Value Creation Strategy Series: Phase 2 (PowerPoint PPT Slide Deck)

This PPT slide presents the TSR (Total Shareholder Return) Decomposition Model, which is a framework for quantifying the TSR potential of current plans by breaking it down into 3 primary drivers. The model is visually structured to highlight the contributions of each driver to the overall TSR, which is indicated as 9.6%.

The left section details the "Fundamental Value" driver, which comprises sales growth, margin change, and EBITDA growth. Sales growth is noted at 4.2%, while margin change shows a slight decrease of 0.6%, leading to an overall EBITDA growth contribution of 3.6%. This section emphasizes the importance of understanding how these elements interact to influence the company's financial performance.

The right section focuses on the "Valuation Multiple," which includes the EBITDA multiple change contributing 2.8% to the TSR. This indicates how market perceptions of the company's value can shift based on operational performance and external factors.

The slide further breaks down the "Free-Cash-Flow Yield," which is critical for assessing the sustainability of returns. It includes components like dividend yield (2.9%), share change (2.4%), and net debt change (-2.1%), culminating in a free-cash-flow yield of 3.2%.

The note at the bottom clarifies that the percentage values are illustrative and represent annual TSR. The slide concludes with a suggestion that this model can be utilized to challenge existing assumptions regarding the primary drivers of TSR, prompting a reevaluation of strategic priorities. This insight is particularly valuable for executives looking to optimize their value creation strategies.

This PPT slide presents a framework for developing a Value Creation Strategy, using the metaphor of building a house. The roof represents the Total Shareholder Return (TSR) goals, which are positioned at a target range of approximately 12% to 13% per year. Beneath this, the pillars symbolize the organization's top priorities and objectives, while the foundational managerial processes are critical for supporting the entire structure.

Three key areas are outlined: Growth Agenda, Improved Return on Capital, and Low-Risk Financial Policies. Each area contains specific objectives. The Growth Agenda emphasizes achieving consistent organic growth, targeting a rate of 1.5 times nominal GDP. It also suggests seeking additional growth from the existing asset portfolio and limiting acquisitions to those that enhance performance. This section highlights the importance of communicating results and setting a revenue growth target between 7% and 11%.

The Improved Return on Capital section stresses maintaining a focus on capital efficiency. Key actions include increasing capital expenditure control, reducing working capital, and improving acquisition returns. A shift in the portfolio mix over time is also recommended, favoring businesses with higher returns on investment, aiming for a 16% return on invested capital.

Lastly, the Low-Risk Financial Policies area advocates for a conservative capital structure, maintaining a single-A rated status. It also emphasizes the importance of sustaining dividend payouts to investors while pursuing steady, high-margin business models, with a target of 38% dividend payout. The slide concludes with a call to align processes to support the value creation model, indicating that effective capital allocation, M&A strategies, and planning are vital for success.

This PPT slide outlines the initial steps in quantifying the Total Shareholder Return (TSR) potential of current business plans. It emphasizes the importance of establishing appropriate TSR goals that strike a balance between ambitious targets and achievable outcomes. This process is iterative, requiring continuous evaluation of investor expectations, board member insights, and the management team's core assumptions.

Key components of this phase include assessing the existing strategic plans of the business unit and testing their value-creating potential against a comprehensive TSR fact base developed in a prior phase. The slide poses fundamental questions to guide this assessment: it prompts consideration of the organization’s current understanding, the expected TSR outcomes from existing plans, potential adjustments that could be made, and the impact of those adjustments on overall results.

A significant challenge highlighted is the need to effectively capture how these plans influence the 3 core drivers of TSR: Fundamental Value, Valuation Multiple, and Free Cash Flow. This focus on core drivers is crucial for understanding the broader impact of strategic decisions on shareholder value.

The slide also mentions leveraging the TSR Decomposition Model, suggesting that some preliminary analysis has already been conducted. This model can provide insights into how existing plans align with desired TSR outcomes. Overall, the content serves as a roadmap for executives looking to refine their strategic approach to maximize shareholder returns.

This PPT slide outlines a structured approach to evaluating alternate Total Shareholder Return (TSR) scenarios through a series of targeted questions. Each question is designed to prompt critical thinking and strategic analysis, ensuring that any proposed strategy is thoroughly vetted for its potential impact on the organization’s value proposition.

The first question focuses on identifying actionable changes that could enhance the company's fundamental value. This sets the stage for a deeper exploration of strategic initiatives. The second question shifts attention to the implications of the strategy on the valuation multiple, emphasizing the importance of understanding how current and future valuations might be affected.

The third question addresses investor perceptions, particularly regarding the influence of the strategy on cash flow and overall valuation. This highlights the necessity of aligning strategic decisions with investor expectations and market realities. The fourth question probes into the organization’s existing capabilities and reputation, urging a realistic assessment of risks associated with the strategy and its likelihood of success.

Finally, the fifth question seeks to quantify the potential outcomes of the strategy, encouraging a focus on ambitious targets such as achieving top-quartile performance. The overarching purpose of this exercise is to foster a dialogue among management, helping to clarify priorities and beliefs. This structured inquiry not only aids in decision-making, but also ensures that all relevant factors are considered before committing to a strategic direction. Engaging with these questions can lead to more informed, strategic choices that align with the organization’s long-term goals.