All right. Good morning, everyone, and thank you very much for joining us. It's really great to be back in person. It's been kind of quite an interesting journey for us. I mean, right from the beginning, we run factories and we run big transport businesses where we've got drivers and operators. For us, it's been back since coming out of lockdown. It's great to see you guys in person again. Oopsie. Obviously, some of you have dialed in, so thank you for that as well. Yeah, I hope it's gonna be productive for you today. It's the first time we've done something of this nature, getting a little bit more into the strategy and giving you a little bit more insight into how we see the way forward.
That's kind of running out to 2027. It's the targets that we pursuing as a group. Just the agenda, I'm gonna start off as I just have, then get into the KAP strategy, and our value proposition around how we believe we create value. Then discussing some topical issues, three issues there, being the Safripol margins, ESG, and then a resilience strategy that we have embarked on as KAP. We'll have a quick break, and then go into a panel discussion, where Christina will run the panel. It's really to talk about world-class manufacturing within South Africa. Manufacturing, I think, often gets a bit of a bad rap, and I think it's an area that we do particularly well.
I think it's an opportunity for the guys that actually do it to have a discussion and give you more insight into exactly what they do. Then we released an operational update yesterday evening, so hopefully you've all read that. We'll do a brief run through that, and then we'll open up for a Q and A. Just in terms of those that have dialed into the VC, in the top left-hand corner of your screens, you'll have a Questions tab. If you log on to that, type out your question, and Christina will facilitate questions at the end of the process.
If we get right into it, we've just started kind of from the beginning of KAP, as we sit in our current form, and that started in 2012, when KAP acquired all of the Steinhoff industrial assets. That was PG Bison, Unitrans, Vitafoam, DesleeMattex, BCM. And at that stage, Unitrans was by far the greatest. I mean, the cynical comment was, "This is the old Unitrans with a couple of industrial assets kind of thrown in with it." That's what happened in 2012. At the same time, we then went through a process of building a strategy, and through that, disposing of assets that didn't fit. We had Brenner Mills, Bull Brand, Jordan Footwear.
Those were assets which didn't really fit our strategy of wanting to be leaders in certain sectors. We then went at that stage into a deep restructuring of PG Bison, which really positioned it as the leading manufacturer of board products. I stress the word manufacturer because as you'll see when we get to that slide, how our philosophy and thinking around that business has evolved. We increased the capacity of our MDF plants. At that stage, I remember we had 14 sites. We shrunk them to three, and that released about ZAR 400 million of working capital. We took that working capital, and we invested in a board plant, and that was a phenomenal success for us. We acquired Restonic.
We had, as you saw at the top, inherited the old Steinhoff raw material assets, foam, textiles, et cetera, and we acquired Restonic to be able to integrate forward. At that stage, GDP growth hovering around 2%. We then look at the next three-year period, where from 2016 to 2018, we acquired Safripol. That was an enormous acquisition for us at the time. At the same time, we expanded our PET plant, which was also an enormous project for us. We then went into the collapse of Steinhoff, so that was December 2017. I remember Frans and I sitting in our offices in the Steinhoff building, and that collapse happening. It took us three months, I think. We moved out, established new premises, and went about building a corporate services function.
We also in that period did a BEE transaction with Unitrans, which really got it to level two, where it is today. We embarked on a replacement project for our Piet Retief, eMkhondo plant, which gave us some extra capacity as well. During that period, we also acquired Autovest. Also relatively low 1% GDP. Going into the next three-year period, we had the continued impact of Steinhoff, which I'll explain on the next slide. We went into a polymer collapse down cycle, and some of you will recall in that period, we looked at the numbers yesterday.
We went from about ZAR 700 million profit to ZAR 165 million profit in one year just in Safripol, which was obviously devastating for us. Steinhoff thankfully sold their remaining 26% stake during that period and gave us the ability to be completely independent. We went into COVID, and I think that doesn't require any further explanation. We all, I think, understand what the implications of that were. The country went into a negative growth situation of -6%. If we then move into this year, I think you would have all seen the trading updates and the operational updates. It's gonna be a good year for us. We'll unpack a little bit more around it, but essentially it will be a good year in spite of COVID.
We've also done some big projects. The Piet Retief eMkhondo expansion was concluded and ramped up to full capacity, phenomenally well. We started a project of building an MDF plant. We acquired DriveRisk, which is, for us, a very exciting prospect. Then again, in a 2% GDP environment. Kinda that's been our, I suppose, migration over the last 10 years. Particularly in the last three years, there's been three major events for us, three major impacts. The one was the Steinhoff collapse in December 2017. When that happened, we made a very clear decision. We said, "KAP is a real company. It generates real cash. They're real businesses that make real stuff. So we're going to, for the following financial year, we're not buying anything, we're not selling anything.
We're gonna give a like for like direct comparison of one year to the next where everything's comparable and it's all converted into cash, which is what we did. We then had the cyclical downturn of polymers, which as I said, was a significant event and impact for us. Polymers is big in our lives, and to lose that much profit, ZAR 700-odd to under ZAR 200 in one year, was significant for us. We obviously had COVID. We had these three major events, and COVID almost by the end came as a non-event for us because we had been through these crises, and we had learned how to deal with them.
If we look at our responses of how we addressed it, coming out of Steinhoff, the first thing we needed to do was just create independence and ensure credibility. Credibility of our board, credibility of us as management, and credibility in the business model. That, as I said, it was a real business, and I think we proved that. We wanted to ensure balance sheet stability, and secure long-term funding lines. I think when we look at our results for this year, which we'll get to, you look at the scale of those crises where, I mean, during Steinhoff, we had significant pressure from banks. We were targets to potential acquisition. It was quite traumatic for us.
Likewise, the impact on our ratios and funding lines with the collapse of polymers and then obviously COVID. To come out of that the way that we have, I think it really illustrates the resilience of KAP's model and of what we do through the diversity and the cash generative nature of a lot of our businesses. We set about trying to de-risk polymers, so it's not ideal in our lives to have that volatility. We really set about understanding how we could de-risk that business. We had spent a lot of money, and we continued to spend a lot of money in our own capital projects. We really wanted to sweat those assets and extract value out of them.
I guess the kind of major issue there was around the PET plant in Durban, where we had spent a lot more, almost double, what we had forecast. We were struggling to get it to a position where it met the feasibility criteria, and was able to fund the capital that we had spent on it. Then obviously internal focus around efficiencies and market share gains. I guess the trade-off in that period was really that we haven't focused on M&A activity. It's been a lot of inward efficiency focus and a lot of introspection around us as management and us as a business in terms of understanding what we do well, understanding what we don't do so well, and understanding what actions we need to take to fix those issues.
