Remgro Limited (REM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Remgro Results Presentation for the 6 Months Ended 31 December 2022. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the conference over to Chief Executive Officer, Jannie Durand. Please go ahead, sir.

Good morning, everybody. Welcome to the results presentation of Remgro for the 6 months ended 31st of December 2022. In the room, I've got my management board with me. They will answer the questions at the end of the presentation, and Neville Williams, will then -- the biggest part of the results presentation when we announced the results. The agenda of contents, I'll set the scene. I will actually evaluate us on how we are delivering on our strategy that we've explained in the past. Then Neville will deal with the results for the interim period and I'll conclude by just looking ahead of how we see the future unfolding, not that we will always be right in that. And right at the end, we'll give the audience opportunity to raise questions, and we may not be able to answer some of those questions. If you look at these graphs, normally, when you see graphs going up, it's actually positive news, but in this instance, they're mostly not positive news on the global side. I mean, we're looking at across the world, inflation, interest rates, uncertainty, except for the one on the GDP growth. But it's all signs of a very constrained environment in 2022, and that's a backdrop to our results. Economic prospects were lower at the beginning of 2022 for Omicron virus, then we've got the lockdown still in China, thrashing the property market in China, coupled that with in Russia, the Ukraine war there, the impact on that on inflation, the global supply shops and also the energy crisis. And Europe actually handled it much better than everybody anticipated. Luckily, it was also had a mild winter that actually coincided with that, so that actually helped in that respect. But the IMF revised growth forecast for 2022 and further also going forward. Inflation, big problem. It is at peak level in the U.S. at 9.1% in June. The U.K. was 11.1% in October, and that is both -- for both countries the 41% -- is a 41-year high, and the euro area was at 9.9% in September. I think yesterday, the new latest U.K. numbers came out at 10.1%. So we are back into double-digit inflation. Reduced demand from China because of the lockdown, also heightened concerns over global growth factors going forward into equity markets in quarter 3. The central bank hiking cycle continued throughout 2022. Monetary and fiscal policy looks to remain tight through 2023. As you probably saw yesterday, the Fed raised interest rate by another 25 basis points. So this uncertainty and volatility dominate the sentiment across global markets during 2022. We are of the opinion that interest rates will remain high for longer than we anticipate going forward. But the Fed is really between a rock and hard place at the moment. Do they curb inflation or do they actually keep in -- do they curb inflation of higher interest rate or do they keep interest rates at the current levels to actually helping the banking crisis? And I'm not sure exactly what's going to happen, but all I think that -- we think from our point of view is that these interest rates will remain higher for longer than we think. If we move on to the domestic side. I mean, similar picture on the graph all going up, but it's up, it's not a positive sign on the interest rate cycle, commodities, energy availability. That's one thing that come into play in the domestic environment. And then food inflation, which is a real concern, not just for us, but I think for the country as well and also that coupled with food security issues that we might get into the future, if things remain the same. On the interest rate side, clearly, the higher interest rate had a positive impact on the cash at the center, but also had a negative impact for us on our valuations. The high cost of debt and the higher risk-free rates equating to a higher discount rate overall had a negative impact on our high net accretion, and Neville will explain that in more detail later on. Commodities. You're all aware of the impact of high commodity prices in the food business. We have taken some significant price increases across our business, but these were not able enough to actually offset the margin pressure and we couldn't fully recover the input cost. There was also a negative impact on TotalEnergies, Neville will explain in detail because of the stock revaluation and the drop in the oil price of the negative mark-to-market on the stock valuations regarding TotalEnergies. Price of [indiscernible] have started to come down, but not yet at acceptable levels from a margin point of view. I mean they still trade above ZAR 4,000 [indiscernible] I mean, they're still high if you look at from the history, it's very high. Food inflation, continued cost pressures, as we know, margin compression. We see that across the board in our competitors. February saw increases in CPI, that is the effect of the added cost of power, and we'll talk a little bit about it later in the presentation, and we couldn't recover all of that through pricing. Energy availability remains a concern. Some of our companies are affected differently by loadshedding. Some of them are in zones where they don't have loadshedding, unfortunately, some of them are in areas where there are loadshedding. But we've established a collaboration network in the group that we try to mitigate some of these things, how we can limit the impact on our companies to a large extent. But unfortunately, sometimes you can just do so much. One of the things that is becoming more of a concern for us is now with generators running much longer hours than they used to or what they're actually designed for. So we're getting some generator breakdowns and couple that with diesel storage [indiscernible], that becomes also a problem to actually be able to store diesel at your sites at hospitals, at factories and things like that, that also becomes a concern. Overall, if you look at it, other factors that are contributing to unfavorable natural economic environment in South Africa also really affecting the investment cash flows of South Africa from international point of view. It's [indiscernible] that our infrastructure issue, the inefficient rail and port operations the cost economy in terms of export revenue. I mean, the supply chain is block, you see what's happening in the Cape Town harbor, also at the Richards Bay. I mean, the delays in exporting things and a large amount of fresh fruit actually is wasted and needs to be dumped. I mean, we've been grainless as a impact of that, that has happened, evidently as an effects of crime and corruption, not just at the Eskom level but we see it across other industries as well, in the mining industry, the construction industry and the logistics industry as well. And then the other burdened criminal justice system, NPA burdened not being able to actually swiftly and efficiently acting on some of the arrests that has been made. So it was a tough 6 months, and we don't really see things improving very rapidly in the next year or so, but I'll deal with that when I come to the outlook. Moving across then to the results. If you look at our results, we think our earnings momentum is maintained, despite a lot of these headwinds that I've explained. Headline earnings per share is up by 5.7% to ZAR 6.26, but it's not really comparable to the prior year. The reason for that is because of the corporate actions that has happened. For instance, the Discovery equity accounting earnings by RMI, plus MMH equity accounting earnings by RMI, then OUTsurance of sale of Hastings. So there's quite a -- sale of Grindrod Shipping that's also the unbundling of Grindrod Limited at [indiscernible] but we can't really compare the current years before cutting 6 months before to the prior 6 months performance, but Neville will explain that in a little bit more in detail later in his presentation. We've increased the dividend by 60% from ZAR 0.50 to ZAR 0.80. As we said last year, the cash flow is lagging the earnings increase and because of the dividends actually declared on the prior earnings but the cash flow is now starting to catch up with the earnings on that lag. The INAV is up by 5% to ZAR 223 from ZAR 213 as I've explained earlier of the huge impact of why it's not higher because of the increase in the WACC rate. The closing share price at the end of December was ZAR 133, which was up 2.4%. And the INAV discount is now over 40.6%. The increase in the earnings was mainly due to higher contribution from OUTsurance, KTH, CIVH, which is now turning profitable and first that [indiscernible] was high interest income. It was partly offset by lower contributions from TotalEnergies, RCL Food and then as I've explained to some of the corporate actions like Grindrod's unbundling and so forth. Then if we get on our strategy, delivering on our strategy, just to recap what our strategic priorities is to unlock value, efficient capital allocation and to join the sustainability drive. On the Mediclinic side, if you look from a Mediclinic side and the turnaround there, it's a continuing journey, we're not there where we want to be. It's part of our corporate actions going forward. But I can just say that we also, on the Mediclinic side, there is certain structural issues that are actually flagging us in Switzerland as a moment of the nursing shortage that demand is there for ourselves and sometimes we can't do the supply side because of the nursing shortage. And CIVH is also turning profitable. This continues to be a focus area for us and we see pockets of growth there. Cash generation remains key for us to paying dividends. We are not yet back to pre-COVID levels, but this is a function of the lag between earnings and cash at the central side as explained earlier. The recovery may also be slower than