Remgro Ltd Ord

gentlemen, and welcome to the Remgrove Limited interim results presentation. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star, then zero. Please note that this call is being recorded. I would now like to turn the conference over to Yanni Duran. Please go ahead, sir.

Good morning, everybody. Thank you for joining us this morning and welcome to our interim results presentation for the six months ended 31st of December 2024. Today's presentation will focus predominantly on reporting on our financial performance for the interim period. In addition, I will, as has become regular practice, touch on key strategic priorities. but not in a great amount of detail as we'll be hosting a capital markets day in a few weeks where we will unpack our strategic priorities in more detail. With that said, the outline of today's presentation will be as follows. Firstly, I will give an overview of the salient features of our results for the period under review. This will include providing you with a high-level recap of our key strategic priorities which remain consistent with those communicated at our previous results presentation and also a sense of our progress against delivery against these priorities. Secondly, our CFO Neville Williams will unpack in more detail our results for this period. Thirdly, We will then be giving an update on some of our key investments, namely Mediclinic, Heineken Beverages, CIVH, and RCL Foods. The CFO of Mediclinic, Jurgens Myberg, will speak to Mediclinic's results thereafter, and for the first time, the CFO of Heineken Beverages, Lucas Verweij, will do the same for Heineken Beverages. Then the CIVH chairperson, Pieter Eys, will do the same for CIVH, and finally, The CEO of RCL Foods, Paul Cruyshank, will provide highlights of the results they reported on the 3rd of March. I will then close off the presentation by looking at our key areas of focus going forward before opening the floor for questions. We will get into the specifics of Remgrove's results and the drivers thereof shortly, many of which are obviously situation specific, but it is always important to consider the broader macroeconomic context in which the businesses operate over the period. Remgrove continues to be transparent in highlighting the macroeconomic challenges experienced in the preceding years, and the resulting impact on the group's underlying investee companies. While many of these challenges persist, we also saw some improvements in the 2024 calendar year, including ongoing inflation improvements, reductions in interest rates, as well as the significant strides made in ramping up energy availability, which resulted in the longest period of no load shedding in five years. Despite the recently experienced return of interruptions to the electricity supply, we are encouraged by the progress made. These improvements, together with the renewed and positive sentiment following the establishment of the Government of National Unity, has led to an improvement in global investment sentiment towards South Africa, although there remains cautious optimism concerning the GNU's ability to execute on the much-needed structural reforms with requisite speed. Like in any marriage, you have good days and bad days, but we believe it will survive in the immediate future. Globally, the macros remain challenging on the back of heightening uncertainty. Some of these challenging macroeconomic factors include the ongoing Russia-Ukraine war and the uncertainty around the Gaza ceasefire deal. We are also living through a growing increase in geopolitical tensions, such as between South Africa and Rwanda, as well as the tensions between the United States of America and South Africa, which potentially threaten the renewal of the AGOA agreement. Further, there is also increasing tensions concerning the ongoing tariffs disputes between the US and the United States and China. The U.S. Federal Reserve paused its interest rates easing cycle as the risk of recession continues to grow. All these factors are outside our control, but we remain conscious of and continue to assess any indirect impact these might have on our business. While this uncertainty remains, we have been deliberately active in playing our role in the things we believe we can influence, particularly providing support through our portfolio to enable a capable state. In parallel, most of our efforts have been focused on the things we can control, like actively driving performance in our portfolio and setting ourselves up for growth. We have already seen some of the positive gains as evidenced by the results we released this morning, and I will touch a bit on this later. The strategic focus has already started the deal-to-intendant results, to name a few highlights. Firstly, we have de-geared our balance sheet, which we believe sets us up to explore other growth opportunities. We have also seen notable gains in some of our key portfolio companies. Mediclinic is gaining traction on many fronts of its operational improvements, delivering on the priorities and outcomes that have been outlined