A number of significant events took place during the year, the most notable being alignment of the strategy with that of an investment holding company and core to the process, the identification of five strategic objectives. These are discussed in more detail in the Primary Objectives section. GPI’s investment activities during the year resulted in a significant change to its underlying investment portfolio. The Group increased its interests in the food industry by acquiring 10.0% of Spur Corporation Ltd (Spur), the remaining 77.8% of Mac Brothers Catering Equipment (Pty) Ltd (Mac Brothers) and the remaining 65.0% of Excellent Meat Burger Plant (Pty) Ltd (Excellent Meat Burger Plant), subsequent to year-end.
The Group also divested from certain of its traditional investments in the gaming industry by selling its 24.9% holding in Dolcoast Investments Ltd (Dolcoast), its 5.7% holding in National Casino Resort Manco Holdings (Pty) Ltd (National Manco) and 25.1% of its holding in GPI Slots (RF) (Pty) Ltd (GPI Slots).
GPI furthermore made its first investment outside of the food and gaming industry through its acquisition of 51.0% of Grand Tellumat Manufacturing (Pty) Ltd (GTM).
GPI was founded in 1997 for the express purpose of partnering with Sun International South Africa (Pty) Ltd as its primary black economic empowerment partner in the Western Cape. Its initial investment was an 8.53% holding in SunWest International (Pty) Ltd in 2001 and since then its investment portfolio within the gaming industry has grown and, more recently, diversified into the food industry. GPI listed on the main board of the JSE in 2008 and its current investment portfolio comprises the following investments:
GPI’s investment philosophy
GPI’s investment philosophy is to invest in the equity of companies, both listed and unlisted, where it can use its strengths to add value to an investee company’s underlying business.
GPI invests in companies that provide a combination of:
- Long-term growth
- Opportunities for value creation
- A sustainable yield
GPI invests its surplus cash over the short term in low risk capital guaranteed investments that provide money market returns as a minimum. Where GPI cannot deploy surplus cash into new investments over the short term, it will return the cash to shareholders in the form of a special dividend.
GPI invests in companies with the following characteristics:
- Market-leading brand
- Strong management team with a demonstrable track record
- Clearly defined growth strategy
- Robust corporate governance
- Strong investment partners that are aligned with GPI’s strategic
GPI has a track record of being an entrepreneurial investor that takes a long-term view on value growth. The Group has invested in a number of start-up or early stage companies, participated in the establishment and growth of those companies and, in some instances, divested its holding to generate superior returns, as was the case with GPI Slots. Going forward, GPI will build on this trajectory and invest in companies that have the potential to meet all the characteristics listed above and where GPI can contribute to their growth.
The ultimate objective of GPI’s investment philosophy is to:
- hold a portfolio of investments in high-quality businesses that are diversified across industries and stages in their asset life cycles;
- invest in companies where it can add value in a meaningful way through providing capital, empowerment, management expertise and synergies with its existing investments; and
- minimise its investment holding costs by ensuring that its management involvement is appropriate to the stage of growth of the asset.
How GPI manages its investments
GPI manages its investments on a decentralised basis by ensuring that the company in which it is invested has a strong management team to manage the daily operations autonomously and to whom GPI can provide support services, funding and strategic direction.
GPI is committed to aligning the strategic objectives of its investments with its own ambitions, ensuring that each investment has a remuneration structure that incentivises the attainment of its strategic objectives.
GPI monitors the performance of its investments on a monthly basis and provides support when the strategic objectives and operational performance targets have been missed.
Management teams across investments are encouraged to identify synergies between the respective businesses to ensure that maximum value is unlocked across its investment portfolio.
GPI has identified that, to be a great South African investment holding company, the following five strategic objectives need to be achieved:
An investment holding company is only as great as the people within the organisation. Therefore, GPI has identified the need to attract, retain and reward talented people throughout the Group.
This is achieved by ensuring that the remuneration structures at GPI and its investments are structured to reward performance.
In addition, it is critical to have learning and development structures in place within the Group to ensure that talented people are given the space to develop further. This also ensures that there is a clear succession plan for the future sustainability of GPI.
In order to achieve this, GPI has set the goal of becoming an employer of choice in South Africa.
|Ensure shareholder returns||
GPI’s objective is to remain a dividend-active company, which is reflected in its track record of paying annual dividends. Where it has had surplus cash that could not be resourcefully invested, GPI has returned this to shareholders in the form of special dividends.
GPI will maintain this policy unless, in the opinion of the Board, the funds can be deployed more efficiently in a particular year to enhance the accelerated growth of the Company.
|Uphold BBBEE contributor status||
GPI was established as an empowerment company and its founding investor base was made up of previously disadvantaged communities within the Western Cape. The maintenance of its empowerment credentials remains one of GPI’s strategic objectives.
As an investment holding company, GPI contributes to the empowerment of its underlying investments through its ownership credentials.