anticipated due to the macro pressures as I also alluded to earlier in my presentation. We are also constantly reviewing how we can potentially supplement the dividend stream through other means like share buybacks and so forth. And that's something that we'll be continuously evaluating going forward. Great strides have been made in reshaping the portfolio, and we are confident that we'll be in a position to see the efforts of the corporate actions in the coming financial year. We continue to look at our assets in the 3 buckets and when appropriate, we will look to dispose of some of the noncore assets, deploy the capital into our growth areas and maintain our growth our cash generating assets as fees of our dividend payout capacity and capital for growth. Once we have better down the ongoing corporate action and portfolio reshaping, we will be better placed to share with the market some of our thinking and plans around how we effectively deploy capital across the buckets and how we look at our balance sheet capacity as well as with factors that we will believe will contribute positively towards narrowing the current discount, things like share backs, et cetera, that we will be looking at. On the sustainability drive, ESG and sustainability remains a key focus, and we have made considerable progress in this period in embedding this into our strategy. We are committed to enhancing our sustainability strategy and approach to ESG, including the development and application of consistency across the group as a whole. In the straight older engagement side, we're hugely aware it is becoming much more important as our portfolio reshaping taking place towards more unlisted balance. We have taken steps in ongoing and improving our disclosure and market engagement for us for this or asset payment achieving greater alignment with the market, especially relating to our unlisted investments. We have made a commitment to the market that our [indiscernible] in unlisted investments as far as possible would be as good, if not better, than even if they were in a unlisted space to be able for our investor base to be able to do the donation and understand the unlisted assets perfectly. Next slide, if we're taking stock and we've given ourselves some marks and where we didn't did ourselves some marks, we actually in progress. But what we communicated on the market and what we said we will be doing, we think we are on a journey to get there. As you're all aware, we have made good progress in the past 6 months as we can -- as can be seen with a number of corporate actions executed on. I mean, we sold Grindrod Shipping, unbundled Grindrod Limited. On the FirstRand side, we've been through some corporate actions and some financial engineering around that, and I'll explain that a little bit later as well. We've unbundled the RMI Group, and now we've got a direct spec in the OUTsurance group and direct space into Discovery as well as MMH. Under Distell and Heineken side, that deal is now really been approved, concluded. The [indiscernible] certain see this outstanding like the election of shareholders if they want to elect cash or shares but we're confident that, that will be resolved. In this ongoing process of Mediclinic, the private of Mediclinic as well as the Vodacom CIVH merger on the fiber assets. The execution speed, unfortunately, is hampered by the raising regulatory approvals, in particular from the South African authorities. It seems like all the other countries are way ahead of the South African perspective, and the one that is always lagging is the South African regulatory authorities. Our experience suggests there's an increased focus on promoting public interest to address some of our socioeconomical challenges. Whilst we believe in the necessity of addressing these, we do believe there has to be a balance of creating a level of unpredictability and uncertainty that can negatively impact SA investment case. I'll take a lot of our time to explain to some of our international partners of why are these things necessary in South Africa and what it means for them. They don't sometimes understand a lot of these reason and it actually makes things -- there's a lot of friction into the system. We are ever continuing to engage with the regulators with a spirit of commitment to seeing the successful implementation of these transactions despite of some of these challenges that we face. On the next slide, just to briefly talk a little bit about the energy platform that we operate in. And this is really I think one of those things that we think is a must-do from our side as well. We've established a company called Ubiquity, has been formed currently consisting of Energy Exchange and Enerweb. RMB has actually joined Remgro as a 25% shareholder and share strategic partner in Ubiquity. Energy Exchange, touch briefly on that. They've got the initial trading license. The first power generation offtake PPAs have been signed with industry expected to trade by June 2023. There's a current pipeline of more than 100 megawatts of supply and demand in process, which is expected to double during 2024. In Energy Exchange involving market initiatives such as the Cape Town Wheeling project, they're also dealing with other municipalities and other areas as well and also having a good relationship with [indiscernible] on the Wheeling side. Enerweb, its H1 performance is taking forecasts and Enerweb is actually a provider of software tools for operators of power grids and trading platforms. The partnership with RMB, they bring different kind of skills and a network of perspective independent power producers. It also brings value on the risk finance, risk management, financing and structuring capabilities to accelerate the enablement of this platform. They also have a large corporate client base that may benefit from the Energy Exchange product offering. We're also confident there's a lot of potential synergies between Energy Exchange and Enerweb and got the skill set to provide a unique offering to our customers differentiating Energy Exchange from other traders. Complementary skill sets and capabilities between Enerweb and Energy Exchange will provide the ingredients for a differentiated strategy from the market. Energy Exchange, is a small business at the moment. It's an early stage business, and we're taking capital light approach here. But I think it's a business that can play a very important role in developing the private power space in South Africa. And just taking stock and allocating capital in line with the strategic priorities that we've done in the last 6 months. Just on the FirstRand hedges. During COVID, as you're all aware, we took out some hedges over our FirstRand stake and during July 2022, we sold 19.2 million FirstRand shares for ZAR 959 million at a profit just below ZAR 50 a share. [indiscernible] part of the 60 million FirstRand shares that were hedged through a series of options, which became exercisable during June and July. The other 40.8 million first and share were also sold in June 2022. Here in November 2022, Remgro entered into another hedging transaction for 30 million FirstRand share. The reference price was ZAR 67.37 to 2-year term and it provides protection for us at 95% at a price of ZAR 64 with a pool strike at ZAR 77.96, which is about 115%. Importantly enough, we've also contracted for the dividend. So we will have the dividends in there as well as we will be allowed to issue both these years at the FirstRand Annual General Meeting -- we actually did it, although we did a script lending exercise. Another 0 cost collar was traded at an asset of ZAR 118 million on the 31st of December 2022. After our interim period during March 2023, we've entered into a further hedging transaction and another 30 million shares of FirstRand shares on a similar terms as in previous one. The reference price in this instance was ZAR 67 to sales, providing protection at 95%. So that's ZAR 63.67. And there's a full strike at 114% of ZAR 76.40. The level for the precontracted dividends were increased from those set during November 2022. On the Asia Partners side, we've invested a further $1 million (sic) [$9 million] into Asia Partners, thereby increasing our cumulative investment of $20 million in Fund I. We've also made an initial investment of $8 million into Fund II, which Remgro committed to invest up to a maximum of $50 million with 10% -- we are limited 10% of the total fund size with 10% stood at $37 million as of the 31st of December 2022. As at 31st December 2022, the fair values of Remgro's investments in these funds -- Fund I and II amounted to $28 million and $8 million, respectively, and the remaining commitments are $5 million and $29 million, respectively. On the Milestone China Funds, at the 31st of December, our total investment in Fund III is amounted to $101 million. During the year under review, we received distributions of $4 million from Milestone III thereby increasing our cumulative distributions to $93 million. As at the year-end or at the 6 months ended the 31st of December 2022, the fair value in this fund amounted to $44 million. We also sold our investment in MCIH for a price of $7.3 million, which equates our investment -- initial investment into the company. On the PRIF side, during the year under review, Remgro invested further ZAR 38 million into PRIF and received distributions of ZAR 6 million, thereby increasing our cumulative investment to ZAR 615 million. We've received also distributions of EUR 353 million in this front. As of the end of December, the fair value for investment in PRIF amounted to ZAR 760 million, and our remaining commitments amounts to ZAR 41 million. The performance of PRIF is actually starting to do quite well as the fair value investments and [indiscernible] investments are actually performing very well at this point in time. So that's finished my introduction. I'm going to hand over to Neville now for the results for the interim period.

