Good morning, ladies and gentlemen, and welcome to KAP's Results Presentation for the Year ended 13th of June, 2024. Thank you for taking the time to attend and for your interest in KAP. Before Gary and Frans discuss KAP's performance for the year, I will say a few words to give the board's perspective on the group's results and progress made in certain key priorities.
The board's key priorities for the year were to ensure that the group's balance sheet is well managed within the context of elevated debt levels as a result of our expansion projects, as well as the challenging trading conditions that we had during the year. The group's major capital projects are successfully implemented on time and on budget, so they can start contributing to cash flow.
The restructuring of Unitrans gains momentum, and its performance improves, and the group is positioned to start reducing debt levels from FY 2025. We are pleased with how these matters have been dealt with by management, and Gary and Frans will be covering this later. We're currently seeing a lot of positive sentiment in South Africa around our new Government of National Unity, declining inflation, no load shedding for several months, and the prospect of interest rate cuts.
These factors are obviously very encouraging for the country. However, the trading environment during the year under review was very challenging, and in fact, remains challenging. The group's results for the year are below the expectations of the board. Safripol's results especially were disappointing and a significant drag on our performance. We are heavily...
However, very pleased that we were able to show growth in our other five divisions. PG Bison performed well, but we also had good improvements in some of the previously underperforming divisions, particularly Unitrans.
These are not yet back to where we'd like to see them, but management has clear plans in place in this regard. Looking forward, there's positive momentum and good energy in the group, and I'm confident that the group's strategic initiatives will create shareholder value. I'll now hand over to Gary to take you through the operational review.
Thank you, Pat, and welcome everyone, and thank you for taking the time to dial in and listen to our results for 30 June 2024. I think just some key takeaways from the results. Obviously, it was a very challenging environment, just from a overall macro perspective, as well as in the areas in which we operate. Continued elevated inflation and interest rates obviously affected consumer spending. And we will continue to be impacted by infrastructure disruptions, ports, roads, rail, electricity, et cetera.
Although not a direct impact on us, it consumed a lot of management time and actually impacted on some of our operating conditions. Just in terms of the results, some highlights. We're really pleased, five of the six divisions delivered improved results, and some materially improved.
Generally, we found domestic sales volume stable. We either defended or grew our market shares. The restructuring initiatives at Unitrans have yielded good results, and we're really pleased with the momentum that we're building there. We embarked on some very large projects, that took a number of years to complete, and it's been a real milestone for us this year. We've completed three big projects, which really present meaningful growth opportunities for us going forward.
Then lastly, we raised ZAR 3 billion RCF, which gave us the ability to refinance some maturing debt, which I think in the context of the economy and the projects that we were engaged in, was a good achievement, and we're really grateful to the banks and our funding partners for the faith that they showed in us in regard to this.
I guess the big lowlight is Safripol's performance, so really impacted by multiple factors in the midst of a global cyclical low in that polymer sector, and that obviously had a significant impact on KAP's results as a whole. So if we then look at it from a revenue perspective, revenue down 2% year on year, 29.6 down to 29.
And the main impact there coming from Safripol, both volume and price related. You see a decrease there in Unitrans. That was more intentional than activity-related. So there, we specifically exited certain low-return, low-margin contracts and as a result, had lower revenue. If we look at the operating profit distribution of the group, as I mentioned earlier, five of our six divisions showed healthy growth.
So across the board there, PG, Unitrans, Feltex, Restonic, and Optix all showing healthy growth numbers. Unfortunately, more than offset by a very weak performance coming out of Safripol. So operating profit down 11% from 2.5 down to 2.3. Just in terms of the segmental analysis, so if we look at the two graphs on the left-hand side, the two pie charts on the left-hand side, really just giving a spread of both revenue and operating profit, and really illustrating the principle that we've got three big businesses and three smaller businesses.
You can see the spread in revenue there, with PG at 19, Safripol at 31, Unitrans 33, and then Feltex nine, Restonic six, and Optix at two. From a profit perspective, PG had a great year, made up 43% of our operating profit. Safripol had a very tough year, only 16%, whereas in the prior year, it made up 36%. Unitrans, a great improvement from 15%- 23%, and then Feltex and Restonic both showing improvement, 12% and 6% respectively. If we then go into the divisional analysis from an operational perspective.
In PG, we've been chasing this ZAR 1 billion profit number for some time, and we finally got there. It was a great performance by that management team. Revenue up 8%, operating profit up 7% to a billion, and operating margin at 17.4%. Really good performance and really supported by our strategy of concentrating on value-add products. Generally, sales volumes were stable in a subdued environment.
Local demand for our value-add products was good, and we continued to experience strong demand on MDF, which completely outstripped our ability to supply, hence our expansion of the MDF plant. The value-add ratio went up to 67%, closer to where we would like to see it, and that came off a lower 62% in the prior period, and that's really the result of continued demand creation and marketing activities, as well as improved availability of our upgrading presses.
