REMGRO LIMITED 2017 INTEGRATED ANNUAL REPORT 2017 INTEGRATED ANNUAL REPORT CREATING SHAREHOLDER VALUE SINCE 1948 INVESTOR TOOLS Cross-reference to relevant sections within this report Download from our website: www.remgro.com View more information on our website: www.remgro.com MORE INFORMATION This Integrated Annual Report is published as part of a set of reports in respect of the financial year ended 30 June 2017, all of which are available on the Company’s website at www.remgro.com. 2017 2017 ANNUAL SUSTAINABLE FINANCIAL DEVELOPMENT STATEMENTS REPORT CONTENTS OVERVIEW OF BUSINESS GOVERNANCE AND SUSTAINABILITY REMGRO’S APPROACH TO REPORTING 2 CORPORATE GOVERNANCE REPORT 57 Scope and boundaries of report, external audit and assurance and significant events RISK MANAGEMENT REPORT 64 SALIENT FEATURES 3 SOCIAL AND ETHICS COMMITTEE REPORT 70 GROUP PROFILE 4 ABRIDGED SUSTAINABLE DEVELOPMENT REPORT 72 Summary of the Company’s business, group structure, history, our business model, ownership structure, REMUNERATION REPORT 81 understanding the business of an investment holding company, and key objectives and principal integrated risks FINANCIAL REPORT FIVE-YEAR REVIEW AND SHARE STATISTICS 12 SUMMARY FINANCIAL STATEMENTS 93 DIRECTORATE AND MEMBERS OF COMMITTEES 14 NOTICE TO SHAREHOLDERS 118 EXECUTIVE MANAGEMENT STRUCTURE 16 SHAREHOLDERS’ DIARY AND COMPANY SHAREHOLDERS’ ACTIONS REQUIRED INFORMATION 17 FORM OF PROXY ATTACHED REPORTS TO SHAREHOLDERS CHAIRMAN’S REPORT 18 CHIEF EXECUTIVE OFFICER’S REPORT 20 CHIEF FINANCIAL OFFICER’S REPORT 25 INVESTMENT REVIEWS 32 p.18 CHAIRMAN’S REPORT p.81 REMUNERATION REPORT p.57 CORPORATE GOVERNANCE REPORT p.93 FINANCIAL REPORT REMGRO LIMITED 1 INTEGRATED ANNUAL REPORT 2017 REMGRO’S APPROACH TO REPORTING The 2017 Integrated Annual Report provides a holistic view of Remgro only has two main operating subsidiaries, i.e. Remgro’s business model, how the Company is managed and RCL Foods Limited (RCL Foods) and Wispeco Holdings also how it manages its investments. In this regard our main focus Proprietary Limited (Wispeco). As RCL Foods (a 77% subsidiary) is to provide a complete analysis of our business to satisfy the is listed on the JSE, detailed information regarding its financial, information needs of key stakeholders that use the Integrated sustainability and social performance is available on its website Annual Report. at www.rclfoods.com. The information provided thus aims to provide our stakeholders Wispeco is an unlisted wholly owned subsidiary which is operated with a good understanding of the financial, social, environmental and managed on a decentralised basis as an independent entity and economic impacts of the Group to enable them to with an autonomous board of directors. Based on the above, as evaluate the ability of Remgro to create and sustain value for well as the fact that Wispeco only represents 1.0% of Remgro’s our stakeholders. intrinsic net asset value, only summarised “non-financial“ disclosure relating to social and environmental performance In order to ensure that we address all the material issues that will be provided for Wispeco. This is in line with Remgro’s reporting matter to us, our share holders and other stakeholders, we also on the financial performance of its investee companies. report on matters such as: Following on the philosophy outlined above, Remgro manages • Our business model; all investee companies on the same decentralised basis, • Our most significant business risks, as identified through our irrespective of whether they are subsidiaries, associates or joint integrated risk management process; and ventures. Therefore data relating to the social and environmental performance of subsidiaries, associates and joint ventures, over • Governance processes. which Remgro does not exercise operational control, are not covered in detail in this report. However, information is provided This Integrated Annual Report was prepared in accordance in instances where material sustainable development issues are with International Financial Reporting Standards, the Listings at stake. Requirements of the JSE Limited, as well as the Companies Act (No. 71 of 2008), as amended. Reporting on sustainable Except where otherwise indicated, all disclosures relating to social development was done based on the principles and and environmental performance thus only relate to Remgro’s recommendations regarding integrated sustainability reporting activities at its head office in Stellenbosch. as contained in the King Report on Governance for South Africa 2009 (King III). The recommendations contained in the International Integrated Reporting Frame work were also noted EXTERNAL AUDIT AND ASSURANCE and applied wherever possible. The consolidated annual financial statements were