Thank you, Jan, and good morning, everyone. This slide just presents a graphic representation how we have progressed since the onset of COVID in that second half of the financial year ended June 2020. And then from December 2020 to December 2021, we were on a recovery path. And if you look at the 6 months to December 2021, we actually surpassed the pre-COVID levels. And then -- since then, if you look at the year, the current period of ZAR 3.5 billion headline earnings, that represents a 5.5% increase on earnings per share, it's 5.7%. And the difference is the positive impact of the shares that we repurchased during the interim period to hedge our commitment on the share scheme. So full recovery since 31st December 2021, that 5.5% is actually a muted increase. And as Jannie alluded to the results of this period are not directly comparable to the prior period due to the impact of the various corporate actions. If you exclude that impact of the corporate actions in this year and the prior year's earnings, the risk of the portfolio actually increased by approximately 50%. So if you look at the next slide, just to put the results in context, on the right-hand side, you see the impact of the corporate actions. The Grindrod Shipping that was disposed of in January '22, so we only equity accounted earnings for the 6 months to December 2021, no earnings in this period. We've unbundled Grindrod in September, October '22. Only 3 months earnings was equity-accounted in this period, while the full 6 months was parted for in the previous financial period. And then on an OUTsurance RMI level, the OUTsurance unbundled Discovery and Momentum Metropolitan. So these shares are not part of the Remgro portfolio, and they've also sold to Hastings. So the equity accounted earnings from these 3 investments last year amounted to ZAR 351 million on a Remgro level. In this period, we've only received and accounted for dividends from Momentum Metropolitan. As you all know, the Discovery has suspended their interim dividend. So the total net impact over the 2 years is a negative of ZAR 636 million, so if you exclude that ZAR 636 million, the rest of the portfolio actually did very well. And it is the major contributor to the increase of approximately 50%, excluding the impact of corporate actions. OUTsurance Group increased by more than 100, so that's the main contributor to the increase of ZAR 242 million. Finance income last year, the repo rate increased by 325 bps, and that has had a positive effect on Remgro's interest income increased by ZAR 216 million from period to period. CIVH continued improved performance as DFA and Vumatel, and they also turned positive on a CIVH level. So their headline earnings contribution increased by ZAR 207 million, which is more than 100% increase. FirstRand, we account now for dividend income and included in that increase of ZAR 185 million is the special dividend that FirstRand declared last year. Our portion was ZAR 154 million. And then the earnings contributions from KTH and TotalEnergies actually created volatility in our equity accounted headline earnings in that increase of ZAR 303 million is at the KTH level, a once-off gain of ZAR 521 million; on a Remgro level, it's ZAR 227 million relating to the Actom exit process. It's after the sale of Actom and the partial repayment of the debt. The outstanding debt was actually forgiven and that's the gain, so once-off okay. And then at TotalEnergies, the crude oil price actually dropped from June '22 to December by more than 20%, I think it's around 25%. And that had a negative effect on the stock revaluations. The swing was around ZAR 404 million negative from period to period. So that created volatility. But if you look at the portfolio -- at the rest of the portfolio, excluding the corporate actions, these are the main drivers of the increase in headline earnings. Then this is just the internal segmental reporting dashboard that we present to the Board, it's like a 1-page commentary on the movements from the significant investments from period-to-period. And then detailed commentary is included in the Board agenda when we present this to the Board. I'll unpack the individual investments and the increases ad decreases of contributions to headline earnings in the next slides. And then the next one is the INAV also, this is also an internal segmental INAV dashboard. The intrinsic net asset value, as Jannie said, increased by 5%, while the share price increased by 2.4% from June to December. So the discount has widened to 40.6%. Just quickly on the makeup of this INAV. The listed investments are disclosed at market value or at the closing share prices at 31st December. The unlisted are disclosed at directors' valuation and I think the unlisted investment governance process is now very set. If you look quickly at the process of the corporate finance team calculate the internal individual valuations of the unlisted investments. They present that to the valuation committee of Remgro, valuations committee interrogate the assumptions and consider that for recommendation to the audit and risk committee, then the audit and risk committee consider that and recommend that to the Board for final approval. The June valuations are audited by PwC, December valuations are not audited, but we are very consistent in methodology from period-to-period. And that's important way we deviate from any methodologies from period-to-period, we disclosed that and explain that to the DC order and risk as well as the Board. If you look at the WACC the risk free rate in the WACC calculation, we use -- it's based on the annualized ZAR 213. And that rate has actually decreased by approximately 28bps from June to December. The big impact is the increase in interest rates, the dry bar in that 6 months period has increased by 225 bps, and that had a negative effect on the valuations from June to December. What we also saw later in the presentation and updated INAV based on listed prices on the 20th of March 2023. And for the unlisted because of volatilities in the geopolitical and economic space globally and in South Africa, we have applied a downward adjustment of 5% to the unlisted investments cash flow forecast that was used as a basis for the DC evaluation to December. So -- but I'll explain that later when we present the updated INAV. So if you look at the top 5 investments actually contributes just under 63% of -- to our portfolio. We're in the top 10 TotalEnergies contribute approximately 83% of the portfolio the INAV of Remgro. Then this is just the split contribution in headline earnings as well as INAV platform. So the segments of Remgro are the significant investment invested companies. And then we then organize that into platforms. And you see the major platforms are the healthcare. That's our Mediclinic investment. The consumer products consists of the still RCL and Siqalo Financial Services will be OUTsurance and Business Partners. And then you also see the portfolio investments, their contribution to INAV and headline ending was also significant. And these portfolio investments now consist of our interest in FirstRand, Discovery, Momentum Metropolitan as well as BAT/Reinet. So moving on to the individual investments. The Healthcare. The Headline earnings contribution increased by 27%. But if you look at their adjusted earnings because they disclose adjusted earnings to assess the actual financial and operational performance as well as a method to provide investments, better understanding of their financial performance that actually decreased by 15%, and if you look at the adjusted EBITDA decreased by 1%. The EBITDA margin is also a bit under pressure from 15.8% to 14.2%. And if you look at the next slide, this is a slide that Mediclinic actually present to the investment community. The segmental adjusted EBITDA and the contributions of the Middle East, South Africa as well as Switzerland to the adjusted EBITDA. And you'll see that the Middle East adjusted EBITDA margin actually decreased 11.4% because of investment for growth in new and existing facilities, more staff cost as well as pronounced seasonality. If you look at Switzerland, South Africa actually is stable from period-to-period. Switzerland's EBITDA declined by 12% and mostly because of revenue decline and COVID-19 staff absenteeism as well as nurse shortages that Jannie has alluded to. If you look at the Consumer Products platform, as I said, consisting of Distell, RCL Foods and Siqalo. Distell and RCL Foods are listed, Siqalo unlisted, so their contribution to headline earnings 28% and to INAV just under 22%. Moving on to the individual investments. Distell has announced the results. This is just a snapshot of their results. Double-digit revenue growth of 15.9% on the back of a 10.3% increase in sales volumes, mostly driven by Ciders and RTDs. I think Savanna is the big brand there. And then -- the double-digit growth relates actually to a moderate profitability case because of significant input cost increased, and that was largely driven by imported glass as well as apple juice concentrate increasing costs there. Electricity disruption also created higher cost as well as stock building in the business. So there's just the more detail on the contribution by region. South Africa dominates on a revenue and volume level and then the contribution per category, we signed us actually dominate from a volume perspective. Then on RCL Foods, they also announced their results. This is a snapshot. Revenue actually increased by more than 17%, but if you look at the significant increase in the cost structure, the underlying EBITDA decreased by 9.2% and mostly because of the overall performance was mainly impacted by lower contributions from Rainbow the chicken business and the baking business unit. So Rainbow's turnaround was hampered by the high commodity input