Value Creation Strategy Series: Phase 1 (PowerPoint PPT Slide Deck)

DESCRIPTION

This product (Value Creation Strategy Series: Phase 1) is a 23-slide PPT PowerPoint presentation slide deck (PPT), which you can download immediately upon purchase.

Developing a successful Value Creation Strategy requires a structured process for analyzing the dynamics of value creating in our organization and in our industry. This presentation outlines a 3-phase approach to developing an integrated Value Creation Strategy:

1. Create a Total Shareholder Return (TSR) Fact Base
2. Establish an Appropriate TSR Goal
3. Redesign Management Processes

Each phase can be further subdivided into 3 key steps. In this presentation, we will focus on the first phase, with the following key steps:

1. Identify the historical sources of TSR.
2. Understand what drives relative Valuation Multiples.
3. Engage with dominant investor groups.

Although organizations monitor their Value Creation performance over time, few create a comprehensive TSR fact base.

Additional topics discussed include TSR Drivers, TSR Decomposition Model, TSR Source Identification, and others. This deck also includes slide templates for you to use in your own business presentations.

Phase 1 of the Value Creation Strategy Series delves into the critical task of identifying historical TSR sources. This involves a detailed analysis of dividend yield, share change, and net debt change. By leveraging the TSR Decomposition Model, executives can pinpoint the exact contributions of these factors over a specified period. Understanding these historical sources is fundamental for building a robust TSR fact base.

The PPT also emphasizes the importance of understanding what drives relative valuation multiples. This step is crucial for benchmarking against competitors and identifying areas for improvement. The analysis includes evaluating capital structure and other key drivers that influence valuation multiples. This insight is essential for making informed strategic decisions that enhance shareholder value.

Engaging with dominant investor groups is the final step in Phase 1. This involves identifying and understanding the priorities of key investors who hold significant influence. The document provides a structured approach to engaging with these groups, ensuring that the company's value proposition aligns with investor expectations. This engagement is vital for maintaining investor confidence and driving long-term value creation.

Source: Best Practices in Value Creation, Total Shareholder Value PowerPoint Slides: Value Creation Strategy Series: Phase 1 PowerPoint (PPT) Presentation Slide Deck, LearnPPT Consulting

PPT SLIDE DEEP DIVES

Understanding Historical Sources of Total Shareholder Return

This PPT slide presents a structured overview of Total Shareholder Return (TSR) and its 3 primary drivers. It emphasizes the importance of understanding historical TSR sources within an organization and its industry context. The 3 core drivers identified are Fundamental Value, Valuation Multiple, and Free Cash Flow Yield. Each of these components plays a critical role in determining overall TSR.

Fundamental Value is broken down into specific metrics such as sales growth, margin change, and EBITDA growth. The slide indicates that sales growth contributes 4.2% to TSR, while margin change slightly detracts by 0.6%, leading to a net EBITDA growth of 3.6%. This highlights the need for organizations to focus on improving sales and managing margins effectively.

The Valuation Multiple is influenced by investor expectations, with an EBITDA multiple change contributing 2.8% to the overall TSR. This suggests that market perceptions and valuation adjustments can significantly impact shareholder returns.

Free Cash Flow Yield is further dissected into dividend yield, share change, and net debt change, collectively contributing 3.2% to TSR. Notably, dividend yield stands at 2.9%, indicating a strong return to shareholders through dividends. The slide also notes the importance of reinvestment and taxes in the overall calculation of free cash flow yield.

The total TSR is calculated at 9.6%, with capital gains accounting for 6.4%. This comprehensive breakdown provides valuable insights for executives looking to enhance shareholder value by focusing on these key drivers. Understanding these elements can guide strategic decisions and improve organizational performance.

Decomposing TSR Sources: Insights from 600+ Companies

This PPT slide presents a detailed analysis of Total Shareholder Return (TSR) sources for a global sample of over 600 companies from 2000 to 2004. It breaks down the average decomposition into 3 main categories: Fundamental Value, Valuation Multiple, and Free Cash Flow. Each category is further analyzed for both the overall sample and the top decile, which consists of the highest-performing companies.

In the Fundamental Value section, the slide highlights that sales growth is a significant contributor to TSR, with an average of 10.1%, followed by EBITDA margin change at 4.7% and a smaller impact from other factors. The Valuation Multiple section shows a stark contrast, where the top decile achieved an 8.7% increase, while the overall sample experienced a decline of 7.0% in this area. This indicates that top performers managed to enhance their valuation multiples effectively.