previously. As you would have seen in Rainbow's recent results announcement, the turnaround strategy execution that Martinez and his team have been hard at work has successfully unlocked robust earnings. Linked to that, RCL Foods' focused portfolio post-Rainbow unbundling has also delivered a meaningful improved performance. We are also seeing early signs of progress at Heineken Beverages as the result of the strategies and stated intervention that the team there has been driving. While we acknowledge we are not where we want to be and while some challenges persist such as the regulatory environment in Switzerland that threatens medical and sustained recovery and the volume decline trend we see in the overall beverages market that impacts Heineken Beverages. The positive gains, however, are proof that our focus on the stated priorities is having a positive impact. I will talk a bit more about how we continue to think about these strategies, strategic priorities in a later slide. Now moving on to our results for the period. You will recall when we presented our final results in September, I said that we were not where we wanted to be and considerable work was being done to bear down the operational performance of a number of our key investments in order to drive a sustainable recovery. This morning, I'm pleased to be delivering on our interim results that show a strong recovery across the board. This improved performance is the reflection of the work that our executive teams at our underlying investee companies in partnership with Rembrae have been actively driving. For this period under review, headline earnings increased by 38.7% from a restated $2.7 billion to $3.7 billion. With the improved earnings, we have consequently seen better cash earnings at the centre, with dividends received at the centre up by approximately 31%, and in turn we have upped our interim dividend by 20%. A significant driver of the increase in headline earnings relates to improved earnings contributions by Mediclinic, Health Insurance, RCL Foods and Rainbow, as well as significantly reduced losses by Heineken Beverages. Neville will provide more detail around these drivers and headline earnings numbers in his section later on. I want to re-emphasize what I said earlier. While we are pleased with the strong contributions that were made by some of Remgrove's investee companies, there is considerable work still to be done to bear down the operational performance of some of our key investment, and that is where a large portion of our management time is focused. We also recognize that our efforts will not be easy, as the market dynamics in some of our key businesses continue to be challenging. As mentioned earlier, Mediclin continues to operate in a Swiss market that is not showing signs of easing and volumes remain fluid across the Heineken Beverages portfolio among strong competition. Despite these dynamics, we remain confident in the potential of the portfolio to generate sustainable growth over the long term. I will now go back and recap on our strategic priorities on the next slide. During the last few reporting result cycles, I have talked extensively about our key strategic focuses on the medium term. The slide revisits some of those priorities and outlines what we believe is a candid assessment of our own performance against these stated priorities. I wanted to re-emphasize the execution of these strategic priorities is not a binary target, but an ongoing journey. Our portfolio optimization efforts, including the execution and embedding of our various transformation corporate action, require significant integration work over the past two years, and we are proud of the progress that has been made in this regard, despite some unforeseen challenges along the way. We are pleased that most of our portfolio companies have moved into recovery post this disruptive period, as can be seen at RCL Foods, Rainbow, Mediclinic and Heineken Beverages. Good strides have also been made in our sustainability journey with our ESG goals set and greater disclosure provided, as you will have seen in our most recent annual report. We are also proud of the progress made in our shareholder engagement at a management level as well as at a board level. This affirms our commitment to making sure that there is sufficient disclosure given on our unlisted assets. Through our de-gearing process, we have created capacity to explore new growth opportunities and the work on rationalisation of our portfolio also continues. I have also previously spoken to our focus on driving performance at our investee companies. This is receiving greater attention with a structured approach in place under the leadership of Karel Forsloer. A much more active approach in engaging in partnership with our investee companies is now mostly established. As mentioned earlier, we will provide a more detailed view of our strategic focus and execution plans when we host our Capital Markets Day next month. I will now hand over to Neville to delve into detail on the results for this interim reporting period. Thank you.

