In order to understand Remgro’s cash generation process, one first needs to understand its reported results.
Remgro’s statutory reported net profit consists primarily of the following:
- Consolidated results of its operating subsidiaries, i.e. RCL Foods, Wispeco, Siqalo Foods and Capevin;
- Equity accounted results of its investments in associates and joint ventures, e.g. Mediclinic, OUTsurance Group, CIVH, Heineken Beverages, Air Products and TotalEnergies;
- Profit/loss on the realisation of investments;
- Net impairment of investments;
- Dividends received from investee companies not classified as subsidiaries, associates and joint ventures, e.g. FirstRand, Discovery and Momentum Metropolitan, the Milestone China Funds and the Pembani Remgro Infrastructure Fund;
- Interest received;
- Interest paid;
- Net corporate costs, including remuneration and other benefits paid to employees; and
Capital is expensive and not infinite. As we deal with an uncertain future, exacerbated by current global economic and geopolitical pressures, and inevitably base capital allocation decisions on certain assumptions about the future, we need to be prudent and have a margin of safety built into these investment decisions.
It is important to be disciplined in our allocation of capital and, to monitor, and if necessary act quickly and decisively. A large part of Remgro’s successful track record of value creation is attributable to being able to balance our investments with a mix of young growth companies, network assets and more established cash-generating companies to ensure superior returns to shareholders by way of sustainable dividends and capital growth.
Building on its stated commitment of 2021 to make Environmental, Social and Governance (ESG) and the transition to corporate sustainability integral to its core strategy, Remgro continues to focus on the critical role of responsible stewardship in the management of its assets and the pursuit of new investments with the aim to deliver sustainable financial returns, while contributing to measurable positive social and environmental impact to deliver shared value to all stakeholders. Remgro’s ESG Investment Framework provides clear guidelines for capital allocation decisions in line with its ESG ambitions to create environmental, social and economic change throughout our ecosystem.
Remgro strives to enable investee companies to fulfil their growth strategies and targets that achieves shared value for all stakeholders over the long term. The support we provide, irrespective of our level of influence, includes:
- Strategic input
- Capital allocation
- Patient financial capital to support growth strategies
- Manufactured capital
- Human capital in management support
- Relationship capital in identification of opportunities
- Intellectual capital
- Responsible investment principles integrating impact throughout the investment lifecycle to improve ESG performance
- ESG principles, targets and disclosure guidance
- Dealmaking ability (environment for corporate transactions)
- Decentralised management approach
- Treasury services (as required)
- Internal audit and risk services (as required)
- Formal and informal associations, providing our investee companies with opportunities to benefit from a wider network
The best approximation of Remgro’s profit at holding company level (at the centre) comprises:
Cash distributions are funded from dividend income and interest received at the centre. Our normal dividend objective is to provide shareholders with a consistent annual dividend flow that at least protects them against inflationary pressures. As in the past, Remgro consistently evaluates the appropriateness of other distributions in the form of special dividends, share buy-backs or the unbundling of investments to shareholders.
Remgro further measures its performance in terms of the increase in its intrinsic net asset value. This measures the growth in the value of the various underlying investee companies, measured by listed market value or, in the case of unlisted investments, applying the principles of IFRS 13: Fair Value Measurement. Refer to the Chief Executive Officer’s Report for a detailed analysis of Remgro’s intrinsic net asset value, briefly citing the differences between an IFRS 13 valuation and a transactional valuation.