There was also reduced focus on growth outside of our existing markets. I think with the acquisition of DriveRisk, you can see that that has now evolved, and we're now far more outward focused and looking for opportunities. It's not a situation where we're giving a lot of excuses of why things are where they are. I think it's really just sketching the background of what I'm gonna present, and why we went through it. I think the mixed results that will evolve out of that, and this we've done a comparison of F 19. You take a pre-COVID year, F 19 versus our forecast for this year. I'm not too concerned about sensitivity of information.
We've given a fairly comprehensive operational update and trading update. If we look at that, in terms of how we present it. PG revenue up relative to 2019. Operating profit more or less flat. Bear in mind that there's a lower forest revaluation or biological asset revaluation in this year than in FY 2019. From a trading perspective, it would be up. Returns down, but bear in mind with the projects that we're doing, we've got about close to ZAR 700 million in capital work in progress. That was in December. Obviously it's a fluctuating number, which obviously weighs on returns. That's not EBITDA generating yet. Safripol across the board up, revenue, operating profits and returns.
That's partly cyclical related, partly renegotiation of our ethylene supply contract, and partly getting the PET plant up to actually in excess of nameplate capacity. Unitrans, a mixed bag. The SA business actually good, up on F 19, the passenger business relatively stable. Really we struggled in two main areas being Botswana, where we've had historically a very big fuel business, and then with our agricultural operations, largely customer issues being lower yields, weather issues and mill issues, which have impacted on our ability to generate revenue in that space. Feltex, really tough space for them. Global chip shortage, I don't need to talk more about that. It's really affected the global automotive sector.
Compared to FY 2019, where they were actually in a pretty good space, obviously down on all the metrics. Likewise, Restonic. You would have seen in the trading and operational updates, Restonic having a tough time currently. We had a strong bounce back coming out of COVID, and we've gone into really subdued market conditions, impacting on all of their metrics. For KAP overall, our forecast is revenue to be up on 2019, operating profit up on 2019, and returns up on 2019. Bear in mind, when you look at those returns, there's some big projects in place, or in progress, and at December, there was about ZAR 1 billion in capital work in progress sitting on a balance sheet, not yet generating EBITDA.
When you look at kind of the forward-looking numbers, that needs to be taken into account. Through this period, it's really prompted a detailed review of everything we do. It's interesting because our strategy hasn't changed, but we certainly refined it, and we're certainly a lot more focused than we used to be. I think, I hope that you'll see through the presentation that we are a much better business now than we were in F 16. Well, in F 17, 18 and 19 when we underwent those various issues. If we look at the internal environment, we've got some strengths that we've identified. We've got the best people that we can find in industry. We do try to lead and dominate industry sectors, and with that, we go after the best people.
I think we've got predominantly the best people in our sectors. We've got the latest assets. We've got great brands that are well known. We've got world-class products. We run our businesses to be globally competitive. That's something we've learnt is if you're gonna dominate an industry space, you have to be globally competitive, number one, to export in times of over capacity, and you've got to protect your markets against imports. That's something we really strive for and pride ourselves on. I guess the first strength being the best people is also our greatest challenge. It is really a challenge to find good people. We've got great ambitions, and I think our biggest constraint to fulfilling those ambitions is actually getting enough of the right people.
If we look at the external environment, so the global volatility, supply chain disruptions, the dislocation between regions, that has been severe, and I think it will continue for some time still. I can't see a quick resolution, and I can't see us going back to exactly the same as it was before. We've dealt with these global themes around ESG, de-globalization, which I suppose is linked to the previous point in a sense, and then food security. Big global themes which I think have an impact on all of us and have certainly had an impact on our strategy formulation. We're obviously operating predominantly in SA. Our regulatory environment is, I suppose, onerous on one side. However, compliance and enforcement on the other side has got much to be desired.
That creates certain challenges in the spaces that we operate in. We've also seen marketplaces fragment. We talk about it often in our PG Bison business, and I'll give you some further examples, but it also affects our logistics business, and that's a function of our economy generally fragmenting. Then we've obviously got infrastructure failures, generally state related, which again is presenting material challenges for us, and we've developed a strategy directly around that. The outcome of this strategic review is we've really refined our business model and how we approach opportunities. Like I say, a lot of that was actually around introspection of ourselves and what we believe we do well.
With that, we've been through all of the divisions and refined their operational strategies, and that's been a super exciting and actually fascinating process. The nature of our model, we've obviously needed to enhance and strengthen some of our corporate services, so our organizational design, our human capital strategy, if you look at our primary challenge, and then our ICT and digitalization strategy. Then we've done a complete refresh of all the divisional brands, building on strong themes, really to try and connect both internally with staff as well as externally with consumers, more on an emotional level as opposed to purely functional. That revolves around a couple of themes being the power of sleep, the power of spaces, the power of responsibility, and the power of doing.
That all then leads up to our brand refresh around KAP, with being the change and actually physically making things better. Just in practical terms, what that actually means for us. Our vision, and this comes out again, a lot of internal review of ourselves and what really gets us going. We always come back to the same principle of inspiring people and doing that through building exceptional businesses, and we've had so many examples of that. That's really our vision, is to build a great company through inspiring people, both internally and externally. Our focus is obviously on earnings growth. We've learned as well, and I think something we've done well is improving efficiencies over time.
You can only do that to a point, and you have to grow revenue. That is a distinct focus of us, of ours now, is to grow revenue and then convert it into sustainable earnings at sustainable, attractive margins. We obviously wanna convert that into cash. We are ambitious. We do wanna grow. We've got lots of projects, it needs to be converted into cash. To allocate that cash to where we can get optimal returns, as part of our strategy, and then also to protect our balance sheet. Our targets that we set ourselves, running out, it's obviously not all at the same time, but running out to 2027 is operating profit margins of in excess of 10%, core HEPS growth in real terms.
In other words, in excess of GDP plus CPI on an ongoing basis, return on capital employed over 16%, net debt to EBITDA, debt serviceability of under 2.5, and then cash flow conversion of 90%. How we wanna do that, and this is where our, I suppose most success has been, is we identify sectors where we see growth opportunity. Very often or most often, those are generally overlooked, underappreciated, boring spaces, and those are the spaces we like. Generally, they sit far back in the value chain, but those are the spaces where we see opportunity. Then we sit and work out strategies of how we can position ourselves into a dominant position within that sector.