Thank you, Yanni, and good morning, everyone. After a challenging 2024 financial year, the theme for this first half of financial year 2025 is sustainable recovery in headline earnings from period to period. So just to recap again, for the period under review, Remgrove's headline earnings increased by 38.7% from the restated 2.7 billion to 3.7 billion. while headline earnings per share increased by 38.6% from the restated R4.85 to R6.72. Just some comments on the restatement. RemGro restated its previously published headline earnings and earnings for the comparative period December 2023 Reason being that during the finalization of Total Energy's annual financial statements for its year ended 31st December 2023, which took place after the publication of Remgrove's 31st December 2023 interim results, it was determined that the fair value of its disposal group, being mainly its investment in NATREF, was initially incorrectly accounted for. This error has now been rectified, resulting in an increase amounting to 574 million to a restated headline earnings of 2.7 billion for the comparative period. This graph depicts an overview of the main drivers of the more than 38% increase in headline earnings. If we exclude the negative impact of significant corporate actions, implemented during the previous financial year from the autobahs, 343 million in the comparative period and a reduced 77 million for the current period. The resultant increase of 775 million, or more than 25%, can be summarized as follows. Firstly, much improved operational performance from most of the investing companies, of which the most significant are increased contributions from Rainbow, up by 237 million, RCL Foods, up by 224 million, Outsurance Group, up by 195 million Rand and MediClinic excluding the MediClinic acquisition cost up by 152 million. Heineken Beverages excluding the Heineken IFRS 3 impact returning to profitability driven by volume growth and margin recovery and that's a positive swing of 274 million period to period. However, these gains were partly offset by lower contributions from total energies, mainly due to higher negative stock revaluations during the period, and CIVH, mainly due to increased borrowing costs as a result of higher average debt balances and a negative fair value adjustment on an interest rate hedge. Secondly, the positive impact on headline earnings of lower finance costs, due to the redemption of preference shares amounting to plus 226 million during this interim period. We will provide more detail on these operational results during the presentation. An important KPI for Remgrove as an investment company is the growth in its intrinsic net asset value. So this graph provides an overview of the significant changes in INAV since 30 June 2024. The INAV increased by 10.5% to R153.9 billion from R139.3 at 30 June 2024, while the INAV per share increased by 10.3% to R276.89. The difference in increase between INAV, which is up 10.5%, and INAV per share up 10.3%, is due to the allocation of treasury shares to share scheme participants during this period. The main drivers of the increase in INAF are the outstanding performances of our listed investment market values, especially outsurance group up by 43% and discovery up by 44%. These two companies contributing approximately 12 billion or more than 80% of the increase since 30 June 2024. The net cash increased by 3 billion rand, mainly due to the redemption of the preference shares on 5 December 2024. partly offset by a decrease in contribution by first-hand due to the disposal of 31 million shares for a gross consideration of $2.5 billion. This table, which we also disclosed at previous results announcements, provides a snapshot of the outcome of the valuation process conducted for the interim period ended 31st December 2024. Also disclosing the principal valuation methodologies followed. as well as an indication of discount ranges applied to the individual investments. The information is intended to provide investors with additional insight and comfort around the veracity and the governance processes informing this critically important process that is conducted twice a year. As previously mentioned about the governance process, I just want to reiterate again, The Valuation Subcommittee assists the Audit and Risk Committee in gaining assurance on the valuations of unlisted investments. The valuation subcommittee is now well established in interrogating the valuation assumptions used in the DCF models as presented by our corporate finance team, thereby contributing to the robustness of RemGrow's INAV. Then you'll see on discounts, in addition to the discount applied for lack of marketability and control, We also apply a forecast risk discount to some of the DCF valuations, which is a subjective overlay to the DCF outcome, and after considering factors such as the outcome of back-testing of management forecasts to actual results, the assessment of the assumptions by underlying management teams about forecast growth, margin evolution, etc., We also assess how up to date the forecasts used in the DCF models are. And after considering that, we either apply a forecast risk discount or not. This graph depicts the top five unlisted investment valuations and their evolution since 30 June 2023. These five unlisted investments contribute just over 50% to Remgrove's investment portfolio. You'll see Mediclinic is the biggest single investment in Remgrove's portfolio. and the valuation was done on a sum-of-the-parts methodology with the three main components being Southern Africa, East London and Middle East valued on a DCF basis and the 29.7% interest in SPIRE valued at its closing share price. MediClinic's board-approved five-year plans were used as a basis for the DCF which are the same approved forecast used for June 