cost, poor agricultural performance as well as the impact of loadshedding, which actually significantly affected the operations. The Baking business experienced a slowdown in demand plus the implementation of price increases to counter high wheat prices. So the commodity prices and cost structure also increased significantly. And there's your segmental revenue contribution. If you look at the major contributor to revenue is actually your chicken business, but a negative contribution to operating profit because of all the issues in the Rainbow currently. So if you look at Siqalo Foods, the unlisted investments, revenue increased by 12%, while the operating EBITDA actually decreased by 2%. And that just show the challenging trading environment that Siqalo experienced over the past 6 months. Continued cost pressure, 21% increase in the material cost. On the cost side, they actually applied a further 4.5% increase in October, but the full impact of that cost increase in cost prices, they were unable to pass on to the already cash track consumer. I mean the consumer is struggling at the moment. And you can see that in the 2.1% volume decrease because of the consumer spend that's been negatively impacted by rising inflation and interest rates. If you look at the valuation drivers, the Siqalo's valuation increased by 4.7% to ZAR 6.6 billion. And the main drivers of that increase was the decrease in the WACC rate they have a positive effect on the valuation. In the forecast, the 5-year cash flow forecast, they actually forecast single-digit revenue growth. It's less than 5%, especially from a volume and price perspective, and also forecast margin recovery in gross profit and EBITDA over the forecast period actually normalized to sort of pre-COVID levels. Financial Services consists of OUTsurance and there you'll see we split the OUTsurance Group into continuing and discontinued. The continuing operations consist of OUTsurance Holdings and then at group level, there's certain like AlphaCode certain other investments there. But actually, OUTsurance Holdings Limited contributed a major portion of OUTsurance's Group. Their continuing headline earnings increased by 147.6%, on a normalized basis, they announced the results yesterday, the headline earnings increased by 78% due to a 45% increase in the earnings of OUTsurance Holdings Limited, the insurance business. And the reason for that increase is a significant improvement in the earnings of Youi, the Australian subsidiary from period to period and as well as lower funding costs at group level because they have to utilize the proceeds of the Hastings disposal to actually settle the debt at group level. From business partners, also a significant increase of 46% due to the increase in interest income as well as they've now starting to release credit impairments that they provided for -- during the COVID period as well as the positive impact of cost containment measures are also now furthered through the earnings. If you look at the valuation of business partners, increased by just under 2%. In this instance, we use the net asset value was 95% or more than 95% of their assets are fairly -- are fair valued in the balance sheet. And then we apply tradability discount due to the no liquidity in the share. Then infrastructure. The main investment here is CIVH. So if you look at CIVH the earnings -- the revenue top line increased by 14%, operating earnings by 69% and the headline earnings that we account actually increased turn from a loss to a profit. So there, you'll see the impact of operational and financial gearing and the scaling of the business. So the improved performance of the fibre business is due to the continued network expansion over the last few years. If you look at the intrinsic value, decrease of 1.6% since 30th of June. And the main driver is the increase in the WACC rate by 28bps because of the increase in cost of debt. The DCF valuation methodology is based on the combined fibre business, 10-year forecast signed off by the CIVH Board. And if you look quickly in the revenue growth forecast, it's mostly driven by the increase in FTTH uptake and fiber-to-the-business expansion. EBITDA growth forecast is a function of the increase in revenue and the scaling of the business. And then the CapEx assumption in that 10-year period is mostly on the fiber-to-the-home rollout. So we also apply a tradability as well as a forecast discount to that DC valuation. In the next slide are the results, top line results of Vumatel and DFA. So Vumatel, you'll see a 14.2% increase in revenue, 16% in operating earnings and 47% in headline Earnings. If you look at DFA, 10.5% in revenue, but the operating earnings and headline earnings actually more than doubled from period-to-period. And this is just the positive growth momentum that you now see in operating earnings and headline earnings going forward. So this is just a slide uncertain of the key indicators regarding the fibre infrastructure platform. I'm not going to talk in detail into this. Then on the industrial, this is our industrial portfolio, Air Products, TotalEnergies and Wispeco are the 3 main invested companies there. You'll see on the left-hand side, the evolution of the headline earnings over the 3 interim periods. And the blue line is actually the headline earnings accounted from TotalEnergies. And there you'll see the volatility of the stock revaluation positive and for this period negative. If you exclude that, you will see the headline earnings, excluding the stock revaluations, and that's the dotted line. And if you look at the ZAR 170 million to ZAR 129 million, there is a reason for that, and I'll explain that. Just quickly on the INAV valuation drivers. Air Products, the WACC increased by 11bps due to the increase in the cost of debt and the increase in value is actually driven by continued stable revenue growth. There's a bit of cost pressure in the operations, and that resulted in a margin squeeze in the forecast period. But the on-site business is the major contributor to revenue and PBIT and they operate mainly on long-term fixed-term contracts with a solid cash and revenue path. TotalEnergies, WACC, the valuation increased by 2.4%. Main reason is the decrease in the WACC by 21bps, which had a positive effect on the valuation. At the moment, current volumes are under pressure due to fuel prices still at elevated levels. Wispeco, a slight decrease in the valuation because of an increase in the WACC rate. In the forecast, very conservative low single-digit revenue growth forecast due to a subdued market demand for aluminum extrusion at the moment. Then on the next slide, more detail on the top line, the revenue and operating performance of the different unlisted industrial companies. Just quickly on Air Products. Very positive improvement in revenue as well as operating performance. The demand for cylinders and other packaged gases was relatively strong, but they also now start to feel the cost bases in the system. TotalEnergies, if you exclude the negative stock effect, the earnings decreased by 24%, and this decrease is mainly due to higher input cost heavily impacted by supply challenges experienced in the importation of fuel products. So the Ukraine Russian will still have an impact on the availability of crude and finished products. And that was partly offset by higher margins from Natref. Wispeco, also very positive double-digit increases in revenue as well as operating profit. Diversified investment vehicles consist of KTH and then the funds, of which Prescient China Equity Fund is the most significant and then the Invenfin portfolio. If you look at KTH, there you'll see the headline earnings contribution. And I've discussed that the one-off debt forgiveness gain of ZAR 521 million actually resulted in 673% increase. KTH INAV increased by 5.7% of the valuation and the drivers are the Kagiso Media, Momentum Metropolitan and Servest, these 3 investments contributed 93% of the INAV. Then just quickly, other investments, treasury and corporate cost. eMedia has already announced the results, a decrease of around 10%. VSB portfolio investments, the valuation actually decreased by 4.2%, and they consist of FirstRand, Discovery and Momentum. Then the other social impact, central treasury and other net corporate costs make up the total intrinsic value of ZAR 23.6 billion. Just to update on the intrinsic net asset value. So since December, the INAV increased by 4.5%, mostly driven by an 8% increase in the listed portfolio. And also, as I said, we've applied a 5% haircut for a downward adjustment to the unlisted. So if you look at the discount increased to 44.5%. The debt and cash at the center, cash increased by ZAR 1.7 billion to just under ZAR 14 billion at 31st December. We have debt of ZAR 7.9 billion. So the net cash is approximately ZAR 6 billion at the center. You can remember that we have a commitment to increase our stake in Mediclinic to 50% at 5.4%. It's GBP 200 million commitment. So we have sufficient cash to finance that. This is a cash flow bridge. The big driver of the increase in the cash movement is the dividends that we received ZAR 1.7 billion, and we've also sold ZAR 19.2 million FirstRand shares. This is just the movement in the cash dividends over the period since COVID. The COVID period of ZAR 720 million that's the low base and from that low base, we've recovered to -- or we are approaching full recovery with that ZAR 1.7 billion. This is just a detailed slide of the individual investments' contribution to dividends. And then as Jannie said, the board looking at the recovery in cash and dividends received has declared at ZAR 0.80 interim dividend, and that represents a 60% increase from the previous year and from -- and that's still from a low base. So the 60% increase in interim. And Jannie, that's my part of the presentation.