Our exports remain a key element of our sales strategy, and we have well-entrenched positions and a long history in many of these export markets, and we saw our deep sea exports and Africa exports increase to 21% of total volume, compared to 18% in the prior year. Margins remained healthy, supported by increased value add ratio, some price increases to offset our cost escalations, and then continued focus and investment in operational efficiencies.
So we saw operating margin relatively stable and marginally below our long-term guidance of 18%-20%. Just in terms of the MDF project, as I mentioned earlier, this was big for us, and really a milestone in PG Bison's strategy and KAP strategy in terms of completing that in this year. So just to give you a little bit more insight, and I guess it's a reminder in terms of this project. So it's a new medium-density fiberboard line in Mkhondo, and it is on the same site as our particle board line, our resin plant, and our paper treatment plant, so one integrated site.
It's a roughly ZAR 2 billion investment. The project started in April 2021, roughly a three-year project, and we concluded it in 2024, a month ahead of schedule, and materially within our budget that we set. Which I think in the context of South Africa currently, with the disruptions that we've experienced in the ports, rail, electricity, et cetera.
And just from a global perspective, this is a world-class plant. It's the second plant of its kind in the world, and I think it's a phenomenal achievement in terms of completing the construction and commissioning of that plant. And I'd just like to say, here's that, despite a lot of negative press, we actually got very good support from government, both at national and municipal level, as well as from Eskom.
So Eskom delivered the power we need on time to allow for the startup of that project, and I think that was a really impressive achievement from their side as well. So this is obviously to consolidate our position as the leader within the Southern African market, and to service the growing demand for MDF. So that's not only within our domestic and Africa, but globally, MDF is a growing product.
Just in terms of the process, so we've commissioned the plant. The ramp-up is in progress and progressing on schedule. Just in terms of selling the product, we've given ourselves four years in terms of the feasibility to get to full capacity. And the sales strategy is really locally focused initially to displace imports and grow our local market share, and at the same time, build out our rest of Africa and deep sea markets.
Just in terms of the financial metrics, so the feasibility on this project was an ungeared post-tax IRR of 15%-16% over a 20-year period. Bear in mind, these are our 40-year assets that we've built. And that excludes the government incentives that we've received. Just in terms of the forecast production cost, so all of our work to date indicates that we will come in within our feasibility of 20%-25% lower cost than our current production costs, which from a competitiveness perspective is obviously fundamental for us. So that's the MDF project.
We're really pleased about it, and as I said, that is a major milestone for us. It de-risks our business in terms of project execution risk and brings that project online in terms of now contributing to cash flows of the business. If we then look at Safripol, as we said, a very disappointing performance, revenue down 10%, operating profit down 62% to ZAR 350 million, and obviously, operating margin down to 3.8% as a result.
Our local demand was actually stable, so we held on to market share in the local demand. Exports were lower, due to lower production in HDPE and polypropylene, and due to very weak margins in PET. So PET, we intentionally scaled back any exports, which were just not profitable based on the margins that we saw.
Profit was down, primarily due to much weaker PET margins. We saw margins go down to very low levels, which were well below the ten-year average. Lower production levels in all the products and lower sales levels. In the prior year, we had fairly material insurance claims, so ZAR 216 million, which obviously inflated the prior year. And then, in the current year, we had a five-year statutory shut at our PET plant, which was a non-recurring cost of ZAR 63 million.
Those were the main factors impacting on the results. HDPE margins remained healthy, and polypropylene margins remained relatively stable. In this division, we also had a significant project, which was directed toward efficiency improvements on the HDPE line and to enable us to produce a higher volume of non-single use durable products, so that was also completed during the year.
Commissioned and brought into production, and in terms of the results of that, showing results slightly better than the feasibility that we had approved the project on. Moving across to Unitrans, so we've mentioned a number of times the Unitrans restructuring. We are finally gaining real traction in this. It's been a long process. It is a big business, so it has taken longer than we have liked, but we're now making really good progress, and there's good momentum in this.
So from an overall perspective, we've consolidated the three divisions into a single business. We've stopped low return activities and disposed of those assets as well as other underutilized assets. We are aligning cost structures with those activity levels, so a lot of that work has been done. There's more to be done. And obviously, with new capital, we're applying far stricter capital metrics in terms of allocating capital to opportunities within this division.
We've embarked on an organizational redesign, which includes the IT systems that support it. And in terms of the business development activities, a far stronger focus on end-to-end solutions. And bear in mind that a large part of this business is actually focused on operational services, in addition to the strict logistics work that we do. And then, obviously, using this to drive growth in this business of a more right-sized cost structure and a more focused business.
And that sector focus remains on the primary sectors that we operate in, being food, agriculture, mining, petrochemical, and passenger transport. So in terms of the progress, FY 2023, what we reported on last year, we ceased certain activities which had incurred losses of about ZAR 100 million. We incurred restructuring costs of about ZAR 27 million, and we sold close to ZAR 300 million in the prior year of underutilized assets.