2024. And these forecasts for this period were risk-adjusted with reference to the actual performance of each division for the nine months to 31st December 2024, the year-to-date numbers. In RAND terms, this valuation represents an increase of 3.8% to $42.3 billion, from June 2024 and 0.4% in US dollar terms. We also applied discounts to the DCF valuation for lack of marketability and joint control. CAVH, the second biggest unlisted investment. The DCF valuation of CAVH is performed internally based on a board approved forecast. and discounts are applied for lack of marketability as well as a forecast risk. Peter will provide more insight on the valuation of CRVH later in the presentation. Heineken beverages, you'll see in the previous financial year the impairment that we have applied to the value of Heinbev. And that was due to the operational challenges that they experience. This valuation is also based on a DCF methodology. And for 31st December 2024, updated border-proof forecast information was made available on which we have based this valuation. The valuation outcome of $7.2 billion represents a slight increase of 1.3%. in the valuation since 3 June 2024. We apply discounts to the DCF for lack of control, lack of marketability and forecast risk. So it's the full suite of discounts that we apply for Heinbef's valuation. Cicalo Foods, there's a slight increase in the valuation. of 1.3% and this is mainly the result of a slight decrease in the WAC rate with a positive impact on the valuation partly offset by a decrease in the assumed perpetual rate. which was adjusted downwards as a result of continued pressure being experienced in relation to profit volume growth in the current environment with a negative impact on the valuations. So I'll go into the detailed results per overview. And you will see in the template that in addition to the intrinsic value and the headline earnings disclosure per platform, we have included the cash dividends received for the six months as well as the last 12 months headline earnings and dividend yield for improved transparency. The healthcare platform consists of Mediclinic and is the single biggest investment in Remgrove's portfolio. contributes approximately 28% to INAV and 24% to headline earnings. MediClinic is currently not performing optimally from an earnings yield and dividend yield perspective. And MediClinic, including the holding company MantaBitco's headline earnings contribution, increased by 56% to $883 million. But included in the comparative numbers is that transaction cost of $165 million. If you exclude that transaction cost, the MediClinic contribution to headline earnings actually increased by 21%. They also report adjusted earnings to remove volatility from certain significant income and charges, thereby providing the user a better understanding of underlying financial performance. And for their six months in the 31st September 2024, their adjusted earnings increased by 25% to $83 million. So Jurgens will unpack MediClinic's results later in the presentation. The consumer goods platform, consumer products platform, consists of RCL Foods, Rainbow, Heineken Beverages, Cicalo, and Cape Vin, and contributes approximately 16% to INAV. and 35% to headline earnings with improved contributions from RCL Foods and Rainbow. Dividends contribution also improved due to contributions by RCL Foods and Cape Vinh compared to zero in the comparative period. Heineken Beverages contribution to Remgrove's headline earnings amounted to a loss of 11 million compared to a loss of 386 million in the comparative period. Excluding the IFRS 3 charges in these numbers, Heineken Beverages' return to profitability was largely driven by volume growth and margin recovery. Lukas will elaborate in more detail on Heinbef's results later in the presentation. RCL Foods reported an increase in underlying headline earnings from continuing operations, of 29%, mainly due to strong performance in baking and grocery, as well as the sugar business maintaining its positive momentum. And Paul will elaborate in more detail on RCL Foods results later in the presentation. Cicalo Foods' headline earnings contribution amounts to $255 million. representing an increase of 7.6%. The trading environment showed signs of recovery during the period under review, and Sekalo Foods was able to offset inflationary cost pressures through a focused savings agenda, and this allowed the business to drive profitable volume growth resulting in a 2.3% increase in volumes, but a 6% increase in operational EBITDA for the period. So overall, a very pleasing set of results in a challenging environment for Cicalo. Rainbow listed on 1 July 2024 The contribution by Rainbow increased substantially to 255 million from 18 million in the comparative period. Rainbow's strong financial performance was driven by consistent operational improvements underpinned by their brilliant basics turnaround strategy, improved agricultural performance, due to the full impact of the two-year transition to the new breed, the Indian Riverbreed, that has now been completed. Also enhance efficiencies and a disciplined focus on cost management together with lower commodity pricing relative to the comparative period. The reduction in cost related to energy load shedding and avian influenza challenges in the previous comparative period, and these delivered a combined positive effect on the business. Rainbow reported revenue for the period under review increased by 8.9%, Largely due to improved channel mix, focus on product mix management and higher volumes. The resultant EBITDA increased by 119% to 581 million. Driven by EBITDA margin improvement of 3.7 percentage points to 7.4. Rainbow released their interim results on the 7th of March 2025. Capevin contribution to headline earnings decreased by 17%. to 