We select and grow the best teams in industry to be able to implement those strategies. We allocate capital to be able to roll out the strategy, and generally, that involves significant investment in technology. It goes back to my point of being globally competitive. We have to deploy the latest global tech to be competitive with imports and exports. Obviously from center, we get intimately involved in each one of those processes. Around the room here, there's really competent CEOs who actually run the businesses, implement the strategies, and actually run the transactional day-to-day operations that we run. Those are obviously the businesses that we do it in currently. PG Bison, Safripol, Unitrans, Feltex, Restonic, and DriveRisk.
If we look at each one of those, and this is elements of our strategic review. You look at PG, and you go back to what I said before, is we set ourselves a strategy of being the number one manufacturer. The maturity of that business has evolved to the point where their whole business is focused around inspiring and enabling beautiful living spaces. That goes around creating consumer demand, which we then enable our customers to fulfill. The key products there, particle board, as you know, it's used in the manufacture of the simplest description in your kitchen. It's the carcasses. The simplest description of MDF is in your kitchen, it's the frontals. It's those are our two primary products. Obviously, as you know, value add is a critical element of what we do.
We see a lot of value in it, both in terms of securing market share and growing it, as well as improving our margins. The main drivers there being, new build activity, home improvement and renovation, which we saw an enormous uptick during, COVID, and then obviously retail furniture demand for freestanding furniture. PG is the leader in their sector. We've got a strong leadership position, very strong brand. We do a lot of work around consumer demand creation. We can't physically supply consumers directly, but we create demand downstream with the consumers. We are fully integrated. We have our own timber, our own resin, our own paper impregnation, and then our own board manufacture and upgrading. We pride ourselves on our manufacturing capability.
We are in the lowest quartile globally in terms of the cost curve. If you look at our product quality, we produce world-class products that we can sell anywhere in the world. In terms of the main growth drivers, we see a significant depth of demand in the affordable housing segment. We are part of the founding members of the Furniture Master Plan and SAFI, I can't remember what it's called, the furniture industry grouping. That's really to drive local manufacturing, local demand. We've seen increased market fragmentation, bigger players actually getting a bit smaller and several new players entering the market, which is good for us. It supports our strategy of value add, and it really drives increased demand.
Many of you would remember the brand Masonite. If we look at our expansions in the MDF plant, we are repositioning our existing plant to be able to take that old hardboard Masonite market space, which is really a underserved category of the market currently. If we look at our opportunities there, they are pretty significant. We just concluded our particle board upgrade at eMkhondo. That's been commissioned, it's running. We've got the new MDF expansion, which is on the go. It started, that is scheduled to be concluded in June 2024. It comes into F 2025 for a full year. We've got two value-adding presses.
One is a MFC press, and one is another downstream secondary value-adding line where we put a gloss finish on that. Those will be commissioned in September. We are really focusing on our distribution. We see that as a distinct competitive advantage, where we're gonna drive a more comprehensive and more seamless distribution. I spoke earlier about connecting consumers to converters to us. That's an area where I think if we can unlock that, the value will be significant for us. It's gonna be a challenge to unlock it, but we believe that there's value there. From a target perspective, we see revenue growing at 10%-12%, operating margins in the 18%-20% range, and return on capital employed improving to the 15%-17% level.
What we've done there is given you five years forward, five years back. It gives you the F17-21 metrics there, and then our targets looking forward. The big-ticket items is obviously the expansions coming on, as well as the value adding. The particle board line is in bringing about 100,000 cubic meters per annum, so that's about 14% additional total capacity. We've then got our MDF expansion on the go, which is 274,000 cubic meters. As I said in that third bullet there, we will scale our existing plant back to be able to produce thin 3-millimeter MDF, which competes in the old Masonite space. That's a good investment for us.
It's about ZAR 1.9 billion IRR of greater than 15% on a post-tax ungeared basis over 20 years. I mentioned earlier around our 2 upgrading presses going in. That just gives you a graph. The bars there are the actual volume capacity over time, and you can see our value add capacity there. Although we're putting in new capacity all the time, the base volume is increasing, so that line remains relatively stable. If we then move on to Safripol. Again, if we look at their kind of tagline, "We shape our world through the responsible use of plastics." Critical for us is the sustainability of the sector. We've said for a long time, we're not scared about recycling as a competitor.
We actually see it as a necessary and integral part of the industry and of our own future. The key segments there are we've got three polymers: PET, HDPE, and polypropylene. Obviously producing a broad range of products. As we've said, we are the only producer of PET and the only producer of HDPE in the country, and we're one of two producers in polypropylene. We certainly have local manufacturer advantage. It gives us two elements. One is a cost competitiveness, firstly, and then secondly, obviously, your proximity to market and our ability to actively engage and integrate within our clients. That largely revolves around process improvement, technical assistance, which I think in all of our local manufacturing operations is significantly valued by our client base. We've initiated a program called Let's Plastic Responsibly.
As I said, sustainability of this sector is key to us. It is an area which is close to our hearts. We see a responsibility on us as primary producers to ensure that plastic doesn't end up in the environment. The intention of that campaign is directed toward influencing consumer, brand owner, retailer, converter behavior to treat plastics more responsibly so that they don't end up in the environment. In Safripol as well, we pride ourselves on our technical capability, and with that, we benchmark ourselves globally again, and in all three products. We're in the lowest quartile or top quartile, in terms of our cost of production and our efficiency levels.
We also have relatively competitive raw material supplies, so bearing in mind the ratio of raw material to sales, it is a significant proportion relative to other manufacturing businesses. Your raw material sourcing is critical in this business. If you get it wrong, it's very difficult to make money. If you get it right, it's a hell of a lot easier. If we look at the main growth drivers, I think consumer education around plastics and the uses and benefits of plastics and how to treat it responsibly is critical, and we're investing a lot of money in that. There is a global trend toward concentrating polymer use out of various polymers into three primary polymers.
If you look at all the commentary around the world, everything is being migrated towards polyethylene, polypropylene, and PET as your three primary polymers, and those are the polymers that we're in. Obviously growth in consumer goods, that's a large driver of that business through various elements of how it's included. Just in terms of the opportunities that we are pursuing within that business is, firstly, we would like to expand our polypropylene line. We have the capability to do that. Raw material is our remaining unknown, where we fairly far down the line in terms of securing it, but that is not yet done. Still in the feasibility stage.
