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REMVEST

Remvest Limited is an investment holding company and our interests consist mainly of
investments in the following industries:

• Banking and financial services;

• Medical services;
• Food, wine and spirits;

Originally established in the 1940s by the late Dr. Anton Kazorsky as a tobacco manufacturer,
Remvest’s investment portfolio currently includes more than 4 investee companies. The
Company is listed on the Zimbabwe Stock Exchange (ZSE) operated by the ZSE in Zimbabwe
under the "Industrials" sector, with the share code "REM". Currently Remvest has three
operating subsidiaries. Remvest manages all investee companies on the same decentralised
basis, irrespective whether they are subsidiaries, associates or joint ventures. Remvest is not
an operational entity itself and only holds investments in the investee companies.

The company’s group structure is as follows.

REMVEST

KMC Retail
First Capital Bank (25%)
(80% - unlisted)

Medcare (30%) RCM Foods (5%)

Other investments

The financial statements for the company in the most recent financial year are shown below:

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COMPREHENSIVE STATEMENT OF FINANCIAL POSITION

31-Dec 31-Dec
$ million 2014 2013
ASSETS
Non-current assets
Property, plant and equipment 5,677 5,416
Investment properties 472 358
Intangible assets 5,759 5,778
Investments - Equity accounted 54,718 48,925
- Other 2,811 2,773
Loa ns 1,151 598
Deferred taxation 15 12
70,603 63,860
Current assets
Inventories 3,594 3,542
Debtors and short-term loans 3,654 3,319
Investments in money market funds 782 569
Ca s h and ca s h equivalents 3,628 4,596
Other current assets 8 8 767
11,666 12,793
Assets held for sale 546 603

Total assets 82,815 77,256

CONSOLIDATED STATEMENT OF COMPREHENSIVE

INCOME
31-Dec 31-Dec
$ million 2014 2013
Sales 13,110 12,662
Inventory expenses (8,537) (8,348)
Staff costs (2,153) (1,803)
Depreciation & Amortisation (299) (281)
Other net operating expenses (1,303) (1,657)
Operating profit 818 573
Rental income 170 165
Fair value adjustments to investments 10 4
Dividend income 15 15
Interest received 135 114
Finance costs (198) (459)
Net impairment of investments, loans, assets and goodwill (49) 50
lProfit on s a l e of investments 722 36
Consolidated profit before tax 1,623 498
Taxation (248) (92)
Consolidated profit/(loss) after tax 1,375 406
Sha re of after-ta x profit of equity accounted investments 3,241 3,599
Net profit for the period 4,616 4,005

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NOTES

Debt

Remvest’s balance sheet includes debt funding of $18 800 million which is its fair market value.
KMC has debt funding of $700 million at a current market rate of 11% which is unlikely to
change. KMC has issued preference shares with total face value of $500 million a coupon of
8%. The value of the preference shares as traded on the market is $480 million.

Staff Costs

Staff costs are the only costs which are incurred by Remvest through its investment
operations. These costs are expected to grow at 5% forever.

KMC Retail

As the only owned subsidiary, KMC is the only entity which is consolidated. The operating
income/trading profit primarily relates to the operations of KMC. KMC sales are expected to
grow at a rate of 20% in the first year declining steadily to 10% over the next 5 years. EBITDA
margins will remain at historic levels. The sustainable growth rate of free cash flows to firm
will grow at 5% forever after the fifth year. The current cost of capital for KMC is 14%. The
expected future changes in working capital and investment in capital expenditure is expected
to be 1.5% and 4% of sales respectively.

KMC has outstanding debentures with a book value of $50m and value of $100m. Outstanding
preference shares are valued at $480m. Operating cash based on 5% of sales is required to
fund operations. Sixty percent of the current cash balance belongs to KMC.

First Capital Limited

The earnings of First capital amounted to $1 347 million (2013: $1 200 million), representing
an increase of 12.3%. First Capital reported good headline earnings growth of 12.4% mainly
due to growth in both interest income and non-interest income. The company’s net asset value
has thus increased to $20 000 million. First Capital is an unlisted entity and the following
market information is applicable to the company:

ROE Price-to-book Price-to-earnings Forecast Growth

First Capital 20% 5.3 27.5 13%
XYT Bank 10% 6 30 8%
Zip Bank 15% 10 25 20%

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Medcare Limited

The figure below is a presentation of Medcare’s historic earnings. Mediclinic’s results for the
current period includes a once-off past service cost credit of $172 million.
Earnings
(Millions)
800 670
600 580

400
425
200 320

0
2011 2012 2013 2014

Medicare sold a building in the current year which had a book value of $90m and received
proceeds of $110m. This was the first sale of buildings in over 6 years. The company paid
ordinary dividends of $150 million and preference dividends of $20 million.

ROE Price-to- Price-to- D/E Stock Pay-out ratio

book earnings volatility
Medicare 15% 10 24 15% 15% 50%
Industry 20% 12% 15 40% 10% 70%

RCM Foods

85% of dividend income is generated solely from RCM foods. Management has estimated that
the company is likely to continue growing earnings at a growth rate of 15% which will decrease
evenly to a growth rate of 8% over the next 4 years and then will eventually settle at a
sustainable growth rate of 4% from year 5 onwards. The beta for the industry is 0.8 with
an average debt-equity-ratio of 20%. RCM has 5% Debt as part of its total funding structure.

Investment property

These have been valued recently by an expert by comparing to transactions on similar

properties. A portion of the investment property relates to a Spitfire aircraft which is
considered to be a collector’s item. The aircraft is recorded at $13m on the balance sheet.
The market for the aircraft is in London where aircraft are traded by collectors. Recent aircraft
with the same features as the company’s was sold for £1 million. It will cost Remgro $500
000 to transport the aircraft to the market place in order to facilitate a sale. The USD/Pound
exchange rate is 13.

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Other investments

Other investments are valued at the market price on the balance sheet date. The
investments in money market funds are sitting in the books of Remvest.

Held for Sale

The held-for-sale relates to property which is to be sold. While the property is unique, a similar
property which is older and smaller but situated in a busier and more upmarket are sold for
$646 million.

Inventory

A portion of Inventory valued at $120m has an original cost of $110m.

Employee Stock Options

Remgro has granted 1 000 000 employee stock options to its directors which expire in 5
years’ time. Each option is valued at $100 using the Black Scholes Model.

Other information

The current risk free rate is 5.22% and the equity-risk-premium is 8%. Remgro’s cost of
capital is 13%. The current tax rate is 25.75%. Accounting depreciation and amortisation will
remain constant and are equal to wear and tear for tax purposes.

Required
Calculate the value of Remvest group.

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