The business of an investment holding company differs substantially from that of an operating company, which sells products and/or services at a certain gross profit margin, thereby creating revenue and cash inflows for the entity concerned. Strong cash flows and shareholder value are created by increasing revenue, as well as by limiting expenditure and optimising operational efficiencies, thus increasing the net profit from which dividends can be paid to shareholders.
In the case of an investment holding company, no products and/or services are being sold. This lack of revenue, together with the specific accounting treatment that is required for different classes of investments in terms of IFRS, results in the net profit of an investment holding company not always being a fair reflection of its underlying cash flows and financial soundness. Similarly, the variance in net profit between reporting periods will not always be a good indication of the trend in dividends to be paid to shareholders. The value and performance of the underlying investments, rather than the activities at holding company level, will thus to a large extent determine the value created by investment holding companies for their shareholders.
We manage our investments on a decentralised basis and our involvement is concentrated mainly on the provision of support rather than on being involved in the day-to-day management of business units. Our board considers it in the best interest of all the parties concerned to respect the decentralised business model and the fact that the businesses are conducted in a separate legal entities. The support provided to the investment is either in the form of strategic, financial and managerial support or the unlocking of value by means of creating the environment for possible dealmaking.
We have an interest in a separately JSE-listed entity, namely FirstRand and is in the process of creating a property investment business. In line with the philosophy of decentralised management, FirstRand has an autonomous board of directors and management structures and we only exert our influence through non-executive representation on boards.
As a shareholder of our investees, we also exercise our shareholder rights to ensure, as far as possible, that it adheres to all requirements in respect of matters such as governance, internal controls, financial management, risk management, legal compliance, safety, health and environmental management, internal audit, ethics management, information management, stakeholder relationships and sustainability.
|The capital||FINANCIAL CAPITAL||HUMAN CAPITAL||INTELLECTUAL CAPITAL||SOCIAL AND RELATIONSHIP CAPITAL|
|Description||The capital from shareholders and the cash on hand that is used to invest to generate earnings and future value for shareholders.||Our people and the knowledge, skills and experience they provide to ensure that sound, sustainable investments are made in line with our strategy.||Our knowledge-based intangible assets, such as our brand and the brands of our investees, our capacity to innovate and our strong reputation.||The strong relationships we have with our stakeholders, based on our shared values, and our ongoing commitment to the communities we live in.|
|KPIs||Growth in intrinsic value, sustainable dividend yield and positive shareholders’ return|
For more information on how we engage with our stakeholders, read more here
For more information on KPIs, read more here
Our statutory reported net profit consists primarily of the following:
Dividends received from our associate are not included in our reported net profit and any profits realised on the sale/distribution of investments are also excluded from reported headline earnings. As announced to the market on 3 May 2016, the group is in the process of expanding its investment strategy to include a property investment business along its investment in FirstRand.
The financial effects of this transaction will be immaterial on the financial results of RMH over the short to medium term.
The best approximation of our “real” profit is cash generated in order to make new investments and/or pay dividends to shareholders. This comprises:
Cash management and the control of treasury risks are therefore critically important.
We have consistently measured our performance in terms of normalised earnings, which adjusts headline earnings to take into account non-operational items and accounting anomalies.
For the detailed calculation of normalised earnings in respect of the current and prior year, read more here
However, the true value created is measured in terms of the increase in our intrinsic net asset value and total shareholders’ return, which measures the growth in the underlying value of our investments.
Refer to the chief executive’s review, here
Dividends to shareholders are funded from dividend income.
It is our objective to provide shareholders with a consistent annual dividend flow which at least protects them against inflation. In special circumstances, we will consider other distributions in the form of special dividends or the unbundling of investments to shareholders.