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Mediclinic puts a drag on Remgro’s interims

OUTsurance and Discovery did well, offset somewhat by MMI, explains CEO Jannie Durand.

WARREN THOMPSON:  Following  the announcement of Remgro’s interim results to the end of December, Moneyweb’s Nastassia Arendse conducted an interview with CEO Jannie Durand. This is what he had to say to her.

JANNIE DURAND:  I think if you look at our performance, if we exclude the Mediclinic contribution, headline earnings up 1.3%. Remember, that’s until the end of December. The economy was only 1.3% up, so it was a very tough economy.

Fortunately some of the assets performed well in the six months – RCL, the banking, the insurance platform, Unilever. So they did well.

But unfortunately the results were a bit dragged down by Mediclinic, and we know some of the problems at Mediclinic. There was a write-off of the trademark Al Noor. There was also the currency effect because of the strengthening of the rand. So that detracted a little from the performance.

But I think overall in a tough six months we did okay. I don’t think we did great, but I think we did okay.

Going forward, the business environment obviously after December is a lot more positive. So hopefully that can flow through to our companies. The jury is out, but I’m optimistic.

NASTASSIA ARENDSE:  Outside of the healthcare sector –with regard to Mediclinic – you’ve got exposure to banking, you’ve got exposure to consumer products. How did those different arms perform?

JANNIE DURAND: The banking did well. As you probably saw. FirstRand’s earnings went up 7%. They still got a very healthy return on equity. I think they were well provided through the credit cycle, so we are very comfortable and happy with the performance of FirstRand.

If you look at our insurance portfolio, underlying that are OUTsurance, Discovery and MMI. OUTsurance and Discovery – I don’t think we can fault them, they did well. The acquisition that we did in the UK, Hastings, that also did well. Unfortunately it was a little offset by MMI; as you know, they didn’t declare a dividend as well. So that was a pullback on the RMI performance in that respect.

NASTASSIA ARENDSE:  And anything you can share with regard to your consumer divisions – RCL, Unilever or Distell?

JANNIE DURAND:  Let’s talk RCL first, because that’s probably more prominent in terms of great results but unfortunately there was this Listeria incident. We actually released a Sens announcement, as RCL, this morning at 09:00 that this ST6 strain was not at our factories. We tested that at a laboratory in France…, and that specific strain was not found with us, so that’s positive. So we seem to be in the clear. I think we’ve had crosswinds a bit.

Distell – a good performance. Revenue growth 9% in very difficult circumstances. But more pleasing was the volume growth of about 3.5% in underlying products, which we were very happy about.

Unilever also up just over 9%, but it really relates to better cost control, bigger margins. So on the volume side not so great – but clearly [good] on cost control and on the better prices. So they had a pleasing performance on that side.

NASTASSIA ARENDSE:  Looking at the different sectors that you have a presence in – insurance, consumer products, healthcare, banking – and taking into consideration what everybody is feeling in the economy right now, this new wave of optimism, do you see scope for you and your team to probably try something in different sectors that are outside of what you already have at this point?

JANNIE DURAND:  It’s difficult to say. Obviously you put on a different set of glasses, where the colour is a little bit better with the optimism. So maybe we’d be looking more positively at other sectors. But it will be very difficult to commit now, to say we want to go into certain sectors. What we’ve publicly said is we won’t go into mining. That’s one sector that we used to be involved in and deliberately got out of. So maybe put a cross to that one.

NASTASSIA ARENDSE:  When you are sitting down with your team, what are you looking for when it comes to an investment, like what ticks all your boxes and would be worthwhile to you?

JANNIE DURAND:  Clearly we’ve got a few guidelines that we are guided by. The one thing that is clear is what we like. We like to have a moat around the business, where we say it’s either a licence that you have or you’ve got a great trademark.

The second thing that we also look at is the management team. Clearly we look at the management team before we invest.

Thirdly as well, what’s very critical for us is the underlying cashflow of the business. We don’t like where the cashflow is half the earnings. Then you get worried about a company.

And, fourthly, I think what is also critical for us is that we must have the ability as Remgro to add value to an investment, otherwise we can just become passive investment managers, and that’s what we are not. We are active investment managers. So we must have the ability to add value to our underlying investments.

NASTASSIA ARENDSE:  In terms of prospects going forward, what are you hoping to achieve?

JANNIE DURAND:  The first six months were tough, as I said, only up 1.3%. We are cautiously optimistic that we’ll have a much better contribution in the second sic months. So I’m looking forward to that we can actually get through the cycle. We came out of a tough environment and we can look forward, not just from a Remgro side, but also more positive country, positive news about the country. People will invest in infrastructure, education, all the things that will get our priorities right and we don’t waste money. We are cautiously optimistic that that will happen.

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