Our strategic objective
Value creation through continuous and sustainable growth of our intrinsic value and dividend distribution
GBL’s objective is to continue to deliver a total shareholder return outperforming its reference index over the long term through share price performance and continuous dividend growth throughout the cycle.
This pursued objective encompasses the need for GBL to maintain an appropriate balance between an attractive dividend yield and a long-term growth of its intrinsic value.
- Delivering continuous and sustainable growth of our intrinsic value over the long term
The growth of the intrinsic value is pursued by GBL through an efﬁcient portfolio rotation and a long-term involvement in the Boards of its portfolio companies as an active and responsible investor.
Over the last 15 years, GBL’s net asset value has increased by 6.8% per year which strongly supported the 9.6% total shareholder return over this period.
Deploying capital in high-quality assets, leaders in their sector
GBL has initiated the rebalancing of its portfolio in 2012 with a view to strengthen its portfolio’s growth profile and consequently optimise its potential for long-term value creation. This transformation has been pursued through a significant portfolio rotation, with disposals and acquisitions totaling EUR 14 billion. It has led to a substantial shift from high-yielding assets in the energy and utilities sectors into growth assets in the industry, business services and consumer good sectors which are more exposed to long-term growth trends.
GBL seeks to invest into companies with a leading positioning in their sector and robust business models:
- focused on both organic and external growth as an important lever to long-term value creation;
- developed in a sustainable manner by high-quality management teams driven by a strategic vision; and
- supported by a sound financial structure.
Being an active and responsible professional investor
GBL is an investment holding company with a long-term investment horizon. It aims at holding significant stakes in order to play an active role within its portfolio companies.
GBL’s objective is to contribute to unlocking value through its involvement in the key decision-making governance bodies of its portfolio companies, regarding:
- the overall strategy with a particular focus on organic growth and M&A;
- the nomination and remuneration of the Executive Management; and
- the capital allocation, and more specifically the dividend policy, share buyback programs, and the capital structure adequacy.
In this context, GBL seeks to bring added value by sharing its experience, expertise and network across portfolio companies in order to fully leverage on value creation and entirely fulfil its role as an active professional shareholder, without ever being involved in the daily management of its participations.
In accordance with its long-term approach and as a responsible investor, GBL requires Corporate Social Responsibility practices to be ensured at portfolio companies’ level, consistently with best international standards (see the ESG section in pages 50 to 57 of the 2017 Annual Report for more details).
- Maintaining continued dividend growth over the long term
GBL’s dividend policy is to deliver stable or gradually increasing dividends over time, as well as an attractive dividend yield to its shareholders.
Over the last 15 years, GBL has:
- more than doubled its gross dividend per share, which corresponds to a 5.1% CAGR over this period; and
- returned EUR 5.3 billion to its shareholders.
Based on the proposed dividend for 2017, GBL delivers a dividend yield of 3.3%. Distributable reserves amount to EUR 7.7 billion at year-end 2017.
Asset rotation strategy and orientationsFurther rotating our portfolio, with a flexible mandate
GBL’s asset rotation is based on a continuous assessment of the long-term return potential of the existing investments in portfolio, in comparison with new investment alternatives.
- Clear investment criteria
GBL’s investment assessment aims at performing a strict selection of opportunities based on the following grid of qualitative and quantitative investment criteria:
- Exposure to long-term growth drivers
- Resilience to economic downturn
- Favorable competitive dynamics
- Market consolidation opportunities
- Market leader with clear business model
- Foreseeable organic growth
- Strong cash flow generation capabilities
- Return on capital employed higher than WACC
- Low financial gearing
- Well positioned vis-à-vis digital disruption
- Attractive valuation
- Potential for shareholder remuneration
- Potential to become ﬁ rst shareholder, with inﬂuence
- Potential for Board representation
- Seasoned management
- CSR/ESG strategy, reporting and relevant governance bodies being in place for listed investment opportunities
- Divestment guidelines
As an investment vehicle deploying permanent capital, GBL is not constrained by an investment horizon. Investments are therefore held for as long as needed to optimise their value.
