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:
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.
The value and performance of the underlying investments, rather than the activities at holding company level, will determine to a large extent the value created for an investment holding company’s shareholders, although dealmaking at holding company level can also add significant value.
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.