Thank you, Neville. Just for the outlook. I think it's quite an appropriate headline, a noisy outlook of threats and opportunities. I just want to touch on the global macroeconomic policy posing a threat going forward. We're all aware of the potential for a recession in Europe, the U.S. and the U.K. And this obviously might also impact South Africa, especially on the terms of trade and the export opportunities into the rest of the world. And we're still aware of the supply chain challenges that we've got with the geopolitical tensions that happening in Europe. And concern to us, as a company, is also South Africa's quite close alignment with Russia in certain of these areas that if you think about it in terms of trade with the rest of world versus Russia, there are multiples that have trades with Russia. And so that might have an impact on some of our trading partners, if they actually look at us unfavorably regarding that. I don't want to beat on this too loudly, but loadshedding, as you all know, is a constant element, the cost of diesel. I've talked about storage, but I think there is some green shoots coming out. If you look at all the projects in the pipeline, mainly driven by the private sector. But I'm quite confident in 24 months that we will see a significant amount of green energy and other forms of coming online to alleviate pressures on the Eskom generation capabilities. Then there is certain progress on structural reforms, clearly, the main concerns regarding the execution capability of government. I think the second one is the climate corruption, which is a big worrying thing for all of us. The amount of money getting lost into the system by corruption. We just know the numbers that was given at Eskom. But if you actually extend that into other areas like the construction industry, logistic industry as well as mining, I think the numbers gets quite significantly and actually quite frightening. So what needs to be done, we got a business South Africa, we're quite aware of this. We're actually working together with business as quite a few CEOs and us and we identified 3 work streams. The one relates to industry, which is self-explanatory why that's important. The other one is on the logistics side come together food security to actually be able to move your things around in the country and the third one, which is crime and corruption. And a big part of that is strengthening the NPA and there's various initiatives that the business is trying to help obviously very clear about the independence of the NPA, the strengthening of the NPA to be able to actually execute a lot of these cases coming before them. Then we all know that pressure on the consumer continues to intensify. I mean, interest rates are high, borrowings are high and the consumer is struggling out there. You can see it every day, and you can see it coming through in the results of the companies and some of the predictions that some of the CEOs are making. The greylisting is a set back, we're all aware of that. Then infrastructure-led growth, as I said, that is very, very critical. I think what we can see some green shoots coming through in terms of the privatization of the ports, we as Remgro is also happy to bring on some of that. There is a privatization also potentially at the rail corridor between Gauteng and Durban. Unfortunately, some of the conditions that government actually put on to these things is quite restrictive. If not makes it attractive for private investors in terms of the government wants you to keep control of some of these operations and things that will be tax efficient and effective deployment of capital and adequate returns for private investors. So there will be some restrictive things in terms of the RFIP that is concerning. But we're steaming ahead and we're trying to make these things work in engaging with government. And hopefully, we can get some positive feedback from the just change some of these teams. There's some encouraging things on the fiscal side. I mean, we all know about the Eskom debt release program. We've actually got a budget of primary surplus that's not officially before interest costs and so forth and the infrastructure spending will exceed over ZAR 900 billion. Unfortunately, as we can see in the quarter 4 the GDP, we had negative GDP growth again. So that sometimes makes it much more realistic of what is happening. Yesterday, also the IMF revised our forecast growth downwards. And really, they cite the power shortage as a key driver for that. I still think South African business and I'm not just talking about Remgro listed companies have shown remarkable resilience in the last decade. But the undisputed need for business is to be united to be working into a force of positive change working together closer together with government and I think we need to bridge a trust deficit of government. They feel us sometimes with some skepticism. They don't always trust our intentions. And we probably got the same price as and that big divide needs to be bridged. And we as business are committed to do that with group of CEOs actually want to move forward to the session to make sure the country works. And we think it can do without private sector. I mean we're all aware we always say governments don't create job, private sector create job. And especially the SMEs more companies that do create job thus big business sometimes create jobs, but if we can encourage the private sector, especially with growth opportunities for smaller and medium enterprises that will be very encouraging and business working with these initiatives, we committed to that as business South Africa. We move on to my last slide. You've seen this in the past, and our focus is doubling on our efforts to deliver our strategic priorities. We talk about disciplined capital allocation, portfolio optimization, sustaining the momentum of our companies through the portfolio through these difficult times. We will continue our sustainability drive, unlocking value through the disposal of non-core assets and new growth opportunities and improved disclosure and shareholder engagement, which will become critical for us into the new reshaped portfolio that Remgro will consist of going forward. I think from our perspective, what we want to do over the next 6 months, actually by -- if we come to you with our year-end results, we will have better down 80% or 90% of these corporate transactions that we've actually busy with and is under work in progress. Hopefully, we will report positively on that -- and once we've done that, we can actually look at some of these other value unlocked drivers. Not that we're not thinking about at the moment, but it will become easier to talk about our portfolio investment, share buyback programs and also developing what I call investment score card that we can share with the investment community on where we're marking ourselves that we've actually delivered on our promises, where we did not deliver on our promises and the reason for that and also where we've made mistakes. But we will try and deliver that and actually communicate that with the investment community on a biannual basis. That is our commitment as a Remgro management team. And I think that comes to the end of my presentation and Neville's presentation so we can hand over to now for questions and answers.