With that, there will be downstream value add into the compounding space, which is a secondary process which creates significantly enhanced technical capability of the polymer and gives significantly improved margin. Obviously a clear target there would be the automotive sector, where all of that upgraded polymer is actually currently imported. This would be a localization opportunity where we could expand our own polypropylene line, upgrade it for sale into the automotive sector, and allow them to tick an enormous localization box, which is required in terms of their South African Automotive Masterplan. We have been targeting higher spec, higher margin, more durable applications. That is something we will continue to drive. It's a relentless range management process of consistently taking out the bottom and putting into the top.
I've spoken already about the localization efforts around the automotive sector. Key to us is both enabling and participating in recycling. When I say enabling, it's going right down to working with brand owners to say that kind of a lavender-colored toilet spray bottle. You can do nothing with a lavender bottle. It needs to be see-through, so it can be recycled. You can put a label on it, but essentially the bottle itself needs to be made in a recyclable way so that you can enable the whole recycling supply chain. That's the nature of what we do. Targets there, revenue growth, 8%-10% from this year. It's a high year, so that is obviously dependent on the polypropylene expansion. Through the cycle, average operating margin, 7%-9%.
We'll get into a little bit more detail on that in the following slides. Return on capital employed moving up to 15%-17% with our expansion. As a reference, we've given you the last five years in terms of how that business has performed. Just in terms of their manufacturing, we see there we've got all the plants now running at full capacity. You see us moving up close to 500,000 tons. You see the nature of the lines there. We'll start at the bottom going up. You see homopolymers decreasing. Those are the dark teal. The color is called teal. The dark teal line's reducing over time. That's your lower value homopolymers decreasing.
The graph above that is your more valuable copolymer and random copolymer volumes increasing. That's on polypropylene. Then on HDPE, we see the orange line, which is your lower value monomodals decreasing. You see again the darker teal line with your bimodals higher value, higher spec products increasing over time. That's where I refer to range management toward higher value products. In terms of some specific statistics around the PP expansion. It's roughly 60,000 tons. It would be import replacement primarily of automotive and white goods polymers, or polymers used in the white goods sector. Potential cost is around ZAR 1.2 billion. The returns on that are obviously attractive from two perspectives.
One, if you look at the higher product range that we're targeting, as well as the fact that it's a brownfield investment on an existing site. I'm just looking at my time here. If we look at Unitrans has been a tough business for us. It's a very tough space. If you just look bottom left, I mean, the South African economy and logistics sector has become increasingly fragmented. Just technology, OEM funding, full maintenance leases make entry into that space relatively low. We've seen a lot of listed players exiting.
In a listed space, it makes it quite difficult to operate, bearing in mind our own internal governance and ethical position in terms of what we do and how we do it, compared to an area of low compliance and low enforcement generally in a fragmented marketplace. Where we see ourselves playing, we're migrating into certain key sectors where we believe there is growth potential for the future. That is food. We are really big in food, and that will be an area that we will continue to grow. Agriculture, mining, petrochemicals and commuter transport. If you look at each one of those sectors, they are global themes around food security and really the backbone of the SA economy. That's where we see ourselves playing.
If you look at those spaces, there's less low margin road freight, and there's far more higher margin, longer dated assets doing more specialized work. That is the Unitrans model that kinda we've grown up with. I think we've kind of, I suppose, migrated away from a little bit, and we're gonna pull it back into those sectors of better margin, better return, more specialized work. If you look in the top right then, I've made the point already around rationalizing our resources and revenue towards those specific sectors. With that, there's opportunity to expand into complementary services. We already do a lot of it, and it's really building more on that, where you have materials handling or logistics at your core, and there's complementary services surrounding that, which generally are lower asset-intensive, higher margins, higher returns.
We obviously have spent a lot on technology in this business, and we'll continue to do so. I think the targets there, revenue growth 6%-8%, operating profit margin pushing up 8%-10%, whereas over the prior five years we've been at 8%. Return on capital employed improving 12%-14%. I think the message there is that we are moving in a direction, but it's not a quick fix. It's a big business. There's a lot of moving parts, and we are going to systematically move into a direction, which will be more favorable for the business and for KAP. If we then look at Feltex, providing exceptional automotive comfort and style.
A lot of what that business does is around the interior comfort of a vehicle, noise, vibration, harshness, and the exteri with Maxi doing chrome and black bars and decorative components of a car. The key products are trim. It's the carpet, the underlay, roof liners, et cetera. Foam, the seats, the headrests, loose lay mats and tonneau covers, and then the aftermarket accessories, as I've said. Your key drivers there being automotive build and then LCV and SUV automotive sales. This has been a great business for us. We've got a good spread of OE and component diversity. And within those sectors or those product categories, we're actually leaders in what we do. Difficult to dominate the space, it's so diverse, but within our categories, we're in leadership positions.
We've had long-standing relationships with the OEs and with the tier one suppliers. Hugo, who runs that business, is actually the president of NAACAM, which is the component manufacturers association. We've got the right BEE credentials in terms of the APDP program, and then what we make is generally suitable to local manufacturers. It's generally light, bulky components which are expensive to import, and that's the space that we play in. Obviously market growth, top right of your screens, is based on automotive build growth, where we've got the South African Automotive Masterplan forecasting to get to 1.4 million vehicles by 2035. Will we get there or not? If we get halfway there, it's great for the industry. Really from my perspective, a lot of potential upside.
With that, the increase in local content, 40%-60%, which is a huge number in terms of what the potential value of that would be. We see continued investment in South Africa with the OEs. We've just had the Toyota crossover, we've got the Ford Ranger coming up. We've got the BMW X3. We've just had the Mercedes C-Class. Good support. naamsa are actually projecting quite good growth numbers looking forward. Within this space, quite difficult to grow organically, so it will revolve around bolt-on acquisitions, potentially some bigger stuff, but it will be acquisition-led.
Obviously there is this kinda intersect between new electric vehicles, the APDP with higher volumes, funding structures coming in in terms of the OEMs, and the nature of our products, which are all based on noise, vibration, harshness, which are critical in the move towards new electric vehicles. Quite an important strategic position for us. In terms of the targets, revenue 8%-10% from a normalized year this year. Their revenue has been decimated through the global semiconductor chip shortage and floods and riots. Taking a normalized look, it's kinda 8%-10% looking forward. Operating profit 10%-12%, which is high for that sector. Returns getting back to where we should be.
