandemic, amidst a slow vaccination progress, which saw the global community impose further travel bans on South Africa. As we begin to emerge and recover, renewed macro challenges and volatility are evident on a global scale. Remgro continues to focus on its processes curated over its 74-year rich history, remaining committed to its strategic priorities, its corporate citizen mandate and values driven ethos.

To this end, significant progress has been made in the reporting period on strategic initiatives as Remgro continues to position for the future. Transformative corporate actions to this effect include the recently announced Distell Group Holdings Limited (Distell), Community Investment Ventures Holdings Proprietary Limited (CIVH) and Rand Merchant Investment Holdings Limited (RMI) level transactions. Remgro's commitment to its investment philosophy and underlying investments has seen a robust recovery in financial performance compared to the previous period with the majority of financial metrics ahead of pre-pandemic levels. Remgro is more than encouraged that its prudent management, strong balance sheet and capital allocation track record (as evidenced by its resilient portfolio) has enabled it to deliver a quick recovery amidst all the headwinds.

The combination of the above, the positive operational momentum, as well as the expected benefits from the announced corporate actions sees Remgro encouraged by its future prospects as it remains committed to shape the future and partner for South Africa's prosperity for the benefit of all her people.

Shareholders are reminded that this report is based on the actual results for the six months ended 31 December 2021. Therefore, this report does not reflect the current market conditions, which have been impacted by the Russia-Ukraine war and related economic sanctions, and must be read in that context.

Remgro's portfolio has been subject to the effects of rising commodity prices across the various investee companies, as well as the impact of moving bond yields. Remgro is monitoring and actively managing the effects of both supply chain issues and expected input cost pressures through the Group, which ultimate impact is still uncertain and difficult to accurately predict.

Results in context

The headline earnings for the comparative period was significantly impacted by the Covid-19 pandemic and the resultant lockdown measures. From this low base, the increase in headline earnings for the period under review of 139.3% is mainly due to the recovery of the earnings of most of Remgro's underlying investee companies, most notably Mediclinic International plc (Mediclinic), Grindrod Shipping Holdings Limited (Grindrod Shipping), TotalEnergies Marketing South Africa Proprietary Limited (TotalEnergies), FirstRand Limited (FirstRand), Grindrod Limited (Grindrod) and RCL Foods Limited (RCL Foods). Mediclinic's contribution for the comparative period includes the full impact of the Covid-19-related lockdown measures during the first wave of the pandemic,

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Introduction (continued)

Results in context (continued)

on its results for the six months ended 30 September 2020. The results for the period under review were also positively impacted by lower equity accounted losses from CIVH and lower finance costs, due to the redemption of the exchangeable bonds.

In order to compare the headline earnings to a pre-pandemic period, the headline earnings for the six months ended 31 December 2019 (the pre-pandemic 2019 period) has been adjusted to take into account the RMB Holdings Limited (RMH) unbundling and the accounting reclassification of the FirstRand investment (from an equity accounted investment to an investment at fair value through other comprehensive income) during June 2020 (pro forma headline earnings for the pre-pandemic 2019 period). Compared to the pro forma headline earnings for the pre-pandemic 2019 period, headline earnings increased by 22.2%, which indicates that the earnings of most of Remgro's underlying investee companies, that have been affected by the Covid-19 pandemic, have substantially recovered from the pandemic.

Group profile

Originally established in the 1940s by the late Dr Anton Rupert, Remgro's investment portfolio has evolved substantially and currently includes investee companies across nine platforms. The Company is listed on the Johannesburg Stock Exchange (JSE), operated by the JSE Limited in South Africa under the "Financials - Financial Services - Investment Banking and Brokerage Services - Diversified Financial Services" sector, with the share code "REM". From 3 January 2022, the Company also has a secondary listing on the A2X. Remgro's interests consist mainly of investments in the healthcare, consumer products, financial services, infrastructure, industrial and media industries. Remgro's most significant investments are Mediclinic (44.6% interest), RMI (30.6% interest), CIVH (57.0% interest), Distell (31.7% interest), RCL Foods (80.4% interest), FirstRand (3.3% interest), Siqalo Foods Proprietary Limited (Siqalo Foods) (100.0% interest), Air Products South Africa Proprietary Limited (Air Products) (50.0% interest), TotalEnergies (24.9% interest) and Kagiso Tiso Holdings Proprietary Limited (KTH) (43.5% interest). These investments contribute approximately 92% to Remgro's intrinsic net asset value (INAV after tax).

Group financial review

Salient features

			31 Dec		31 Dec
			2021	% Change	2020
Headline earnings (R million)	3 345	139.3	1 398
-	per share (cents)	592.3	139.4	247.4
Ordinary interim dividends per share (cents)	50	66.7	30
			31 Dec		31 Dec
Comparison to the pre-pandemic 2019 period	2021	% Change	2019
Pro forma headline earnings (R million)	3 345	22.2	2 738
-	per share (cents)	592.3	22.2	484.6
			31 Dec		30 June
			2021	% Change	2021
Intrinsic net asset value per share (R)	202.47	14.2	177.33
Remgro share price (R)	131.15	14.4	114.60
Percentage discount to intrinsic net asset value (%)		35.2	20 bps	35.4

Group reporting

Due to Remgro being an investment holding company, traditional measurements of performance, such as sales or gross profit, are not meaningful criteria for evaluating the Group's performance. However, management uses "headline earnings", "intrinsic net asset value" and "cash at the centre" to evaluate the performance of the Group on a continuous basis and hence these concepts are used throughout this report to provide shareholders with a better understanding of Remgro's results.

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Group financial review (continued)

Group reporting (continued)

From time to time, corporate actions may lead to significant items being recognised in the income statement that may not be excluded from the calculation of headline earnings. In these instances, the Group may elect to disclose alternative earnings measures excluding these items in order to promote comparability between reporting periods.