[Operator Instructions] We have no questions on the conference call. I would like to hand over to webcast questions.

On the webcast with a few questions. There's one of KTH. You can please clarify the gain horizon on lender we have in right to the recent earnings?

So the investment in Actom on the KTH sets in an SPV. And over the past few years because of the underperformance of Actom significant impairment provisions have been accounted for hedges results. They've managed to solve the investment, but the proceeds was less than the outstanding debt. So they settle -- partly settle the debt and then the lender just brought off the rest of the debt. And that's the reason for the gain through headline earnings because it's an impairment of loan.

Neville, question from Keith, why do you believe that shifting the majority of the portfolio to what's being unlisted will lower the discount of your share price versus your NAV. If you look at Africa Rainbow capital, the majority of their NAV is unlisted yet then offers them at a significant discount to NAV. So why would Rainbow be any different?

I think let me answer that one. I don't think we think it will be different. I mean, the market will determine the discount. But I thing operating an unlisted space in the region for that is to really actually get much better control of your investments, but your execution on them is much easier to achieve. You're moving closer to the team, and you actually got your flexibility and your speed of execution is a lot quicker on that puts more responsibility on us as Remgro, I've explained that we actually have to be more transparent. We must -- the discloser must be as good and not even better as in terms of the listing provided that enable the market to actually put the value on those investments.

And maybe another one for you. You talk about helping NPA in its capacity to prosecute corruption cases. Is this assistance in form of money? If not, how does Remgro envision assisting the NPA?