In this year, we appointed a new CEO, we restructured the ExCo, and we targeted cost savings of around ZAR 100 million in the second half of the year, which we largely achieved. We also curtailed CapEx and redeployed assets to be utilized more effectively and to improve the overall utilization. We sold underutilized assets of, again, ZAR 300-odd million. Non-recurring restructure costs in this year was ZAR 47 million. Just in terms of the organizational redesign, that was started in June.
We see it being completed in mid-September, with an implementation being completed by the end of H1. That's progressing well, as is the refined business development function, where that's been streamlined and is far more focused in terms of identifying and executing on opportunities that we see in our chosen markets. The outcome of that, we saw a much improved performance by Unitrans.
As I mentioned, we specifically exited certain low return work, so we did see revenue come back slightly, which we're comfortable with. We saw operating margin and operating profit materially improve. So operating profit up 32% to just over ZAR 500 million. And that came through significant focus on costs and improved performances from the food, petrochemical, and passenger operations, with mining remaining relatively stable. Agriculture was disappointing.
Our volumes were down a little bit, but the main impact was really a devaluation of the Malawian kwacha, which led to a forex loss of ZAR 52 million compared to a ZAR 12 million gain in the prior year. So one would hope that that's a non-recurring item, but it obviously had a major impact on the results of that division.
As I noted, we restricted CapEx and disposed of a significant amount of underutilized assets, so that the fixed assets employed in that division for the year was actually ZAR 697 million lower than the prior year, which obviously is part of our journey towards improved asset utilization and improved returns. So although margin's still below our long-term guidance, we've got good momentum in the right direction. There's good energy in this business, and we see the progress continuing to build.
Feltex had a good year. Revenue up 14%, operating profit up 17% to ZAR 264 million. And very close to our guidance margin of 10%-12%, sitting at 9.9% there. The performance was supported by an increase in local assembly volumes. This business is largely driven by new vehicle assembly. We saw that up 6%, which obviously supported our result. We also exposed in our components aftermarkets business to new vehicle sales.
Unfortunately, LCV and SUV sales were both down in this year, which unfortunately impacted on that part of the business. Overall, however, I think the increased volumes, the cost savings, and the process optimization were enough to offset the lower sales in the new vehicle sales. A good performance. We did have some insurance benefits, ZAR 19 million. However, this was materially less than the prior year we received ZAR 80 million. In this business, we've moved a recycling business which we own called Connacher.
That supplies both our Restonic and Feltex businesses, as well as the open market. We moved that business in under Feltex really to facilitate growth in the automotive sector, where we see lots of opportunity to build out a bigger position with recycled fiber products. Restonic also good performance. We did a major restructure in that business. We're seeing the benefits of that coming through.
Revenue up 8%, operating profit up 89% to R125 million, and operating margin 7.3%. Margin's still below where we want to be, so our guidance of 13%-15% gives some indication in terms of where we see this business getting to. So although great improvement, still below our expectation in terms of where we'd like to see it.
So revenue was up, largely through price increases to offset the impact of cost escalation, as well as some volume growth. And the volume growth is particularly pleasing for me. This is a difficult sector, constrained consumer environment, difficult retail environment, and we were able to grow bedding unit sales by 5%, foam by 10%, and textiles by 9%. So overall, a really pleasing performance within the context of a higher interest rate, higher inflation, subdued retail environment.
So overall, happy with the performance, and I think it's really supported by a lot of work that we've done in terms of the front end of this business, product development, marketing activities, sales activities, I think supporting the volume growth and revenue growth. And that's it from an operational review perspective. I'm gonna hand over to Frans now. That'll take us through the numbers, and then I'll come back at the end just in terms of the outlook.
Good. Thank you, Gary. Morning, everyone. Thanks for taking the time to come and listen to us. Firstly, on the salient features, revenue down 2% on a consolidated basis, EBITDA down 8% to 3.7, and then operating profit down 11% to 2.3. Headline earnings per share down 4% to 45.3, and earnings per share actually up 106% to roughly ZAR 43.8 cents.
Just the difference between those two is, in the prior year, we had significant impairments in Unitrans, intangibles and goodwill, so that's why there's a difference between headline earnings and earnings per share. The half year, we also restated the numbers for the prior year, but again, so I just include this to, to remind you that we've restated also the full year results.
And the reasons for that is, or the reason for that, is that we've detected a overcharge from one of our major suppliers in Safripol in October, and it was for quite some time, February 2022 to 30 September 2023, that they've overcharged us. The total was ZAR 183 million, of which ZAR 163 million belonged to the prior year. So the effect of that is in that table. You can see operating profit, we restated ZAR 156 million.
Trade and other payables is the actual amount of the overcharge, ZAR 163, and then it increased our prior year headline earnings per share by ZAR 0.046 or 11%. So when you look at the consolidated income statement, EBITDA down 8%, operating profit down 11%, and it's really impacted by the Safripol performance for the year, which Gary explained in a lot of detail. Then there's some other items.
Just to highlight, that in the current year, we had ZAR 81 million Forex loss, mainly due to the Malawian Kwacha devaluation, compared to a ZAR 44 million gain for the group in the prior year. So that's quite a significant swing between the two. And then also in insurance, we had ZAR 64 million insurance income in this year, compared to a total of ZAR 343 in the prior year. If you look at the net finance costs, 4% up on the prior year, and there are two things you need to take into account there.