audited by the independent external auditors, PricewaterhouseCoopers Inc., in This Integrated Annual Report only includes an abridged version accordance with International Standards on Auditing. The report of the Sustainable Development Report as well as summary of the external auditors in respect of the summary consolidated financial statements. The detailed Sustainable Development annual financial statements is included on page 103 of the Report and Annual Financial Statements in respect of the Integrated Annual Report. year under review are available on the Company’s website at www.remgro.com. Various other voluntary external accreditation, certification and assurance initiatives are followed in the Group, complementing Remgro has applied the majority of the principles contained in the combined assurance model as covered throughout the King III – a summary of all King III principles that were not applied Integrated Annual Report. We believe that this adds to the quality is presented in the Corporate Governance Report on page 57. and reliability of the information presented. Refer to the abridged An index on the application of all King III principles is published Sustainable Development Report on page 72 for further details. on the Company’s website at www.remgro.com. The King Report on Corporate Governance™ for South SIGNIFICANT EVENTS DURING AND AFTER Africa 2016 (King IV) was published on 1 November 2016 and it THE END OF THE REPORTING PERIOD is effective for financial years of organisations commencing on During October 2016 Remgro completed a rights issue whereby or after 1 April 2017. The Company will implement and report 48 110 637 new ordinary shares and 3 550 635 new B ordinary on the King IV requirements in its 2018 Integrated Annual shares were issued at a subscription price of R192.50 per share Report. However, the JSE Limited (JSE) made amendments to for a total consideration of R9 944.8 million. section 3.84 of the Listings Requirements relating to certain governance practices extracted from King IV, which are During June 2017 it was announced that Distell Group Limited mandatory for listed companies to comply with. A summary (Distell) will restructure its ownership structure into a new listed of these amendments to the Listings Requirements and page entity. Remgro will retain its economic interest of 31.8%, but will, references to the application thereof are on page 58. in addition, receive unlisted B shares, which will in aggregate give Remgro voting rights of 56.0%. The effective date of the SCOPE AND BOUNDARIES OF OUR REPORT transaction, which is still subject to a number of conditions precedent, is expected to be during the second half of the Remgro is an investment holding company and accordingly all 2018 financial year. references to “the Group“ in this context denote the Company and its subsidiaries. Disclosure is therefore limited to those Refer to the reports of the Chief Executive Officer and Chief entities where the Group exercises control over the financial Financial Officer on pages 20 and 25 respectively for a brief and operating policies of such entities, save where those summary of these transactions. Besides the transactions above, entities disclose the relevant information in their own publicised no significant events occurred during the reporting period or annual reports. after the end of the reporting period, which may have a material impact on the size, structure or ownership of the Group. 2 WWW.REMGRO.COM OVERVIEW OF BUSINESS SALIENT FEATURES R251.48 +7.6% +32.7% -3.4% INTRINSIC NET ASSET ORDINARY DIVIDEND HEADLINE EARNINGS HEADLINE EARNINGS VALUE PER SHARE PER SHARE PER SHARE PER SHARE excluding once-off costs and option remeasurement FINANCIAL Year Year ended ended 30 June 30 June % 2017 2016 change Restated Headline earnings (million) R8 221 R5 874 40.0 – per share (cents) 1 485.5 1 119.6 32.7 Headline earnings, excluding once-off costs and option remeasurement (million) R7 534 R7 392 1.9 – per share (cents) 1 361.3 1 409.0 (3.4) Dividends per share Ordinary (cents) 495.00 460.00 7.6 – Interim (cents) 194.00 185.00 4.9 – Final (cents) 301.00 275.00 9.5 Intrinsic net asset value per share R251.48 R306.44 (17.9) Remgro share price at 30 June R213.46 R254.66 (16.2) Percentage discount to intrinsic net asset value (%) 15.1 16.9 (10.7) NON-FINANCIAL Year Year ended ended 30 June 30 June 2017 2016 Spent on corporate social investment (CSI) (R million) – At the centre 23 24 – Share of CSI spend of investee companies 163 102 BBBEE scorecard contributor level 8 8 Continued participation in carbon disclosure project Yes Yes Inclusion in FTSE/JSE Responsible Investment Index Yes Yes REMGRO LIMITED 3 INTEGRATED ANNUAL REPORT 2017 GROUP PROFILE OUR BUSINESS Originally established in the