This is a business where we've actually enjoyed returns in the early twenties before, but it's a move back to those levels. If we look at Restonic. Again, we make mattresses, but we enable wellbeing and success through the power of sleep, and that is scientifically proven and documented, the benefits of sleep on your efficiency, your brain function, your wellbeing, your immune system, et cetera. Big marketing effort going around the power of sleep. We make mattresses, we make flexible polyurethane foam, we make knitted and woven mattress textiles, and really the demand drivers there are population growth. We've got a young SA population, employment equity and BEE driving more and more people into that space where a mattress is the first item of furniture that people buy, statistically. Obviously, brand is big.
It does make a big difference. We're moving into a space of increased promotional activity, which is really suitable for this business. In terms of our position, we are the largest. We're fully integrated, manufacturing all of our own key raw materials ourselves. We've got national distribution, national brands, and we've got corporate scale backing, where we can deploy big capital to really transform that industry in a way that is suitable to consumers, suitable to retailers, and suitable to us. Growth really being driven around a lot of marketing, a lot more than we've done up to now. As I said, a young population, and it's an area that the retailers make good money on. It's a growth area for retailers. They make good margins on it.
We see more and more retail space being dedicated towards the category of sleep. We see growth in kind of three primary areas. One is we operate in a certain band of volume and value, and migrating a bit above that and a bit below that. Expanding our product category, expanding our geographic footprint, and expanding our brands. Those are our large growth drivers, and we see that business getting back to where it has been historically. Revenue growth, 8%-10%. Margins, we've got here 13%-15%. That's for an investor perspective. Management know their target is 15%. It's always been our target. We'll be above and below it, but it's a 15% business. And then returns, again, getting back to where they should be, 15%-17%. DriveRisk.
We save lives. I mean, how cool is that as a purpose for a business? We have got examples of that every day. We use it using the best tech in the world. I've spoken quite a lot around we like technology, we like technology investments. We pride ourselves on being globally competitive, and this is a perfect example. We take various devices, DriveCam, Surfsight, Drivers Alert, et cetera, in vehicles, and it's not just trucks. It is mining vehicles. It's waste vehicles. It is forestry vehicles. It's a whole range. It's really driven around improving efficiency and improving safety. DriveRisk is a fleet management business. We're not in the stolen vehicle recovery Tracker Netstar sector. We're not in that space. We are in the fleet management space only.
We've got two partnerships, Lytx primarily, which are the leaders globally in video telematics. It's a much richer product than just telematics. However, we also have a partnership with Geotab, who are the global leaders in pure telematics. That gives us access to a lot of tech obviously, but also a global footprint. Lots of growth opportunities. It's something that we've done, I think exceptionally well. I think Steve and his group have done is building the user interface and building the business intelligence around what we physically do with that. I say Steve has built it. A lot of that has actually come internally through Unitrans. We've spoken often about the Unitrans control tower, where we use technology, DriveRisk was actually a supplier into that.
That's how we knew the product. We've got great business intelligence of how we take that information and interpret it into meaningful business information that reduces risk and improves safety. In terms of market growth, it's a relatively new space. There's a lot of commentary and hype about it, but we've been in it. I mean, this business has been around for 20 years, so it's not new. It's tried and tested, and we have deep knowledge and expertise in terms of what we do here. In terms of our strategy, it's a land grab for us. We need to get as many units and as many vehicles as possible because they're annuity earning. Once they're in, they're unlikely to be taken out. We want to empower drivers more.
Anything that happens on a road, any accident, it's normal to blame the driver. 90% of the time, the driver is actually innocent, and this is an ability to empower the driver to actually be safer on the road. We want to marry risk and efficiency. That's something that Unitrans has actually done very well, and we see that as an opportunity for DriveRisk building out their business in fleet management to marry risk and efficiency more closely than it has been up to now, and to do that through a transport management system, and ultimately to productize that. Currently it's a service, but to be able to build the user interfaces that will ultimately productize that and create saleable product.
Our targets there is greater than 15% compound annual growth in revenue, over 12% margins and 16% returns. Just in terms of all of that information, there's a lot of growth plans there. Just in terms of how we look at allocating capital, obviously first is debt repayment. I think we've done a good job in terms of managing our debt levels through what we've been through. We under two currently, and we have a clear target to be under 2.5, with our covenant sitting at 3.2. We obviously need to invest to maintain our asset base. I've said we love technology, maintenance comes with improvement.
That comes into efficiency CapEx, and then we look at expansion, where obviously there we need to earn an IRR greater than our WACC. We will actively now start to look at acquisitions. Obviously best in our line is bolt-ons, which are complementary, integrate straight into existing management structures, and unlock value for us. Key there is obviously culture fit and strategic fit. Acquisitions on a standalone basis we will look at, but it's gonna have to be material enough to stand on its own with management that can run and manage those businesses. Obviously, we've learned a lot through doing big acquisitions that what you can learn about a business in a DD is like tip of the iceberg to what actually happens in that business.
Just Safripol as an example, it's taken us a long time to actually properly understand that business. Then obviously returning cash to shareholders. We've had a practice on dividends around 2.5 to 2.7 times. We'll continue with that, hopefully. Share buybacks always in our minds around value to shareholders and how we optimize our capital. I think it's important to note from a cash flow perspective, we pride ourselves on our ability to generate cash. This is an interesting graph just showing CapEx at the bottom, cash flow from operations at the top, and that red line is really the free cash flow that we generate before expansion capital. It's our ability to generate cash even after maintaining our existing position.
It's generating cash available for expansion. A very healthy position for us and I think a healthy business model. Just our major forecast expansion. The dark teal bars there is the MDF line. We committed, we've paid our deposits, construction is on the go, machines are being built. Those are the forecasts in terms of that CapEx. Then just to give you an indication, although I said it's still in feasibility stage, there's still certain raw materials that we need to secure before we can push the button. It would be the polypropylene expansion, which gives you a timeline in terms of that CapEx. Just to remind you, the MDF was ZAR 1.875 billion, and the polypropylene line is ZAR 1.2 billion. Obviously, there's other CapEx.
These are just the two big-ticket items. Just in terms of our return on capital employed, we have got a target of in excess of 16%. As I mentioned in the first point there, Unitrans has been a drag on our returns. We've got a very clear strategy around how we are gonna improve that situation. We've also spoken around the capital work in progress, mainly at PG Bison, which, as that washes through, we'll see those assets starting to contribute to EBITDA, and you'll see a specific improvement coming through. Just what we've done with Safripol around higher margin, higher value, more durable applications, range management, as well as renegotiating some of our contracts, I think you'll see a more stable and improved position.
