Our business remains robust. Assets are well-positioned within their respective sectors, liquid and cash generative, with healthy, solvent and liquid positions. REPORTS TO SHAREHOLDERS 24 CHAIRMAN’S REPORT 25 CHIEF EXECUTIVE OFFICER’S REPORT 32 CHIEF FINANCIAL OFFICER’S REPORT 40 INVESTMENT REVIEWS 24 MAIN SECTION | Sub Section | lower section CHAIRMAN’S REPORT JOHANN RUPERT CHAIRMAN INTRODUCTION DIVIDEND The South African economy is struggling, business conditions The Board has approved a final dividend of 349 cents per share, are tough and the consumer is under pressure. Trade war news up 6.4% from 328 cents per share last year. The total ordinary continue to dominate global headlines. dividends per share in respect of the year to 30 June 2019 thus amounted to 564 cents. Remgro’s assets are generally well positioned within their respective sectors, liquid and cash-generative with healthy CORPORATE GOVERNANCE AND balance sheets. SUSTAINABILITY The ability to navigate challenging times requires a calm Remgro is fully committed to managing its business in a and patient temperament. Remgro is well placed to pursue sustainable way and upholding the highest standards of ethics opportunities that may present themselves, as well as support and corporate governance practices. The Board of Directors is the Group’s investee companies on their various trajectories. ultimately accountable for the performance of the Company, appreciating that strategy, risk, performance and sustainability FINANCIAL PERFORMANCE AND are inseparable. INVESTMENT ACTIVITIES Our governance framework is based on the principles contained On 2 July 2018 Unilever South Africa Holdings Proprietary in the King IV Report on Corporate Governance for South Africa Limited (Unilever) acquired Remgro’s 25.75% shareholding (2016) and we are satisfied that the Company has applied those in Unilever in exchange for Unilever’s Spreads business principles during the year under review. We further believe that in Southern Africa, as well as a cash consideration of the Board’s current members possess the required collective R4 900 million, representing a total transaction value skills, experience and diversity to carry out its responsibilities of R11 900 million. This transaction valued the Unilever to achieve the Group’s objectives and create shareholder value Spreads business at R7 000 million. The Unilever Spreads over the long term. business was transferred to Siqalo Foods Proprietary Limited, which became a wholly owned subsidiary of Remgro CHANGE TO THE DIRECTORATE on 2 July 2018. Mr A E Rupert was appointed as a non-executive director of For the year to 30 June 2019, Remgro’s headline earnings Remgro on 29 November 2019. decreased by 4.4% from R8 573 million to R8 195 million, while The Board wishes to welcome Mr A E Rupert as a director to headline earnings per share (HEPS) decreased by 4.2% from the Company. 1 512.6 cents to 1 448.9 cents. ACKNOWLEDGEMENTS Included in headline earnings for the year under review is We extend our sincere appreciation to all who contributed a positive fair value adjustment amounting to R112 million to the performance of the Group over the past year: the (2018: R261 million), relating to the decrease in value of shareholders for their continued confidence; the managing the bondholders’ exchange option of the exchangeable directors and all colleagues in the various investee companies bonds (option remeasurement). Excluding the option for their co-operation and support; all other directors, officials remeasurement, headline earnings decreased by 2.8% from and employees for their dedication; and all parties concerned R8 312 million to R8 083 million, while HEPS decreased by 2.6% for services rendered. from 1 466.5 cents to 1 429.1 cents. Remgro’s intrinsic net asset value per share decreased by 9.3% from R256.97 at 30 June 2018 to R233.03 at 30 June 2019. The closing share price at 30 June 2019 was R187.90 Johann Rupert (30 June 2018: R204.29), representing a discount of 19.4% Chairman (30 June 2018: 20.5%) to the intrinsic net asset value. As at 30 June 2019, 23% of Remgro’s intrinsic net asset value was Stellenbosch represented by unlisted investments (2018: 21%). 