Interest rates did impact our finance costs, and you'll see that later when I talk to interest in the cash flow statement. Because we've capitalized ZAR 173 million from the interest line in the income statement to the balance sheet on the material, or the large projects that we've completed during the year. Just to remind you that with all those projects completed, this will not repeat next year, and the full interest line will come through the income statement.
If you look at the tax, you will note that our tax rate is quite low for the current year at 15% compared to the prior year of actual 37%. And there's two items to highlight. The one is, in the current year, we received a Section 12I government incentive or yeah, government incentive on the finalization of the Mkondo project in June. So what that is, it's an additional deduction or allowance, so it comes to the income statement. You don't capitalize it. It's ZAR 790 million, and the value of that is ZAR 213 million profit.
So that's 15.7%, taking our tax rate down from 27% to 15%. In the prior year, we had the impairments of goodwill and intangibles in Unitrans that resulted in a higher tax rate. So if you take and you exclude the once-off profit impact of the Section 12I allowance or grant incentive, that's in the income statement. That's worth 8.6 cents per share. It reduces our headline earnings per share from 45.3 to 36.7, which is on a trading basis 22% lower than the prior year.
On the balance sheet, mainly three items to highlight. One is property, plant, and equipment. With the completion of our major capital projects, there were significant investments in assets. Net working capital that increased slightly, mainly due to inventory. And then lastly, net debt that also increased slightly. And I've got more detailed slides explaining all three of those items. Firstly, on property, plant, and equipment. Significant investments this year.
If you look at that, additions, expansions on the left there, ZAR 1.8 billion of expansions, and ZAR 1.3 billion of that 1.8 is the MDF project in Mkondo. We've also capitalized ZAR 173 million interest, or borrowing costs that we've capitalized, that you can see there. And then, capital work in progress, we mentioned it last year, we also mentioned it the half year. It was ZAR 1.5 billion at last year.
It's now only ZAR 343 million, with most of the, or all those projects completed. There's some small items outstanding that we haven't capitalized at year-end, which we will capitalize in the first six months. You will see the disposals there, mainly in Unitrans. Gary explained it with the rationalization of the Unitrans asset base, also unutilized assets, that resulted in Unitrans close to 700 less fixed assets employed.
Net working capital increased ZAR 239 million. And the main increase, as you can see there, on the graph, is in inventory, ZAR 340 million increase in inventory. Two reasons. Additional raw materials that we acquired to mitigate supply risk with port issues earlier in the year, et cetera. We just make sure that we mitigate supply risks, and then also additional engineering space relating to the major capital projects. We've completed the projects. That's in property, plant, and equipment, but with those projects also come engineering space.
And that impacted our inventory. We continue to have significant focus on working capital management. Specifically, that focus will continue in the first six months of this financial year. And we also align our production with our inventory levels to make sure that we can manage our working capital. If you look at debtors, there's a ZAR 82 million increase, but you must remember, last year there was ZAR 258 million of insurance receivables in the balance sheet, and we've successfully collected the full amount in the current year.
If you look at net working capital for the first six months now to December, we do expect that it will increase, and the reasons for that is, firstly, it's our normal working capital cycle. In the first six months, we invest in working capital, second six months, we release in working capital. But also, with these projects now, commissioning and running, now we need to invest in working capital for the additional capacity. So that's all going to happen in the first six months. If you look at the cash flow statement, ZAR 3.7 billion EBITDA, that's 8% down.
We invested working capital of ZAR 203 million. That gives you cash flow from operations of ZAR 3.5 billion, which is 10% down on the prior year. If you look at the net finance costs paid in the cash flow statement of ZAR 1 billion, you'll notice a difference between the income statement and the cash flow, and that is the borrowing cost that we've capitalized. So the actual cash interest that we've paid is up 26% compared to the prior year, and that's mainly due to higher interest rates.
Our cash flow conversion at 95% remains within our target of greater than 90%. Cash flow from operations of ZAR 2.2 billion that we've invested. The whole of the ZAR 2.2 billion we've invested in the current year with the completion of our projects. An item to highlight is the acquisition and subsidiaries there, the ZAR 77 million.
That relates to a small bolt-on acquisition in Feltex, and that's disclosed in the financial statements. Yeah, and that brings us to a free cash flow of -ZAR 79 million, basically flat. So we have paid for all these capital expansions out of operating cash flows in the current year. You will see in the prior year, there was a dividend paid in relation to the previous financial year, and this year there's no dividend that we've paid in the cash flow statement.
So if you look at the detailed CapEx split that we provide you, we separate the manufacturing assets and our logistics assets, and the reason for that is the profile of the assets and the life of the assets, where manufacturing is long life assets and logistics, more medium-term life assets.