Continuous assessment of the portfolio assets is conducted in order to potentially deﬁne a disposal strategy. This assessment focuses on the following areas:
Potential for further value creation
- Multiples above historical average
- Prospective TSR below internal targets
- Business model’s disruption risk related to digital or technological evolutions
- Other company risks including competition, geopolitics and ESG
Portfolio concentration risk
Objective not to exceed around 15-20% in terms of:
- portfolio’s exposure to a single asset
- cash earnings’ contribution from a single asset
- Investment universe
GBL carries out investments within the following universe:
- target companies are headquartered in Europe and may be listed or private;
- equity investments range primarily between EUR 250 million and EUR 2 billion, potentially in co-investment alongside other leading investment institutions;
- GBL aspires to hold a position of core shareholder in the capital of its portfolio companies and play an active role in the governance, through minority or majority stakes;
- GBL intends to reinforce the diversiﬁcation of its portfolio by pursuing the development of its alternative investments through its subsidiary Sienna Capital.
- Seeking exposure to major long-term growth trends
GBL’s investment mandate is broad and ﬂexible, making it possible to build a focused portfolio of companies that are able to take advantage of long-term megatrends and be less vulnerable to upcoming disruptions.
- Health & lifestyle
- Demographic shift
- Accelerating urbanization
- Shift in economic power towards emerging markets
- Technology & digital
- Sustainability & resource scarcity
Operational excellenceWe deliver operational efficiency in support to GBL’s value creation
- Solid and flexible financial structure
GBL’s objective is to maintain a sound ﬁnancial structure, with:
- a solid liquidity proﬁle; and
- a limited net indebtedness in comparison to its portfolio value.
The ﬁnancial strength derived from the liquidity proﬁle ensures readily available resources enabling to quickly seize investment opportunities throughout the economic cycle and allowing to pay a stable or growing dividend over the long term.
The evolution of the Loan To Value ratio results from the crystallisation of investment opportunities for signiﬁcant stakes in the capital of companies meeting GBL’s investment criteria, in the framework of the portfolio rotation strategy.
This ratio is continuously monitored and has been permanently maintained below 10% over the last 10 years. This conservative vision is consistent with GBL’s patrimonial approach and allows to weather potential market downsides through the cycle.
At year-end 2017, GBL had:
- a Loan To Value ratio of 2.3%; and
- a liquidity proﬁle of EUR 2.7 billion, consisting of both cash and cash equivalents for EUR 0.6 billion and undrawn committed credit lines for EUR 2.1 billion maturing in 2022.
- Sound governance
GBL has a stable and solid family shareholder base and is supported by the partnership between the Frère and Desmarais families, which has been in place for several decades. The current shareholders’ agreement between the two families is effective until 2029 with the possibility of extension and establishes parity control in Pargesa Holding S.A. and GBL.
GBL has a solid governance in place, as detailed in the Governance section, and its strong relations with its controlling shareholders enables it to move quickly to seize investment opportunities.
The remuneration policy deﬁned for GBL’s co-CEOs aligns their salary package with the shareholders’ interests through the absence of variable cash component and a long-term incentive plan being subject to GBL’s total shareholder return performance.
- Cost efficiency
GBL pursues operational excellence, maintaining a strong focus on cost discipline. This allows it to record low operational expenditures (1) in comparison to its net asset value, which have historically remained below 20 bps.
(1) As presented in the cash earnings
- Yield enhancement
As an additional lever of value creation, GBL has historically developed yield enhancement activities. They consist primarily in the trading of derivatives conducted in a highly conservative manner as they are executed by a dedicated team exclusively in vanilla products, with very short maturities and low delta levels, and based on the in-depth knowledge of the underlying assets in portfolio. Since 2012, the income generated by this activity has fluctuated depending on market conditions and covered 58% of GBL’s operational expenditures (1) on average.
(1) As presented in the cash earnings
Balanced business model
- GBL’s dividend distribution is primarily derived from the dividend contribution of its portfolio companies, after deduction of its cost structure.
GBL’s payout ratio is computed based on the cash earnings. The payout computation consequently does not take into account the capital gains from asset disposals in order to avoid volatility in the payout ratio.
As a result of the partial disposal of the high-yielding assets of the energy and utilities sectors, in 2017, GBL’s dividend distribution has exceeded its cash earnings. This negative dividend gap remains however limited and is considered temporary as the reinvestment of the proceeds from those asset disposals is in progress. On that basis and taking into account GBL’s material liquidity profile and distributable reserves, this does not jeopardize GBL’s objective of dividend growth over the long term.
GBL has a solid liquidity profile ensuring the availability of resources to implement its investment strategy throughout the cycle.