Obviously for Feltex, Unitrans Africa, and Restonic to return to kind of pre-COVID normality. That's obviously critical for us. We do see our returns going back to what we've enjoyed in the past. In summary, who is KAP? We're an owner and builder of unlisted market-leading brands and businesses. We're not an investment holding company. We wanna own the businesses, and we wanna actively participate in building them, and that's with world-class products and world-class facilities and processes that create value, not just economic, also social value. As I said earlier, we look for sectors where we can dominate those sectors. We deploy strategies of exactly how we're gonna do it. We get the best people. We deploy the best assets.
We allocate our capital, and that is generally sector agnostic. You look at the acquisition of DriveRisk, that's something that we don't do, but it's a sector that we believe we can dominate, and we can do it better than anyone else. Our financial targets I've already been through. Really from a capital allocation and portfolio optimization, obviously high return, low risk organic growth is a priority, maintaining a resilient balance sheet. I think we've got two big projects that we're looking at in that light. Corporate action will be a focus, as I said earlier. Responsible balance sheet management is critical for us.
I think with the volatility that we see in the world, we are acutely aware of the requirement to have stable balance sheet, stable funding lines, stable serviceability ratios. Then lastly, return on capital employed. It is a specific key focus of ours to get that return on capital back to where it should be, and make it attractive for investors investing in KAP.
At KAP, we believe that a good investment is a conscious investment. When you stop asking, what if? And start asking, what for? We're an enabler and builder of great companies and brands that create both economic and social value. What else? We are a gateway for investors to be able to participate in iconic brands including Unitrans, Safripol, Restonic, Feltex, PG Bison, DriveRisk, and more. What else? We believe in the power of the 20,000 people we employ across Africa, and we spend ZAR 120 million a year training and uplifting those people, giving them the means to support their families. We serve the communities we operate in, improving the quality of people's lives and giving them hope for the future. We're passionate about our youth, proper nutrition, investing in education, and protecting the environment. What else?
We give people a great night's sleep on our scientifically developed mattresses, protecting them from serious health conditions, and helping them realize their full potential every day. We create plastics that seriously improve lives, from medical equipment to food safety and hygiene. We stand against plastic pollution and dumping by driving a movement to use plastic responsibly, to recycle, reuse, and repurpose to safeguard our planet. We increase safety on our roads and get drivers safely home to their families by deploying world-leading technology in trucks and other vehicles. We bring the best in comfort, reducing noise and vibration for the people inside vehicles. We make those vehicles look amazing on the outside. We free up our clients to concentrate on growing their businesses and exploring opportunities by supporting them with a range of integrated operational services.
We inspire and enable beautiful spaces where wonderful moments are shared and memories that last forever are made. Yes, but what else? We drive social movements that do good for the return of good. We believe in changing the world by making a difference every day, by being the change we want to see in the world. Because there is a power in sleep, responsibility, doing, spaces, and there is a power in the people behind them. We are KAP. Join us on our amazing journey.
Towards the end of our first session, just to give you a kind of a snapshot insight into what we've been up to in the last number of months. It's really, as I said, a lot of what we're doing is still the same, but it's refreshed and it's a lot more focused. I think we are a lot more focused around the key metrics that make sense to our investment community. We are a lot more focused around the emotional connection that makes sense to our people and to many of our customers. I think that's kind of the balance that we seek to create. With that as well, I think if you look at the key metrics that we're targeting, none of those can be seen in isolation.
It's a combination of revenue growth, earnings growth, margins, cash conversion, the returns, the debt serviceability. It's the holistic basket that we seek to try and target. We're gonna have businesses that are above and below, but I think that's our job at center is to try and blend those to be able to deliver on a consistent basis metrics that make sense to the market. With that, let's talk about three topical matters, which I suppose talk to those three specific things that I've said. The one is the numbers, the Safripol margins, and then the other two are around our ESG position and then our resilience strategy if we just look at the operating environment that we're in.
I think to be clear with Safripol, it is a cyclical business. When we bought it, we knew it was cyclical. When we announced it, we told the market it was cyclical, and it remains cyclical. It is a cyclical business. The challenge that we've set ourselves as management is really to moderate that cyclicality to the degree that we can, and then secondly, to consistently beat the index over time. If you look at the principles around the pricing within that, none of this should be new. Our PET generally we use China spot PET selling prices as well as our key raw materials. PTA and MEG is based on China spot.
HDPE and polypropylene, our import competition, call it, comes from the Middle East for polypropylene and the East for HDPE. But both are referenced to Southeast Asia pricing, while the raw materials are referenced to the U.S. and Western Europe indices. The reason for that is that there's no reliable ethylene and propylene indices in the East. If you think about the logic, we've got import parity selling price competition coming in being referenced to Southeast Asia. On the other side, the only reliable index around raw material pricing is Western Europe and U.S. We've spoken for some time about this dislocation based on global supply chain disruptions, global geopolitics. There's this dislocation between the East and the West, and there's significant margin price market differences in those territories.
What we have is a correction mechanism that correlates the selling prices in Southeast Asia to the raw material prices in Western Europe and the US. That's what we have now negotiated in our ethylene contract, in our propylene contract that has been in place for a number of years, and it's worked effectively. The principles around raw material margins, PET, is China spot selling price less the ratio of how PET is manufactured, which is 86% PTA and 35% MEG. Those two add up to more than 100% because they contain water, and that comes out through the process to leave you with 100% PET. We obviously negotiate discounts. Our objective to beat the index, we've got to buy cheaper than the index, and we've got to sell above the index.
That's a large part of what we do. On HDPE, our selling prices are Southeast Asia, and then we acquire primarily based on a combination of US and Western Europe. There is a coal and gas element in it. However, it's a lot smaller. And as I said, those are quite dislocated, and on top of that, it's in our interest to negotiate discounts on those cost prices and in our interest to get a better selling price. That's a lot of what we do. On polypropylene, it is Southeast Asia polypropylene prices less a simple average of Western Europe and U.S. contract prices, and again, we do our best to sell better and buy better.
What we've tried to do is create a basket for you, which is indicative, and I'll show you exactly how it correlates. It's something that can be used to, I guess, model our numbers historically and forward-looking. I think to model forward-looking, if you can tell us the exchange rate, tell us the oil price, we'll be able to give you a good indication. But until we can lock those things down, it's very difficult to predict forward. In terms of putting that basket together, we've based it on the weighted average volumes of PET, HD, and polypropylene. And we've used sales volumes. Obviously there, as we said, there will be some differences from pure index, and that is based on grade mix. We try and do higher value, higher margin, higher specification products.