19 September 2019 www.remgro.com | Remgro Limited | Integrated Annual Report 2019 25 CHIEF EXECUTIVE OFFICER’S REPORT Remgro’s intrinsic net asset value is the most appropriate indicator of the value added for JANNIE DURAND CHIEF EXECUTIVE our shareholders. OFFICER INTRODUCTION INTRINSIC NET ASSET VALUE Remgro’s intrinsic net asset value is the most appropriate The intrinsic net asset value of the Group includes valuations of indicator of the value added for our shareholders. For the all investments, incorporating subsidiaries, associates and joint year under review the intrinsic net asset value per share has ventures, either at listed market value, or in the case of unlisted decreased by 9.3% from R256.97 at 30 June 2018 to R233.03 investments, other inputs for the assets that are not based on at 30 June 2019. Over the same period the JSE all share index observable market data. has increased by 1.0%, while Remgro’s share price decreased Guidance in completing the valuations is obtained from by 8.0%. Refer to the tables on page 27 where the relative , where is defined as performances are set out in more detail. IFRS 13: Fair Value Measurement Fair Value the price that would be received to sell an asset or paid to transfer Whilst, for various reasons, the index comparison is not always a liability in an orderly transaction between market participants applicable over single accounting periods, the long-term trends at the measurement date. A fair value measurement assumes are used as part of Remgro’s risk and opportunity process to that a hypothetical transaction to sell an asset takes place in retain focus on our commitment to stakeholders as stated in the principal market, or in its absence, the most advantageous our investment philosophy. market for the asset. This report aims to provide shareholders with a better The values derived from the valuation exercise performed at understanding of the methodology behind the calculation of measurement date fall within the IFRS 13 framework, which the intrinsic net asset value, especially relating to the valuation requires that the equity beta, capital structure and cost of of our unlisted investments. A summary of our investing debt be determined based on information obtained for similar activities during the year under review is also provided. assets or market participants, after certain adjustments. This The intrinsic net asset value is also presented as part of the impacts on the weighted average cost of capital (WACC), where Group’s segmental information in the audited Annual Financial target or actual inputs are replaced with inputs derived from Statements. considering the position of hypothetical market participants. 26 REPORTS TO SHAREHOLDERS | Chief Executive Officer’s Report REMGRO SHARE PRICE (RAND PER SHARE) 300 260 220 180 209.82 206.03 206.39 202.43 200.58 203.05 192.84 193.93 189.57 195.97 187.02 186.93 140 100 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 2018 2018 2018 2018 2018 2018 2019 2019 2019 2019 2019 2019 HIGHEST/LOWEST CLOSING PRICE WEIGHTED AVERAGE PRICE Capital allocation is our most important function. We need to be disciplined in our allocation of capital and, if we are wrong, we should act quickly and decisively. www.remgro.com | Remgro Limited | Integrated Annual Report 2019 27 RELATIVE PERFORMANCE OF INTRINSIC NET ASSET VALUE AND REMGRO INTERNAL RATE OF RETURN (IRR) The tables below compare the relative performance of the Remgro intrinsic net asset value per share with certain selected JSE indices. Dividends paid by Remgro were not taken into account. 30 June 30 June 30 June 30 June 30 June 2019 2018 2017 2016 2015 Intrinsic net asset value – Rand per share 233.03 256.97 251.48 306.44 288.89 JSE – All share index 58 204 57 611 51 611 52 218 51 807 – Fin & Ind 30 index 77 459 78 391 73 184 73 134 71 344 – Financial 15 index 16 993 16 139 14 470 14 715 16 498 – Healthcare 3 861 6 800 7 538 10 025 9 765 Remgro share price (Rand) 187.90 204.29 213.46 254.66 255.94 Period from Year 28 October 2008 to 30 June 2019 30 June 2019 Relative performance (% year on year) (% compounded per annum) Intrinsic net asset value (9.3) 10.0 JSE – All share index 1.0 11.3 – Fin & Ind 30 index (1.2) 14.3 – Financial 15 index 5.3 11.1 – Healthcare (43.2) 10.6 Remgro share price (8.0) 11.1 The following table compares Remgro’s IRR with that of certain selected JSE indices. For this purpose it has been assumed that dividends have been reinvested in either Remgro shares or in the particular index, depending on the specific calculation. IRR from 28 October 2008 to 30 June 2019 (% compounded per annum) JSE – All share index 14.6 – Fin & Ind 30 index 17.5 – Financial 15 index 15.9 – Healthcare 13.3 Remgro share 13.9 The following table compares the value at 30 June 2019 of R100 invested on 28 October 2008 in either the relevant index or a Remgro share. For this purpose it has been assumed that dividends have been reinvested in either Remgro shares or in the particular index, depending on the specific calculation. R100 invested on 28 October 2008 until 30 June 2019 (Rand) JSE – All share index 429 – Fin & Ind 30 index 561 – Financial 15 index 482 – Healthcare 344 Remgro share 403 28 REPORTS TO SHAREHOLDERS | Chief Executive Officer’s Report INVESTMENT ACTIVITIES The following table represents the cash effects of On 2 July 2018 Unilever South Africa Holdings Proprietary Limited Remgro’s investing activities for the year to 30 June 2019.