So, to note on that slide there is the investments from FY 2022 to FY 2024, the expansion CapEx that we've had. The multi-year projects that Gary was referring to, of which the largest one there is the PG Bison and Mkondo project of ZAR 2 billion and ZAR 1.3 billion in the current year. And for most of these projects, it's complex, multi-year, so I can just also add to what Gary said, within budget, within time, is a very good achievement by the management.
If you look at the logistics assets or the non-manufacturing assets, to highlight on the slide, there is disposals over the last three years, significant disposals, and that is to improve our capital efficiency. The team has done a good job there in redeploying assets. Redeploy assets within the business to improve the utilization, reduce the request on new CapEx, and we've also done a good job in disposing unutilized assets. That ultimately resulted in close to ZAR 700 million less fixed assets employed.
Net debt movement, debt is up ZAR 299 million. But to note is from December 2023, in the last six months, we've actually reduced our debt by ZAR 866 million. We target to reduce our debt by ZAR 1 billion in the next financial year, and that's mainly enabled by three things. Lower capital in capital spend, CapEx, in FY 2025 compared to this current year.
And also those projects now being commissioned, we expect that they will contribute towards our cash flows, and there's expected improvement in Unitrans that will enable us to reduce debt. And like I said, we target ZAR 1 billion. Just to note that our debt will increase at half year when we show our results for 31 December. And that's mainly due to the working capital that I've explained on the working capital slide.
And we see that the debt reduction will actually only materialize in the second six months, in H2 of 2025. On the treasury activities for the year, the main item is a successful ZAR 3 billion RCF that we've placed earlier in the year. We did report back on this in detail at our half-year results. But worth noting is that, or just reminding, it's ZAR 2 billion three-year money, ZAR 1 billion five-year, and the covenant ratchet is important.
Where this year the measurement is three times, the next financial year, FY 2025, is 3.25 times, and thereafter, back to 3.5x on the interest rate cover. On the right-hand side, when we raised the RCF, we raised it to settle specific maturities. So I've just listed those maturities again, and we've highlighted the roughly ZAR 2 billion that we've utilized and settled, and those two in the middle, July 2024, maturities, we've actually utilized the last ZAR 1 billion of the RCF to settle those in July.
On the detailed treasury activities, I've already mentioned that at year-end, ZAR 2 billion was drawn on the RCF, and the ZAR 1 billion that was available, we've utilized in July, so that's now fully utilized. And just to mention that, GCR confirmed our rating in November. Important for us is the serviceability ratios to remain within our covenant. If you look at the slide there, it's ZAR 8.3 billion debt, ZAR 12 billion equity.
That gives you 67% gearing ratio. That's slightly down from the prior year. And then the two key measurements for us, net debt to EBITDA, coming in at 2.3. That's within covenant and within our own internal targets. And the interest cover ratio coming in at 3.7. That is within our covenants, but lower than our own internal target. Lastly, on the maturities profile, at year-end, we had ZAR 1.4 billion cash, available facilities ZAR 2 billion, committed ZAR 1 billion, that's the RCF.
So we've utilized that ZAR 1 billion in July to settle maturities. That leaves you with ZAR 1 billion of maturing debt for the rest of the financial year, FY 2025. Our plan with those maturities is, in the first six months, we've got one maturity. That one, we're going to refinance, and the reason why we're gonna want to refinance that is our working capital investments that will take place in the first six months with those plants, with all the major plants that was commissioned.
So we just need some time for the cash generation to come through on H2. And then also, we need to just give those plants some time to settle and to generate cash. So with that, I'd like to say thanks for listening to us today, and Gary will take us through the outlook.
Thank you, Frans. So, Pat, Pat actually mentioned in his introduction just a lot of positive sentiment in South Africa currently just around the Government of National Unity. The inflation starting to come down with the prospect of, hopefully, interest rates coming down. No load shedding for a number of months, and while these are all positive and obviously good for the country and good for us, we believe it's still gonna take some time for that to translate into tangible revenue growth for us.
So we see the next year remaining relatively challenging. However, we're clear in terms of our strategy. We're clear in terms of our deliverables. We've invested in some major projects. They're all commissioned, and really, the focus is going to be extracting value out of that. Having said that, the main one, PG Bison's plant, it's a 33% increase in total capacity, and that's big. So we've given ourselves four years to bring that up to full sales capacity, and I think just from an overall perspective, progress is good.
However, it's a big project, and we must give it time to gain momentum. In terms of the Unitrans side, the energy there is good. The momentum is good. In our last year's presentation, we actually mentioned the base case target that we had set of a ZAR 300 million improvement over the medium term.
So that takes us to the base case, plus obviously then growth on top of that. So we're happy with the progress that's being made, and we are confident that that will continue. And then, obviously, in terms of our balance sheet, so these major projects, the challenging environment, a subdued Safripol performance have resulted in elevated debt levels. We are acutely aware of that. We've managed it very carefully over the period, and we look forward to starting to reduce that debt in the second half of next year.
With Safripol, we remain cautious, so we are in a cyclical low period. And that's expected to continue 2026, 2027. Within that context, we remain clear on our strategy, moving towards more durable applications, less single-use applications, focus on cost, focus on our operational performance, and really to optimize what we have within the context of the sector.