Duties. There's a 15% duty on PET coming in. Import logistics costs, that is obviously a moving target. It fluctuates daily. Timing differences as well. Particularly in relation to PET, indices move consistently. However, the supply chain from committing to a purchase price of PTA or MEG to ultimately selling and committing to a sales price on PET can be a number of weeks, and there can be movements in that period. In a rising market, you'll have margin expansion, and in a falling market, you'll have margin contraction between raw material and finished goods. The margin basket, margin guidance that we're giving, if you look at the PET, it's effectively as I described the formula before, and that's quite straightforward.
It's simply the formula, and we try and beat it. On HDPE, it is again simply the 0.6 U.S. and 0.4 Western Europe. As I said, there is a coal and gas element in there, but it's small. On polypropylene, the best way to look at it is effectively the Western Europe and U.S. margins applied to Southeast Asia selling prices. Okay. There again, we try and beat that. We're giving you an index, but we try and beat it by nature of our jobs. That is done through, again, the grade specifications, the duties, the import logistics, timing differences. We actively drive for discounts on raw materials, and it comes in different forms.
Sometimes it comes in a supplier having a production issue, and they need to get rid of material, we'll buy it at a discount. That's not something that can ever be predicted or modeled, but if we get it, we take advantage of it. Likewise, what we experienced post-COVID was a shortage in PTA globally. I mean, PTA prices went up. We had to buy whatever we could, so we paid more than index at times. That's the nature of being in that space. As I said, there are margin corrections which are primarily to correlate Western Europe indices to Southeast Asia indices to give us a fair margin that makes sense in our marketplace. Okay. If we look at the impact of that, we've given you three lines there.
It's really to illustrate three primary principles. Firstly, you can use that index, and it is a very clear correlation to what our actual margins are. That's the first thing, and that you can work it out. We've gone back to 2014, and we believe over time that will give you the best correlation. The light green or light teal line is what our raw material margins were before our ethylene renegotiation, and the dark teal line is adjusted with our new formulas, okay? The principle to show you there is, number one, we are better off, so we have negotiated a better deal. More importantly, goes back to the principle of moderating cyclicality. For us, that's the most important thing. We realize we're relatively small, medium listed. Safripol is big in our lives.
That volatility is not good for us. If you see there in F 20, through quite a severe down cycle, the old formula would have provided less protection than the new formula, which kind of took off the bottom of that dip. That for us is very important. Obviously, I'll just reiterate there's a lot that we do to beat the index. That is our job as management. We give you a formula as guidance, and then we set about consistently and systematically trying to beat that index. If we look at the raw material outlook going forward, the guidance looking out, Nico has just come back from a global polymer conference, where it was.
I mean, it was wonderful how bullish that industry is, how they are taking charge of the noise around plastics in the environment and taking responsibility for fixing it. It's not a quick fix, but certainly as an industry, globally, we are all getting involved and taking charge of it. Looking forward, we expect both polypropylene and HDPE demand to exceed GDP growth. Global capacity is expected to outpace that. However, if we look at where we are currently, and you look at this complete dislocation in supply chains, regional dynamics, it's gonna be very interesting for us to see how that plays out. Because if we look at how we sit today, there's overcapacity, but margins are very healthy.
If we look at PET, global demand predicted to be relatively flattish, slightly down. However, strong demand coming in recycled and bio PETs. That's an area that we are already playing in. We, Nico's done a great job with the team in Durban, looking at exactly how we can integrate recycled materials into our existing process. The technology exists, we've done trials, we've run product, and we've sold that product and actually converted it into product. That's something that we see as part of our future, is both enabling and participating in recycling, and we see that as an exciting growth area for that sector. Just in terms of margin guidance, I think both PET and HDPE margins will remain relatively healthy.
I think they are gonna come off from current levels, but I think they will remain above the five-year average. If we look at polypropylene, that will come off, and it may well go below the five-year average. I think that also talks to part of our diversity. You look at the diversity of KAP. If you just look at Safripol, the diversity within that business where you've got three polymers with three different pricing mechanisms and quite different demand drivers and quite different cost drivers, it gives us a degree of diversity just within Safripol itself. We still see it remaining healthy. I don't see this kind of disconnect East-West, China coming back relatively quickly. I can't see that happening.
I think with cost pressures around the world, polymers remain one of the most competitive products in comparison to most other products. I think with global inflation, global cost pressure, and a more conscious consumer behavior, I think you'll see polymers continuing to grow for several years still. We've guided there in terms of 7%-9% average margin. We think in terms of how we've repositioned the business, margin management, raw material purchases, markets that we're serving, that we've certainly taken the bottom-up. That any trough, we feel we've lifted the trough, and then over time, on a consistent basis, improved the profitability of what we physically do in that business. That's the margins. If you have any questions, we'll come back to them at the end. I'm just conscious of my time.
We move on to Environmental, Social, and Governance, so ESG. This is obviously a significant theme within the investor community. It's an area that we're actually quite excited about because it's not something new for us firstly, and it's something that's actually integrated into our strategy. It's part of what we actually do every day. We've spoken about the power of responsibility, the power of sleep, the power of spaces, the power of doing. If you look at what that actually means in practical terms, and you look at what we're doing around responsible plastics, we're spending tens of millions of ZAR on our Let's Plastic Responsibly campaign over time, influencing brand owners, consumers, converters, all toward a more responsible use of plastics.
If you look at our driver risk business, we can have a fundamental impact on road safety in South Africa, and that is. I mean, it's a hugely powerful thing, and that is our strategy. We're not trying to tick a box. That's our strategy of how we're building our business, but it comes with significant social benefit. Likewise, sleep. Like I said, we make mattresses. However, if you look at the benefits of sleep, there's a whole another story to be told around the value that it brings to the world. Likewise, the power of spaces.
Whether you're sitting in a car or whether you're standing in your kitchen, the scientific evidence around beauty and being in spaces with natural light, calming benefits, again, it affects us emotionally, psychologically, spiritually, and our products are right in the middle of that space. Then the power of doing. I mean, a lot of this goes around who we are as KAP. We pride ourselves on being able to get stuff done. But it also talks a lot around what Unitrans does, and we have said there's a lot that we do where we do it a lot better than our clients, and that's why they allow us to do it for them.