So it's not just Remgro. I think it's a business of African initiatives there is certain initiatives that is happening there. So people have been seconded. But obviously, the only granular is there they must be totally independent, not be seen to be able to do business. There's also some other initiatives to training. There's some overseas models that is being looked at how people get trained at universities to be able then to execute certain grants. I mean some of these grants, if you really relate to white collar grants with financial corruption things like that it got quite complicated to be payable with NPA to execute on these things. So it can take a form -- various from obviously money, training, conference, they're just not just one. So it's all sizes of the 3 things that we're looking at.

A question from Asif. With respect to the food company investments, how easy or difficult is it to get inputs from suppliers? Can food companies supply the customers and order from customers easily during this talks to the effects of loadshedding?

[indiscernible]

So with respect to the food company investments, how easy or difficult is it to get inputs from suppliers? And how easily can you get your orders to customers just for RCL and Siqalo?

No I think at the moment, the supply chains are not ideal, but we can still deal with it. I can only speak on behalf of RCL. So I mean, the fortunate position from an RCL perspective that we actually -- we got quite a vertical integrated supply chain. So we've got mining operations. We've got feeding operations on the chicken side, we produce own chicken feed. But yes, it is concern, especially to import like soya that comes to the other ports investing [indiscernible] that can be disrupting. I think at the moment, we actually got adequate supplies to be able to deal with that. But in the future, when things get more congested it can become an issue. Delivering things on to the customers, sometimes, especially if you look at the baking business, trucks leaving early in the morning, perhaps that is a concern on the risk of hijacking things like that. So there is all there's risk associated -- there's always not plain sailing. It's not getting better as we speak. But we're trying our best into were surviving. So at the moment, thank god we're getting most of the food supply through to the customer. But if certain things happen, for instance, I can just say loadshedding gets to a part of certain stage as RCL not as got the same problem. We can't actually process the amount of chickens that the country needs. So then it becomes a food security issue going forward significantly slow.

The next question is on Mediclinic. Can we get an understanding of why the transaction is taking long to complete? And when we can expect for it to be completed? What are some of the roadblocks?

So as competition tribunal was last week, Wednesday, if I recall correctly, the 15th of March. So we both went together between the shelves between the Competition Commission, the DTI and as the acquirers of Mediclinic, we actually agreed with the principles that was presented at the tribunal. There were certain objections at the tribunal. So hopefully, we can complete it in early April. Unfortunately, it should have been a lot quicker. There were no competition concerns at all, all the things that we actually were dealing was related to public interest in this matter. And unfortunately, as I've explained earlier in my presentation, we had approval at our Switzerland, out of the UAE in Cyprus, which I don't know why we had to get a lot of Cyprus, and that we has been already months that we had this approval early regulatory authority. It took so long was the South African side. And I mean, if you just think about the frictional cost embedded into the system, just think of Distell how long that has taken, the CIVH how long that's taking and as well as the Mediclinic how long that's taking, so a lot of frictional costs by getting this transaction delayed.

There's a question from Tam on the CIVH Vodacom deal, again, just on timelines and where we are on the approvals there?

So we submitted -- it is Pieter speaker. So we submitted to the regulatory authorities, which is the ICASA and the Competition Commission November, December 2021. So it's been there now 15 months. ICASA has given conditional approval subject to a few conditions. And the Competition Commission, we are hopeful that by month end, they will be in a position to recommend to the tribunal, which then normally takes another few months.

Another question on CIVH. Can you give some detail on the capital intensity of Vumatel and DFA, which markets do you see highest returns on invested capital? And where do you see the largest opportunities in the segment?

So let me start with the last question first. So initially, we focused on the core -- what we call core fibre-to-the-home market, which is typically the sentence of the world. There we've passed 1 million homes and then in the last 2 years, we focused on the lower LSM areas and we call the first areas, the Reach. Here we've now also passed 1 million homes. I think in the December results, we indicated 1.685 million homes passed, I can share with you that we together passed 2 million homes. Capital that we invest take for 6 months for the period there was about ZAR 1 billion in free cash that came out of operations, sort of ZAR 1 billion. It's another ZAR 1 billion debt funding. So ZAR 2 billion went into the network during 6 months period. We see most of the growth come from the lower LSM areas, and most of our focus is on those areas to Reach and then we have another segment, that is the bottom of the pyramid, which we call [indiscernible] it's still in the early days, but if you look at reach, we've now passed 1 million homes, probably another 2 million homes that we can pass in that segment. There could be 4 billion, 5 billion homes that is potential in the [indiscernible] market. And hopefully, in the future, we can report in those areas. Just maybe something on the capital intensity. So the difference between the reach home price and a traditional core segment Sandton home price, especially, in Sandton homes 50 meters apart and have to dig 50 meters to get to the next home whereas in the rich home frontage is much shorter. So that brings down the capital requirements to pass a home. Also, we use many areas, air fiber or more these days, which also brings down the cost.

Maybe a question for you, Jan. Can you just talk us through where you see the best opportunities to unlock shareholder value?

I think it comes down really to the things that we've discussed is clearly in efficient structures as we dealt with in terms of the RMI structure. Clearly, to double down on some of the growth opportunities in our existing investment portfolio like on the Vumatel or fibre side. There's clearly some growth opportunity not just in South Africa outside there. And there's some other growth opportunities across our portfolio. I mean, you probably saw on the offshore side as well that they've announced that they will expand into Ireland. And then there must be an opportunity looking at -- if you look at between the Heineken and our merger of Distell. I mean, in the countries in Africa, East Africa, we operate we've never added beer. I mean clearly, Heineken has been in South Africa, but they will get to 25% more distribution points in just in South Africa low clearly, there must be user opportunities having the beer insider on the same platform going into the territories that Newco will be operating in a -- there's a lot of growth opportunities. And then from a structural point of view, I mean, the discount, as we all know, not determined but it's a big discount by buying back shares. Clearly, you're reinvesting in great assets that you know at a 40% discount. I mean just take the Newco is ZAR 165 a share, if you buy to reinvest the share rebuying that at a discount of 40% in a great growth company, similar to the CIVH, similarly with Mediclinic all of those companies at a 40% of sale. And some of them, we talked about it. I'm not saying it's definitely not a silver bullet. But those are only will only be available via the Remgro portfolio I think really we will create an attractive investment opportunity going forward. And hopefully, we can show to the market that we can deliver a growth that we can get earnings momentum growth going forward, increasing the dividends and then the market must actually decide if they must narrow the discount or not and if they don't want to narrow the discount. I mean it's really we must be doing something wrong.