In accordance with paragraph 3.4(b)(v) of the JSE Listings Requirements, the Company again confirms the use of headline earnings per share for trading statement purposes. This is still considered to be an appropriate measure given that, as an investment holding company, the assessment of headline earnings is a key performance measure.

Pro forma headline earnings for the pre-pandemic 2019 period

In order to provide users with a "like-for-like" comparison between the headline earnings for the period under review and the headline earnings for the six months ended 31 December 2019 (the pre-pandemic 2019 period), headline earnings for the pre-pandemic 2019 period has been adjusted to:

• exclude the equity accounted earnings of RMH of R1 290 million, which was presented as a discontinued operation in the prior periods due to the unbundling of this investment during June 2020,
• exclude the equity accounted earnings of FirstRand of R548 million and include the dividend income from FirstRand amounting to R334 million, as this investment was reclassified from an equity accounted investment to an investment at fair value through other comprehensive income on 8 June 2020.

Reconciliation between the reported headline earnings for the pre-pandemic 2019 period and the pro forma headline earnings for the pre-pandemic 2019 period

	31 Dec
R million	2019
Reported headline earnings	4 242
RMH equity accounted earnings	(1 290)
FirstRand equity accounted earnings	(548)
FirstRand dividend income	334
Pro forma headline earnings	2 738

The above adjustments were extracted from the Company's accounting records and is the responsibility of its Board of Directors. The pro forma headline earnings for the pre-pandemic 2019 period is a non-IFRS measure and therefore may not fairly present the Company's headline earnings. This pro forma information has not been reviewed and reported on by Remgro's auditors. Refer to the Salient features and Headline earnings for further details.

Headline earnings

Overview

For the period under review, headline earnings increased by 139.3% from R1 398 million to R3 345 million, while headline earnings per share (HEPS) increased by 139.4% from 247.4 cents to 592.3 cents. The increase in headline earnings is mainly due to higher contributions from Mediclinic, Grindrod Shipping, TotalEnergies, FirstRand, CIVH (lower losses), Grindrod and RCL Foods, as well as lower finance costs due to the redemption of the exchangeable bonds.

Compared to the pro forma headline earnings and pro forma HEPS for the pre-pandemic 2019 period, the headline earnings and HEPS increased by 22.2% from R2 738 million to R3 345 million and from 484.6 cents to

592.3 cents, respectively. The increase in headline earnings is mainly due to higher contributions from Grindrod Shipping, CIVH (lower losses), RCL Foods, TotalEnergies, Distell and Grindrod, as well as lower finance costs due to the redemption of the exchangeable bonds. This increase is partly offset by lower contributions from Mediclinic and FirstRand (lower dividends), as well as lower interest income due to the reduction in the South African repo rate.

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Group financial review (continued)

Contribution to headline earnings by reporting platform
				Year
	Six months ended		ended
	31 Dec	%	31 Dec	30 June
R million	2021	Change	2020	2021
Healthcare	577	239.4	170	674
Consumer products	1 166	14.5	1 018	1 576
Financial services	543	7.3	506	921
Infrastructure	409	287.6	(218)	(376)
Industrial	634	64.7	385	1 014
Diversified investment vehicles	69	675.0	(12)	(260)
Media	71	610.0	10	53
Portfolio investments	238	466.7	42	247
Social impact investments	(8)	42.9	(14)	(66)
Central treasury
- finance income	92	(19.3)	114	212
- finance costs	(318)	34.2	(483)	(861)
Other net corporate costs	(128)	(6.7)	(120)	(249)
Headline earnings	3 345	139.3	1 398	2 885

Refer to pages 12 and 13 for the segmental information.

Commentary on reporting platforms' performance

Healthcare

Mediclinic's contribution to Remgro's headline earnings amounted to R577 million (2020: R170 million), representing an increase of 239.4%. Mediclinic uses adjusted earnings, which removes volatility associated with certain types of exceptional income and charges, in evaluating performance and as a method to provide its shareholders with clear and consistent reporting. For the period under review the main difference between adjusted earnings and headline earnings related to an accelerated depreciation charge at Hirslanden's Klinik St. Anna and a past service cost relating to Swiss pension benefit plan changes. Remgro's portion of Mediclinic's adjusted earnings amounted to R711 million (2020: R160 million), representing an increase of 344.4%. In British pound terms, Mediclinic reported an increase in adjusted earnings of 373%, reflecting the strengthened average SA rand exchange rate against the British pound. Compared to the pre-pandemic 2019 period, Mediclinic reported an increase of 10% in adjusted earnings.

Mediclinic delivered a strong first-half operating performance compared to the prior period, driven by growth in patient volumes in all three divisions. Performance in the comparative period reflected the sudden onset of Covid- 19-related lockdown measures and non-urgent elective procedure restrictions implemented by health authorities during the first wave of the pandemic. Revenue for the period under review increased by 12% (up 15% in constant currency terms). Mediclinic also made good progress compared to the pre-pandemic 2019 period, with revenue up by 4% (up 11% in constant currency terms).

Mediclinic's adjusted EBITDA for the period under review increased by 46% (up 49% in constant currency terms). Incremental Covid-19-related expenses approximated £14 million (2020: £17 million), reflecting the ongoing treatment of Covid-19 patients for the period under review during the third wave of the pandemic. Compared to pre-pandemic 2019 period, adjusted EBITDA was broadly in line with the period under review (up 5% in constant currency terms). Adjusted EBITDA margin materially increased to 15.8% (2020: 12.1%) and is approaching the pre-pandemic levels of 16.6%. Adjusted depreciation and amortisation and finance costs is down on the comparative period, which further explain the increase in adjusted earnings.

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