17 million. This decrease is largely driven by decline in global sales of Scotch whisky, as well as the exit of the distribution and marketing of wine and Amarula. And that distribution agreement was transferred back to Heineken Beverages. during the period under review. The Scotch whisky sector, in particular high margin single malt sales, has experienced a slowdown in shipments to global markets compared to the previous period. Consumers struggling with continuous cost pressure and along with a decrease in disposable income have resulted in softer demand and down trading. Cape Vins valuation decreased by 4.6% to 1.7 billion, mainly due to a dividend of one rand per share being paid out to shareholders during the period under review, while the valuation of the Scotch whisky business and the properties remain flat. The financial services platform contributes approximately 22% to INAF, 18% to headline earnings, and 37% to dividends received at the center for this period. Outsurance Group is the most significant investment here. Their contribution to headline earnings increased by nearly 46% to $624 million. And this increase was mainly due to outsurance holdings, normalized earnings increasing by 44%. The increase in earnings was driven by significantly less natural peril claims. incurred by Yowie and Outsurance South Africa, coupled with strong organic premium growth and higher investment income. This increase was partly offset by a material increase in the share-based payment expense and higher startup losses incurred by Outsurance. They released their interim results on the 14th of March. And then the infrastructure platform consisting mostly of CAVH. CAVH's contribution to headline earnings resulted in a loss of 141 million compared to a profit of 6 million in the comparative period. And this decrease is mainly due to increased borrowing costs to higher average debt balances. as well as a negative fair value adjustment on an interest rate hedge. Revenue growth portion of this is 132 million. However, CIVH achieved single digit revenue and EBITDA growth of 8% and 6% respectively. And Peter Ace will elaborate more on CIVH results and the valuation later in the presentation. The industrial platform companies are profitable on a sustainable basis as you can see here and are consistent dividend payers with high cash conversion ratios as seen in the contribution to headline earnings and dividends received with attractive earnings and dividend yields. Their valuations are also not very demanding. Just some comments on the valuations. On air products, the valuation decreased by 3.3% and the decrease in value is mainly due to the decrease in the forecast free cash flow. due to the announcement by Oslo Metal SA to implement the final wind-down of its long steel business based in Newcastle. Air products supply oxygen over the fence in Newcastle to Oslo Metal. Total energy's increase in value is principally due to an increase in the net cash position after the conclusion of the sale of Natref in December 2024, as well as lower FSC settlement balances. And this was assisted by a minor decrease in the WAC rate. Waspeco's increase in value is due to a slight decrease in WAC since June 2024 and a marginal improved margins projected over the forecast period. From a results perspective, Air products contribution to headline earnings increased by 20% to 341 million, mainly due to volume and turnover growth in all business divisions. coupled with cost efficiency improvements leading to this improvement in profitability. Total Energy's contribution to RemGrow's headline earnings resulted in a loss of 19 million down from a profit of 312 million in 2023. But included in these numbers are negative stock revaluations, amounting to 403 million for this period compared to 8 million in the previous period and these are caused by the volatility in the Brent crude price during period to period. Total energies contribution if you exclude the stock revaluations actually increased by 20 percent to 384 million rand and this was mainly due to an improved marketing performance after the 2024 industry margin increase as well as supply import performance above the basic fuel price, partly offset by decline in volumes. And then Waspeco's increase in earnings is mainly due to a higher revenue and gross profit margin in its aluminium extrusion business. If you look at cash and debt at the centre, increased by 668 million to 7.5 billion, the cash, at 31st December 2024. The net cash at the centre, however, increased by 3.2 billion over the reporting period due to the redemption of the preference shares, that last batch of 2.5 billion during December 2024. If you look at the cash flow waterfall at the center, the main driver of sustainable cash earnings at the center is the dividends received for this period amounting to 2 billion rand. We've also sold 31 million first-rand shares for a gross proceeds of 2.5 billion and utilize 2.5 billion of cash to redeem the last tranche of the preference shares. Then this slide gives you the dividend evolution from the last three interim periods. The dividends received from investing companies, as I previously mentioned, amount to $2 billion for December 2024 interim period, compared to December 2023 of $1.5 billion. This increase period to period was mainly driven by a financial year 2024 dividend of 250 million received from RCL Foods. No dividend was paid in the previous period, as well as a special dividend of 188 million received from Outsurance on top of the final 2024 dividend. And then based on this cash earnings, the board declared an interim dividend of 96 cents per share, up by 20% from the 80 cents in the comparative period. So that brings me to the end of my presentation, and I will now hand over to Jurgens to talk to MediClinic's results.