Another question from [ Tam. ] What sort of disclosures can we look at for Distell and Mediclinic post the delisting? And are there any restrictions from your current shareholders, i.e., Heineken's sheet?

On the Mediclinic side, I think you probably -- the easier one to answer at this point in time it will be as good as the listed environment, so we'll disclose it properly. In terms of the Newco Heineken one that's something that we're still talking through of Heineken what we can disclose. I think the main concern there is competitive information, but we will try utmost best to do is have a good display as possible in that area. And I must say Heineken has been very cooperative in that regard. So again, I can't say exactly, but I think it's something that it will be a continuous process with them. And obviously, we will need to input from the investment community as well as things we do not do adequate disclosure, but you tell us if we don't do that if we can try and improve on that. What we'll also do, we will have Capital Markets Day and clearly, at those Capital Markets Day, we will have Mediclinic there. We will have the Newco team there to actually explain the results at our Capital Markets Day, as we've done in the past now on the CIVH side as well.

Neville, there's a question from Charles Spring. Rainbow doesn't seem to have short-term funding needs. Can you clarify the thinking to exit to hedge the FirstRand shares at this point in time?

Yes, I think the portfolio investments are also regarded as [indiscernible] cash. And I think the main reason and strategy why we now hedging the downside of -- it's 50% of the FirstRand investment is just to protect the downside, if you look at all will be turmoil in the financial markets currently and going forward. So that hedges will be in place for 2 years, and that will more or less come inside with the maturity of the standard bank debt. So we will have flexibility in 2 years' time. And the Board has to decide whether we should keep the FirstRand under the hedge or solve that for extra liquidity. So we have -- the Board has flexibility regarding the maturity and redemption of our debt in the next year too.

Question on CIVH on the conditions ICASA set on the Vodacom deal?

So from the cost side, mostly to do with continuing to be open access wholesale, which is the current business model, you have transparent tariffs in the market that the market can see where we're rolling out. We don't however, for example, Vodacom when they become a shareholder. So we will have to publish on a monthly basis, our rollout plans. And then there are the normal commitments that we have to make in terms of BEE shareholding. So we have to commit that we will have BEE shareholding of above 50%, which we are currently. Over the -- normally, there will be retrenchments for period, but the main one is open access.

Question from Chris [indiscernible] on the conference call.

Just the discount that Neville pointed out is 44.5%. Is that not a historic high or pretty much close to?

Yes, I think in my -- it's probably historically. I think you're absolutely right.

And then obviously, it's good to hear the discussions about unlocking value. I was just going through some of my old RMH notes and dating back to the 2018 AGM, without trying to be now, I see at that stage, you were against listing assurance. And -- because you said it didn't need capital and it didn't need a portfolio. But I think it's been a wild success. And given some of your underlying holdings, I know you're on a delisting crusade keeping these things understood. But could there be opportunities to list some of the portfolio in the years ahead?

Maybe just to answer you, Chris, on the OUTsurance well, that happened by default, we didn't list it. Of course, we actually spun out all the average I've got a listing by default. But yes, it has been highly successful because I mean, to be quite frank OUTsurance is a I mean it's an exciting company highly successful company, a great management team. Yes, and that is why we actually say I've never said in the past that 100% of underlying Remgro portfolio will be unlisted. So there is always opportunity in some of these assets, again, I mean, we -- I think it can always be part of a side strategy a little bit of unlisted portfolio. I just think having it was 80% listed, 20% unlisted it was probably not the right balance. But I mean, I can't tell the exact number of what should be the right balance. It's just at the moment that we buy -- we're actually going through a delisting of privatization. And it just happened at the point in cycle in 5 years, it could look differently again.

And then just a final question. One of the ways to ensure that the underlying perform is to make sure the execs have proper skin in the game or alignment. For instance, Berkshire Hathaway, that's one of the 2 things they keep in-half designing executive compensation on that. And I know we've had a number of discussions at the AGMs where Mr. Rupert and yourself had agreed with things like minimum shareholding requirements. Then we go to look down at RCL, which has been a long-term underperformer for the group. And a point a discussion at the last AGM, they seem way behind. They seem living in a different world down there in Durban. They still haven't even got minimum shareholding requirements. Is it that time maybe to crack the whip a bit harder there or put some more proactive directors on the board? I don't think this is unfair on historic discount.

I think -- Chris, it's obviously something that we must discuss at the RCL thing. I don't really want to discuss on what we do it. But clearly, one of the initiatives that we're running to the restructuring of RCL actually talking about moving our chicken and things like that at a peer of FMCG play. Yes, but it has been -- especially the chicken has been a disappointment. Some of the things has been outside the control of on the chicken side. I mean, as we last the last 6 months, what has happened to input costs. I mean we got stuck into the wrong breed. We're changing that on the chicken side. So yes, it has been a disappointing and that's why we've appointed a new management team there on the chicken side completely. And in terms of what you talk about remuneration in terms of things, I mean, EDA models and things totally agree. Maybe just a point on that some of those things probably will be easier to actually implement in a private environment where you can actually move away just from movement of share price and share option actually can have longer term, less volatility things in terms of your long-term remuneration structure. We were looking at models as part of collaboration effort across the group of actually trying to develop some of these remuneration models, a great long-term value for the shareholders.

There's no more questions on the conference call. One last question on the webcast. On eMedia, can you provide some thinking on the impact of the analog switch on eMedia and how eMedia can address those?

So eMedia is in constant communication with the Minister of Communication on an organized switch-off [indiscernible] and they're working also in the work group with Sentech and because that's busy managing that process. So it will have a negative effect, but with the open view multichannel business, they actually now have surpassed the 3 million activations mark. And where there's a center that's been switched off in that a few weeks before the switch off -- they actually increased their marketing of the open view set-top boxes in that area. And that's how actually mitigate the negative impact of the switch-off.

That's all the questions. And thanks everybody, and thanks for dialing in. Have a good day. Thank you very much.

Ladies and gentlemen, that concludes today's event. Thank you for joining us. You may now disconnect your lines.