We also are fortunate with our diversity, so although Safripol has underperformed, it remains profitable, it remains cash generative, and we do have the diversity of the group that can enable us to trade through this cycle. So overall, from the overall group perspective, the momentum is good, the energy is good. We've got our strategy, we've got clear plans across all the divisions, and really, this year is now gonna be about execution. It's executing those plans, and ensuring that we deliver on the targets that we've set ourselves.
Really, no distractions, focus on what we've got in front of us. With that, I'd like to thank you for your attendance. There's a lot of staff on the webcast, so it's been a tough year. So really thank you to the staff. You can be proud of the results that you've developed, sorry, that you've delivered. And thank you very much to the banks and our funding partners. Again, thank you for your support. Likewise to our shareholders. And I can assure you, we have clear plans in place that will deliver value.
To the board and our chairman, really, we've received a lot of challenges, but also a lot of guidance and support, which we're very grateful for. So overall, that's it from our side. We're open to take questions, which have come in on email, so Christina will read those out, and we'll do our best to answer them.
Yeah. Thank you, Gary, so let's start with a question from Talia Ginsberg from Umthombo Wealth. What exactly is the value add ratio in respect to PG Bison?
It's 67%, relative to 62% in the prior year.
You must explain.
So where we talk value add, just to elaborate on that a little bit, our products, we produce a raw product, which is used in downstream applications to make a built-in cupboard, make a kitchen, et cetera. We then place a primary surface on those raw products, which is your kitchen or your built-in cupboard.
It's the finished surface that you would see. So that allows downstream converters to be able to buy our products and convert them directly into end user products. So it really facilitates downstream manufacturing and consumer products that ultimately will be sold.
Okay, keeping with the theme of PG Bison, one from Charles Bowles, from Titanium Capital. In PG Bison, is MDF largely used in kitchens? If so, what is driving the demand, given that the residential renovation or upgrade market remains weak?
So MDF globally is sold more than particleboard, as a first principle. So as a result, growth in MDF globally is growing at a rate of more volume per year than particleboard. In South Africa, our MDF market has been undersupplied due to lower production capacity for a number of years.
That's been s upplied through imported product. So we've seen continued growth as new products and the quality aspirations get higher. There's been a greater demand for MDF. So in very simple terms, if you consider a kitchen cupboard, your carcasses, in other words, the cupboard structure, is generally particleboard, and all the frontals are generally MDF.
Thank you, Gary. Another one on MDF, from Rowan Goeller from Chronux Research: "Can you please give an idea of how much of the MDF expansion can be absorbed by current demand? As you mentioned in the presentation, that demand exceeds supply.
So, there is demand in both our domestic market, where there's imports that come in between 150 and 180-odd cubic meters per day, and then there's also excess demand in our rest of Africa territories, which we consider part of our road freight domestic market. So we will seek to displace those. We then have a competitor producer in the local market, where we will seek to grow market share against that competitor.
Then there are certain export markets through due to logistics and location present quite good opportunities for us in terms of selling into those markets. So, as I said, we've given ourselves four years to ramp up to full capacity.
We may pursue some of those markets at lower margins to get to full capacity quicker, and then improve margins over time. But it's really early stage, so the plant has been running for literally a month and a half. So it's really early stage, and I think at our half-year results and following year-end results, we'll be able to give more insight into that.
Thank you, Gary. Another one from David Fraser from Peregrine Capital: "Given the cost benefits of the new MDF plant, surely it makes sense to run this plant hard and reduce production from your older operations?
Sure. That's it, in theory, correct. We would obviously like to run all of our plants at capacity, so that's a balance that we manage now. There are certain other dynamics around other production that takes place on those sites. So that is taken into account in our thinking. It's a very valid question. It's certainly taken into account in our thinking, and yeah.
From David: Overall, is a stronger Rand a headwind or a tailwind to earnings going forward?
Generally, our business is better on a weaker rand. However, what's most damaging to us is rand volatility. Generally, we can gear our business to a weaker or a stronger rand, provided it takes place in a structured, rational manner. The volatility really, really is difficult to deal with.
Gary, one from Rowan Goeller again, on Safripol. Were there any divisions, PET, PP, or HDPE that were loss-making?
In the context of this year, PET was marginally loss-making. However, if we take into account the five-year maintenance shut, it was close to break even. Which I think in the context of almost historic lows in PET margin and a margin well below the ten-year average, and subdued demand, for that plant to break even at the bottom of a cycle, I think is actually very good. Or the other two polymers were both in healthy profits.
Okay. Thanks, Gary. Another question from Talia, from Umthombo Wealth: In terms of Unitrans, how much of the business involves African countries? As you mentioned Malawi, we heard your results.
We've got a good spread in Unitrans. So we've been in African territories for several years. And it is material, so I don't have the exact percentage offhand. It is material to us. It covers our agricultural exposure, our mining exposure, our petrochemical exposure, and parts of our general freight. So it's material both in terms of our exposure to sectors as well as our revenue.
