Remgro flags business risks posed by Eskom power outages
The investment firm also says political instability ahead of the elections is a threat in 2019
Remgro, the Stellenbosch-based investment company controlled by businessman Johann Rupert, has cited power shortages, political instability in the run-up to the national elections, and low business confidence among its biggest risks.
The company, established in the 1940s by Anton Rupert, is one of several firms bracing for tough trading conditions in 2019 amid sluggish economic growth that has hit several sectors as well as consumers.
Remgro has investments in banking, health care, consumer products, insurance, industrial, infrastructure and media sectors.
“Political instability, especially in the lead-up to the national election on May 8 2019, can be expected. The financial crisis faced by state-owned companies, like Eskom, is of great concern to all of Remgro’s investments,” Remgro CEO Jannie Durand said on Tuesday.
He said most of the company’s investments were resilient in the face of these adverse circumstances, largely thanks to their strong balance sheets.
“The majority of Remgro’s investments continue to be impacted by global economic turmoil and severe competitive environments. This impact is further exacerbated by the Eskom threat to the South African economy, which has already had a negative impact to the start of 2019,” Remgro said.
Speaking after the release of the firm’s results for the six months ended December, Remgro CFO Neville Williams said “load shedding is high up in the risks that our underlying businesses face”.
In the six months, Remgro’s headline earnings per share decreased 3.3% to 752c. The group increased its interim dividend per share 5.4% to 215c.
Williams said Remgro’s banking investments performed strongly, with FirstRand and RMB Holdings increasing headline earnings 6.1% and 5.7% respectively. This is in contrast to the 18.2% reduction to headline earnings from consumer products businesses.
“RCL Foods’s contribution to Remgro’s headline earnings decreased by 26.5% to R366m. This decrease is mainly due to significant challenges within the sugar and chicken business units resulting from lower prices realised, mainly due to oversupply and higher commodity and transport costs,” Remgro said.
In December 2018, Remgro bought 7-million shares in RCL Foods for R115m, increasing its interest in the food producer from 77% to 77.5%. That sparked speculation that the move could be a precursor to Remgro’s offer to buy out RCL minorities.
“We already have a controlling stake in RCL. We were offered [the 7 million shares] by a block of shareholders,” Williams said. He said the group would consider an opportunity to further increase its stake in RCL. “But we will not pay a premium,” Williams said.
Remgro raised the stake to entrench its position in the consumer products segment.
Mediclinic’s contribution to Remgro’s headline earnings was up 27.9% to R623m, while the contribution to headline earnings of Rand Merchant Investment Holdings (RMI) in the insurance segment fell 7% to R582m.