GPI embraces empowerment and transformation and will continue to find ways to contribute to transformation and corporate social investment (CSI) beyond the requirements of the BBBEE Codes of Good Practice.
|Focus on a diversified portfolio of assets||
GPI aims to hold a diversified portfolio of assets in order to achieve its strategic objectives and to spread the overall risk of the portfolio.
It is essential for the portfolio to be diversified such that investments are in different stages of their asset life cycles with early stage investments providing future growth and mature investments providing returns for shareholders and capital for further investment.
|Maintain investment growth||
As an investment holding company, GPI’s performance is directly related to the combined performance of its underlying investments. Therefore, for GPI to achieve growth, it must ensure that its investments grow on a sustainable basis.
GPI monitors the performance of its underlying investments on an ongoing basis and ensures that the strategic objectives of its investments are aligned with its own objectives.
The table below provides an overview of the principal risks faced by GPI, along with the Group’s approach to managing each risk.
|Risk||Risk description||How the risk is managed|
|Scarcity of capital resources||An investment holding company faces the risk of a lack of available capital resources to provide returns to shareholders in the form of dividends or to invest in existing assets or acquire new assets.||GPI forecasts its cash requirements over a five-year period. Prior to investing in new assets, the impact on the five-year cash flows is determined to ensure that there are sufficient capital resources to meet the Group’s strategic objectives. GPI will make use of debt funding to make further investments; however, it maintains a conservative approach to debt and seeks to maintain its debt:equity ratio at below 40.0%. Where the maximum gearing ratio is reached, GPI will consider issuing new share capital; however, the impact on its BBBEE ownership credentials will be carefully considered before a decision is made.|
|Under-performance by investments||The performance of GPI is a direct result of the performance of the underlying companies in its investment portfolio.||GPI invests in businesses with strong management teams and that are leading brands in their respective industries. GPI seeks to obtain strategic influence over its investments by either having a controlling holding in the investment or by having representation on the investment’s board of directors.|
|BBBEE status||The new BBBEE Codes impose a number of new measurement criteria and compliance targets which have the potential to reduce companies’ contributor levels across the board. It is anticipated that companies will all be impacted by the onerous provisions of the Ownership element of the BBBEE scorecard with listed companies (such as GPI), having greater difficulty in this regard due to having limited control over shareholder changes.||Management has implemented steps to analyse the provisions of the new BBBEE Codes to gain a thorough understanding of their impacts on GPI’s contributor level as well as that of its subsidiaries. Greater emphasis is being placed on maintaining current investor information on the verified shareholder data-base and monitoring shareholding changes.In addition, revised programmes have been developed internally, in collaboration with management and a team of consultants, to ensure that the Group continues to contribute to the objectives of broad-based black economic empowerment and in the process, meet the relevant compliance targets in terms of the new BBBEE Codes.The revised programmes are being implemented together with accountability and reporting frameworks to ensure regular reporting by management of the subsidiary companies to their company boards and ultimately the GPI board to enable the early identification of any changes with the potential to impact negatively on the Group’s BBBEE status.|
|Poor allocation of capital||An investment holding company constantly faces the decision of where and how to allocate its capital resources in a manner that is in line with its strategic objectives.||To ensure that it allocates its capital resources appropriately, GPI measures new investments against their ability to contribute to the achievement of its overarching strategic objectives. Where an existing investment is no longer aligned with GPI’s strategic objectives, GPI will either use its influence to realign the strategic direction of the investment or, where this is not achievable, look to divest from the investment.|
|Reliance on a few investments||Over-reliance on a few investments exposes GPI to underperformance in any one investment.||GPI has taken steps to grow and diversify its investment portfolio in recent years. For example, GPI Slots is generating substantial returns which reduce reliance on the contribution from SunWest.In addition, the investments into the food industry through Burger King® SA will further reduce the Group’s reliance on its gaming assets.|
|Attraction and retention of talent||The success of GPI is reliant on the people who drive the Group and its underlying investments. Therefore, its ability to attract and retain talented people is critical to its future sustainability.||In order to attract and retain talent, GPI’s strategy adopts a people first stance. In other words, its processes and practices are aimed at attracting and retaining talented people by rewarding performance.|
|Performance of the South African economy||GPI’s current investments are exposed to the activities and perceptions of the South African consumer, as the operations of its underlying investments are based predominantly in the local gaming and food industries.||GPI invests in assets with strong brands that appeal to a range of customers across different LSM groups, which provides an element of protection against cyclical economic downturns.To further reduce the risk of poor performance of its investments due to external challenges, GPI aims to invest in businesses that provide support services to its main investments, thereby maintaining control and vertically integrating operational supply chains where possible. This is the case with Mac Brothers Catering Equipment and Excellent Meat Burger Plant which, respectively, provide catering equipment and burger patties to Burger King. This enables GPI to be more price competitive in a depressed economy, while maintaining sustainable margins.|