INVESTMENT APPROACH
We aspire to build exceptional businesses with sustainable futures.
OUR FINANCIAL OBJECTIVES
Grow
revenue
Enhance
margins
Increase
earnings
Improve
returns
Increase free cash flow and reduce net debt
ELEMENTS THAT SUPPORT EFFECTIVE STRATEGY EXECUTION
The execution of our strategy and achievement of our financial objectives are supported by:
Our business principles
Our investment criteria
Our capital allocation framework
OUR BUSINESS PRINCIPLES
Although our divisions operate in different industries, they share a common set of principles. We believe these principles enable them to offer customers fit-for-purpose products and services that are differentiated from competitors and enhance their competitiveness, to support market share gains and protect revenue and margins.
Value-add/differentiation
We strive to develop products and services with high value-add to meet and exceed consumer and customers’ needs and expectations.
Operational excellence
We invest in processes, technology, channels to market, backward integration, sustainable business practices and innovation to build brand equity and deliver products and/or services at the lowest cost.
Best employees
We seek to employ the best people, in the right roles, across the group to instil a culture of excellence and ensure successful strategy execution.
Strategic stakeholder relationships
We nurture strategic stakeholder relationships through regular engagements and collaboration on relevant matters.
Our business principles in practice during FY24
Some examples of the application of our business principles during the year are summarised below:
Examples
PG Bison’s value-add sales volumes continue to grow due to its focus on the channel to market, customer enablement and consumer demand creation activities
Principles
PG Bison’s new MDF line is globally competitive as it employs the latest technology and is housed on an integrated site
Principles
Unitrans’ deep restructuring is restoring its performance to the required levels by focusing on our business principles, particularly operational excellence
Principles
Safripol’s HDPE conversion and extruder project resulted in an increase in capacity to produce higher-specification polymers and improved efficiencies
Principles
Restonic’s and Feltex’s new Laroche fibre tearing lines support lower raw material consumption and the production of differentiated products
Principles
Restonic’s and Feltex’s new Laroche fibre tearing lines support lower raw material consumption and the production of differentiated products
Principles
OUR INVESTMENT CRITERIA
Our investment criteria guide our capital allocation decisions in relation to our existing divisions and any new businesses. While we are sector agnostic in terms of new businesses, we prefer to focus on areas where we can leverage our competitive strengths, which are predominantly in manufacturing and related areas.
Economically attractive, aligned with our sustainability values*
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Investments should, or have the potential to, generate growth, attractive financial returns and free cash flow.
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Investments should align with our values and contribute to fulfilling our purpose.
Market leadership and growth
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We prefer to own businesses that are, or have the potential to be, market leaders.
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Investments in our divisions should enhance their market position and increase their competitiveness to support growth.
Diversification
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Investments should support a level of diversification in our portfolio to mitigate risk and secure growth through economic cycles.
Value enhancement
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We endeavour to enhance the value of our divisions by supporting their growth through strategy development and specialised corporate services.
* As measured through environmental, social and governance (‘ESG’) metrics
OUR CAPITAL ALLOCATION FRAMEWORK
Our capital allocation priorities support our strategic objectives, value-creation and the long-term sustainability of our group.
Debt
Debt should be at a level that provides balance sheet flexibility and resilience. We target a net debt to EBITDA ratio of less than 2 times.^
Replacement (maintenance)
capital expenditure
The maintenance of our asset base ensures the sustainability of our divisions.
Efficiency and resilience
capital expenditure
Efficiency improvements and increased resilience enhance the competitive positioning of our divisions and ensure continuity of supply to customers.
Capacity expansions, acquisitions,
share buy-backs and dividends
We consider expansion and acquisition opportunities (subject to our investment criteria) relative to share buy-
backs and dividends.
^ Our debt covenant requires a net debt to EBITDA ratio of less than 3 times.
OUR NEAR-, MEDIUM- AND LONG-TERM PERFORMANCE DRIVERS
We believe that the following material items will support improved group performance and returns, based on our strategy and the execution thereof:
Contribution from our major capital projects
These projects, amounting to c. R2.5 billion, have an internal rate of return (‘IRR’) of more than 15%, and will start contributing to cash flows from FY25.
Improved performance from Unitrans
We are targeting an operating profit improvement of c. R300 million, relative to FY23, over the medium term and a return to an operating margin within our long-term guidance of 8% to 10%.
Reduction in net debt
We are targeting a reduction in net debt of R1 billion in FY25, with further reductions planned thereafter to ensure balance sheet flexibility and resilience in an uncertain and volatile operating environment. We expect that this will be primarily enabled by lower expenditure, relative to FY24, as our major capital projects are now completed, cash flow contribution from these projects, and an improvement in Unitrans’ performance.
Continued focus on performance
In addition to the above, we remain focused on enhancing group performance by pursuing growth through market share gains, supported by our investments in capacity, people, processes, product and technology, as well as cost savings, operational efficiencies and asset optimisation, in line with our business principles.