Okay, thanks, Gary. So just sticking to Unitrans, Thoko Makuna from Oystercatcher Investments likes to know if you can provide more color on Unitrans' business development activities. Is existing capacity sufficient, or will this require some investment, and what does the margin outlook become then?
So we've given the longer term margin guidance, which remains our longer term guidance, so that we're not changing. In terms of the business development, we are far more focused in terms of the areas that we're pursuing. So there's growth potential within existing clients, both in terms of the current work we do as well as complementary work, and that's where I referred to a lot of the work we do is actually operational services centered around a logistics core.
So there's a lot of opportunity to grow in that space. There's also a lot of opportunity to grow within the sectors that we operate with new clients in those sectors that we already know and interact with. And then lastly is pursuing new opportunities on a more holistic solutions basis.
Where, I think, with the available technology and data, there are large corporates with legacy supply chains, which are inefficient and involve multiple small operators, where there's the ability to design far more efficient supply chains using scale of one or two bigger operators, and if we consider within the context of South Africa, there's not too many large-scale corporates left.
South African businesses registered in South Africa running large-scale logistics and supply chains, and Unitrans is one of those, so that's certainly a target market for us that will, we believe, lead to some growth opportunities.
Gary, a question from Etienne Roux from Truffle Asset Management. Is the ZAR 700 million Unitrans EBIT level achievable in FY 2025? What is your guided CapEx for FY 2025? And, okay, maybe I'll stop there and ask the other questions later.
Yeah, so, we've said, our base year of FY 2023, Unitrans made ZAR 384 million in that year. It was a very bad year for us. Subsequent to that, we closed loss-making work of roughly ZAR 100 million. We embarked on cost savings with a target of ZAR 100 million for half a year, which translated through to roughly ZAR 200 million for a full year, which takes us to ZAR 300 million, plus the 384, roughly ZAR 700 million.
So just to give an explanation of where Etienne gets his ZAR 700 million from. So that is our base case for Unitrans. We believe that that is very achievable. Whether we get there all in FY 2025, it remains a target. I think it'll be a mix between 2025 and 2026.
Just in terms of guided CapEx, I don't have the number offhand for this forum. It will be materially lower than the prior year, bearing in mind that the large expansion projects have been completed, so it now refocuses towards mainly replacement, and a large part of that actually goes towards Unitrans.
Thanks, Gary. So the rest of Etienne's question: excluding the fair value gains, PG Bison's margin reduced from 17.14% to 16.53%. Why is this, given the high value add mix, and what is needed to get it back to our 18% EBIT margin, excluding the new plant? Is this achievable?
Yeah, so we remain clear on the guidance margin of 18%-20%. It is achievable. I think if you consider the context of the marketplace, it is a challenging market. So you could see we did increase our exports, and part of that was the deep sea exports, which are at a lower margin. It has been a high inflationary environment, so we've certainly seen cost increases come through.
Lastly, we have our forestry operations in the Southern Cape, which you may recall, we experienced quite severe fires in historic years. So that business, we're still in the rebuilding phase. That also weighed on margins, which we see within a year or two, that rebuild starting to come through and not being a drag on margins.
Okay. Thanks, Gary. I've got a couple of accounting questions. The one is, why is there such an increase in the value of your biological products? Does the revaluation go through the income statement, and the next one is, do you capitalize projects, or do you expense them as they come?
Yes, I think Frans is best placed-
Yeah
-to answer those.
Yeah, so the increase in the biological assets this year is largely because of Gary just mentioned, our Southern Cape, where we had the fires previously. We replanted, and those compartments or areas that we replanted are now getting to an age where there are actual cubes attached to it, and it's coming into our plantation valuation. So we haven't seen price inflation in our plantations. It's purely increase in volumes, specifically Southern Cape.
Christina, the question on the capitalization, I'm not sure exactly what the question is, but maintenance we expense, and whenever there's a capital project, and if it's multi-year, we will also capitalize interest into that project.
Okay. Thank you, Frans. So another one from Toko, from Oystercatcher. Is KAP still considering a sale of Unitrans? Is there still interest in assets, or have negotiations stopped?
I think we've been fairly clear in our communications on Unitrans. We did receive some inbound interest, which we did consider, and nothing materialized out of it, so there was no tangible substance to those inquiries. Currently, all of our operations remain in the portfolio. We are quite clear in terms of our strategy of returning the underperforming ones back to the levels that we expect.
And you'll notice from a lot of what I've said is the longer-term guidance margins remain intact, so we need to get our businesses back to where they should be. And as a board and as an exco, we do go through, on a routine basis, a portfolio review, reviewing what's core, what's not core, what's strategic, what's not, and at this stage, our portfolio remains intact. We've got a clear five-year plan in terms of what we expect of those businesses, the investments that have been made, the margins and profits that we expect, and the returns.
Thank you, Gary. I've got two questions here that talks to the portfolio, which I think you've essentially answered, so I'll just flag them in case you wanna add something more. So one question just on Optix, fit in the long-term strategy. And another, KAP essentially is a bunch of diversified assets put together or are they big initiatives to restructure the group? Not sure if you wanna add to that.
