Cost optimisation, efficiencies in the income statement, balance sheet structure and a focus on cash generation took Super Group from R4,3 billion in debt with annual loses of R1,5 billion to a market cap of R12 billion in eight years.
Step 1: Recognise your core. What is the core of the business, where are its core competencies and what are the businesses we’d like to build? Necessity is often an architect in that process, but we clearly had to get rid of some of our significant burning platforms; we had to turn around our R1,5 billion loss quickly.
Step 2: Where are the turnaround opportunities in the business? For us, these were significant. We drove over R50 million in costs out of the corporate head office alone. We cascaded the whole of the African logistics head office into the South African supply chain structure, which reduced the divisional cost within the group by R18 million. Cost optimisation becomes an incredibly important element within this process.
The business had some really large visions of where it was going to, and in particular had banked on a successful entry into the industrial products arena. The structures mirrored that confidence and then fell out of kilter with actual, on-the-ground performance.
Step 3: Build a strong balance sheet. Once we had driven the costs out of the business, we needed to build a strong balance sheet with an emphasis on cash flow and a commitment, there and then, that we weren’t going to run a highly-geared business.
I’ve said publically for the last seven years that we will not run businesses where interest-bearing debt is more than 40% of shareholder funds. This is arguably a relatively conservative position, but I think we wrote the book on how to deal with the inverse, where our debt was 4 600% of our equity, and we saw just how difficult it was to turn that scenario around.
The strategy was to eliminate our borrowings as fast as possible, recognising that when we got to a zero borrowing situation in 2012, that it was essential to restructure all of our balance sheets and banking relationships, and for the shareholders to get control back of all the underlying assets of Super Group.
Step 4: Focus on cash generation. We’ve rebuilt the group with a much more conservative balance sheet structure. We continue to place significant emphasis on cash generation, cash generation per share and elements like that.
Traditionally, financial analysts look at headline earnings. We focus on cash statistics. We’ve introduced a cash element into all of the statistics in our internal evaluations and opportunities.