The Free Cash Flow section reveals that the top decile companies generated 5.6% from net debt change, significantly outperforming the overall sample, which showed negative contributions from share changes and dividend yield. The text emphasizes that for the top decile, valuation multiple and net debt change were crucial differentiators, contributing positively to TSR, whereas these factors negatively impacted the broader industry.

The note at the bottom underscores that actions across all 3 dimensions—Fundamental Value, Valuation Multiple, and Free Cash Flow—were essential for driving growth in value, particularly for top performers. This analysis provides valuable insights for executives looking to understand the key drivers of TSR and identify areas for improvement in their own organizations.

Evolving Value Generation Approaches Over 20 Years

This PPT slide presents a detailed analysis of how a single company can implement various value creation strategies over time, illustrated through a cumulative return chart spanning 2 decades. The chart emphasizes the relationship between Total Shareholder Return (TSR) and different operational metrics, highlighting the company's performance relative to its peers.

Key periods are marked, showcasing distinct phases in the company's strategy. Initially, from 1985 to 1988, the company experienced strong margin expansion and high cash-flow yield, resulting in a notable TSR of 16%. This was followed by a decline in sales and slower margin growth from 1989 to 1993, where the TSR dropped to 7%. The company managed to offset these challenges with an increase in the EBITDA multiple, indicating a strategic pivot during this period.

From 1994 to 1999, the company saw a resurgence in sales growth and significant improvements in both margins and the multiple, leading to a peak TSR of 26%. However, the subsequent years from 2000 to 2004 reveal a downturn, with strong growth at the cost of lower cash-flow contributions and decreasing margins, resulting in a negative TSR of -2% by 2003.

The accompanying metrics, including sales growth, EBITDA margin, EBITDA multiple, and free-cash-flow yield, provide a comprehensive view of the company's financial health over the years. The slide concludes with a reminder that value creation strategies must adapt to changing macroeconomic conditions and the organization's lifecycle, underscoring the dynamic nature of strategic planning.

Key Factors Influencing Industry Valuation Multiples

This PPT slide focuses on understanding the factors that influence valuation multiples within a specific industry. It emphasizes the importance of conducting statistical analyses to uncover correlations between various financial and operational metrics, such as growth, profitability, and risk. The goal is to identify what sets apart different valuation multiples in the industry and to take actionable steps to enhance a company's valuation relative to its peers.

Four key drivers of valuation multiples are highlighted: growth, company size, EBITDA margin, and capital structure. Each driver is assigned a percentage, indicating its relative priority in influencing valuation. Capital structure emerges as the most significant factor at 41%, suggesting that how a company finances its operations plays a crucial role in its valuation. EBITDA margin follows at 26%, indicating that profitability is also a critical consideration. Growth and company size, while important, are less influential at 15% and 18%, respectively.

The slide also includes a practical insight regarding capital efficiency. It suggests that instead of leveraging debt to fuel growth, companies should consider divesting from low-margin businesses to improve overall capital efficiency. This approach aligns with the broader theme of the slide, which is to encourage a strategic focus on the most impactful drivers of valuation.

Overall, this slide serves as a guide for executives looking to refine their understanding of valuation dynamics in their industry. It provides a clear framework for evaluating and improving their company's market position based on the identified priority drivers.

Analyzing Total Shareholder Return: Key Drivers and Value Multiples

This PPT slide presents the TSR Decomposition Model, which evaluates 3 key drivers: Fundamental Value, Valuation Multiple, and Free Cash Flow. Each driver is broken down into specific components that contribute to Total Shareholder Return (TSR).

Starting with Fundamental Value, the model highlights 3 primary factors: sales growth, margin change, and EBITDA growth. Sales growth is noted at 4.2%, while margin change shows a slight decline of 0.6%. The overall EBITDA growth stands at 3.6%, indicating a positive trend despite the margin contraction. Reinvestment is also mentioned, suggesting that a portion of earnings is being reinvested to fuel future growth.

The Valuation Multiple section indicates a change in the EBITDA multiple of 2.8%. This metric is crucial as it reflects market expectations regarding the organization’s future performance. The EBITDA multiple is defined as the ratio of enterprise value to EBITDA, providing insight into how the market values the company relative to its earnings.

Free Cash Flow Yield is another critical component, which tracks the distribution of cash flow to investors. This section breaks down into dividend yield (2.9%), share change (2.4%), and net debt change (-2.1%). The overall Free Cash Flow Yield is calculated at 3.2%. This metric is vital for investors as it shows how effectively the company is returning cash to shareholders.

The slide effectively communicates the interconnectedness of these drivers in assessing TSR, offering valuable insights for stakeholders looking to understand the financial health and growth potential of the organization.