So firstly, on Optix. So Optix is essentially a start-up technology business in a sector where we've got deep experience, aligned with a global leader in terms of that technology and the application of it. So it is a business that we've got a lot of confidence in the potential of. It is small for us, it doesn't consume an enormous amount of time, but it's technology that we are directly exposed to in our Unitrans business.
And as a result, see the potential of growth in that business over the medium to long term. Just in terms of the question around a bunch of diversified assets. So we are, by design, diversified. We see value in diversity through business cycles. As I said, currently, we have a very clear plan for each one of our businesses, over the next five years, in order to achieve certain growth and return hurdles. And at this stage, we remain committed to all six of the businesses within our portfolio.
Thank you, Gary. A question from Robert Spanjaard at Rezco. I think you've answered the portfolio question, but is Safripol's PET plant closable if world supply and demand don't improve? And is there a potential for duties here?
There are currently duties on PET coming in. So there is a 15% duty, and there is certain anti-dumping legislation in place to protect our local industry from PET that gets dumped. So I think from a state perspective, we've had good support. Is it closable? Listen, we review the performance of all of our businesses every year. We go through detailed impairment testing on all of our businesses, which involves forward-looking forecasts. Bear in mind that our manufacturing assets are long-term assets.
The infrastructure that we have in place, much of it will run for 40-50 years. So we're currently, globally, in a position of extreme volatility. We've got multiple elections taking place around the world. We've got multiple regional conflicts taking place.
We've got multiple supply chain disruptions taking place, and we're in a cyclical low globally in the chemical cycle. So I think to start making decisions around closures at a low in a cycle with this much volatility is probably not appropriate. But it is something that we monitor very closely, and I can assure you, we believe we're taking the correct business decisions in terms of how we assess the assets.
Okay. Thank you, Gary. Another question from Charles from Titanium Capital. Could you provide some insight on what the view around Safripol or the downturn in the polymers industry is based on? And there's another question on strategic fit, but I think you've answered that.
Yeah. So the chemical cycle is like any other cycle. It's inherent in the industry. The investments that take place within the chemical industry are major investments, multi-year investments that are all long-term focused. So these investments take several years to get to a feasibility capital approval and physical build. So they're based on long-term views of industries, and they are big. So by nature of that, you have major investments taking place, creating an oversupply situation.
You then have lower efficient production capacity falling out. You have demand growing, matching supply, prices improving. Investment taking place, oversupply, prices falling, and the cycle repeats itself. So currently, we're in a position where global demand is subdued. Significant investments have taken place. The markets are oversupplied.
We are seeing inefficient plants starting to close. I think that process will continue for some time, and I think we will see, over time, a normalization in supply and demand and margins starting to improve.
Thank you, Gary. Just a follow-up here from, we've got Nick Krieger from Signal Asset Management. KAP trades at a significant discount to book value. Is this not a clear signal that the group needs to be restructured? Having a group of unrelated assets together is not a strategy.
I think I've answered the question.
From Jesse Armstrong, from Fairtree. I'm gonna break this one up, starting with Safripol. Please, can you unpack the hedging strategy with Safripol, and how you see it going forward? Please, can you specify instruments used and strike prices?
We don't have a hedging strategy. We've never hedged. We believe it's not appropriate in the context of our business, so we do cover for known contracts, so where we commit to a raw material purchase or a sale that's Forex related, on the day of execution of that, we will commit to a Forex rate linked directly to that contract so that we lock in whatever the parameters of that contract are. Outside of that, we don't hedge.
Okay. Thanks, Gary. Following up, for imports of PET raw product, what percentage were freight or logistic costs per unit imported? Do you see any regulation changes or increased tariffs on imports from offshore producers? And have there been any recent communication with government post the formation of GNU?
No communication with government. No changes in regulations around duties, and I don't know offhand what the logistics cost is.
Okay. We'll, we'll have a look at that. Question from David Fraser, Peregrine Capital. You mentioned your RCF was fully drawn currently. What other unutilized facilities are available to fund the signaled working capital build-up in the first half of this year?
In July, the RCF is fully utilized. If you look at that slide, we did go into the year-end with a positive cash. We do have available facilities, and that plus refinancing the one maturity that's still left for H1 will be sufficient to take us through the working capital build in the first six months.
Thanks, Frans. And the very last question is on Unitrans. Can you speak to the scale of asset disposals you foresee in the coming year, or has the bulk of this already happened?
The bulk of it has happened, so there will be a small amount of additional disposals, but largely now we enter a cycle of acquisitions and disposals in the normal course of business.
Yeah. That covers the questions. Thank you, Gary, Frans, and Pat, and to our audience. If there's any further questions, I'm happy to address them after this call. Gary, would you like to close for us, please?
No, nothing further to add from our side. I think the questions were very comprehensive, and yeah, thank you for your time and your interest, and we look forward to one-on-one engagements. Thank you.