There's significant value and power in that ability to get stuff done efficiently, effectively, and effectively freeing our customers up to get on with growing their businesses, which is selling their products. Getting a lot of the back-end stuff done. I think if we're successful with that, we can definitely have an impact with a well world, well people, well living and working, and then a well company. I mean, that's the kinda holistic view of it. We can go further into detail, and you look at a manufacturing example where if we just look at what we invest in, we've said, and I would've said a number of times, our technology and our processes, they're designed towards efficiency, which by implication improves yield, reduces waste, uses less energy. That's what we do, and we do it not to tick a box.
We do it to be a better business. If we look at energy consumption, you'll see it at the end of the presentation where we talk about resilience. Again, we're not doing it to tick a box. We're doing it 'cause it makes commercial sense in terms of our sustainability and producing products at the lowest cost of product to market. Likewise, waste. If you look at PG Bison, I mean, that is the most phenomenal story around waste management, where more than half of that product is manufactured from residue from other processes. You look at a bed, and you look at our fiber recycling business called Connacher.
An enormous amount of that product, which is flock cuttings from the textile industry, go into the underlay in your car, or they go into a insulation pad within a mattress, and we do that stuff, and we do it for business reasons. From a safety perspective, I mean, we can talk a whole story around DriveRisk as one example, but within all of our operations. We invest in our communities. You'll see as part of our resilience strategy, our communities and our people. Then lastly, from an environmental perspective, I mean, you look at what we're doing in Safripol, we're spending, as I said, ZAR tens of millions around changing consumer behavior to look after the environment through more responsible use of plastics.
There's obviously several examples. I think what you'll see as our integrated report evolves, you're gonna see more and more of this, and ultimately I believe we will end up as a freestanding sustainability report as part of our integrated pack. There's plenty of examples which I'm not gonna go through just in the interest of time, but several examples down to detailed level where, again, we're doing it 'cause it makes commercial sense, but we're gonna tell the story in terms of what the broader implications are from an ESG perspective. I think the message is we're committed to ESG. We believe in the principles, and we believe that it's sound business practice.
Why it's gonna work for us is that we're doing it for commercial reasons, and it's integrated into who we are and what we do. I guess one of the tricky things that we're dealing with, and it's horrible that you actually have to develop a strategy just to operate within South Africa currently, but that is where we find ourselves, and it's something that we're embracing, and we're getting on with it.
We are building a strategy around resilience, so that we can continue to operate within South Africa and the territories that we operate as we see all of those issues that I listed right at the beginning in terms of deteriorating infrastructure, low compliance, low enforcement, fragmentation, et cetera. Starting off, we have embarked on a detailed enterprise risk assessment, just in terms of physically identifying, prioritizing, and focusing. We are following a really broad, multifaceted approach, and we're starting with partnership. We don't wanna be out there fighting with government and criticizing government. Our first choice is to actually partner. We've done it very successfully when we built the plant in Ugie in 2007.
I'm not sure Business Adopt-a-Municipality even existed at that stage, but it was something that we got involved in. We helped the municipality on their daily activities run a functional and productive municipality. We integrated with the Chamber of Business in Ugie, which was very small, but actively engaged with communities, neighboring communities, the tribal communities, the leadership structures, and actively engaged within a broad community to be able to function effectively in Ugie. We've almost got like a blueprint. We're now in a similar position in eMkhondo or Piet Retief, where you look at what we will have there.
We'll have 1,000 cube a day particle board line, 800 cube a day MDF line, a resin plant that supplies the country with resin, a paper impregnation line, that supplies all of our upgrading presses, all on one site. It's critical that we have a functional community structure, and a functional municipal structure, and water supply and electricity supply. That's largely what we are doing here, and our starting point is with government. Penwell was recently appointed to our board. He's been with us for just 20 years odd, and his primary function is corporate affairs, and he will be leading this process of interacting with government at multiple levels, national, provincial, municipal, really, partnering with government to be able to operate efficiently in the areas where we do operate. Obviously, that sounds good.
I mean, it's not gonna be easy, and there's gonna be some pressure points, and we're gonna have to be quite tough in the process, I think. Our objective is to engage, and that's both with government structures and with communities. Obviously, the civil unrest in July, I think, was an enormous wake-up for the country. It was for us as business as well, and that remains a risk. Believe it or not, we deal with civil unrest every single day with our vehicles on the road, 'cause somewhere in this country, every day, there's a service delivery protest. The technology that we use to manage our routing and to ensure the safety of our drivers and ensure the safety of our cargo is critical.
That will be enhanced, as well as our site security to protect our assets. Water, I mean, we all know about the electricity stuff, but water is the next crisis coming. We wanna be ready for it, and we want to have sustainable supply of water to all of our plants, where it's required. In terms of our energy strategy, this has been going for some time now, and it's been a big detailed process. We run big businesses and a lot of them, so it's been a detailed process. It started with firstly reducing consumption. We didn't wanna go out there and buy a whole lot of energy generation capacity, without first looking internally, what can we do to consume less? The next thing is to mitigate interruptions.
It's not only load shedding, it's also the dirty power that we get. It's millisecond spikes or dips that can trip a plant and take you out for days. For us, that's a huge risk, and with that is potential asset damage as well. Then obviously, if we're successful with doing that, and mitigating those risks, generating some of our own power, there's obviously the opportunity to sell some of that. Key to all of this has to be a direct engagement with Eskom, because I think as part of that strategy, somewhere along the line, Eskom has to allow private enterprise to help them maintaining their assets to prevent a lot of the outages that we encounter, and that's part of our strategy as well.
Just in terms of that, we have been through a detailed process. We appointed a individual that came out of the energy space, specifically for this role. For each of our major sites, we've designed a microgrid, which really, as the picture depicts, potential sources of energy coming in, potential power from the grid, backup power, and a microgrid control system that can balance those inputs in a way that you get a consistent supply of clean energy coming into our plants. Now, that's in a perfect world. Obviously, at our Boksburg site, you can't have wind turbines, so you're never gonna be able to get 100% to where we wanna be.
Out of the 100-megawatt consumption that we currently do, we think we may be able to get to roughly half. Obviously a large part of that is solar, so that's not necessarily half for 24 hours. It will certainly mitigate. Also with the rate at which battery technology or storage technology is evolving, we believe there's definite potential to clean a lot of the energy that comes in and actually start to mitigate a lot of those variations and millisecond dips and spikes. We are deep into the process of finalizing those microgrids. We've got a potential roughly of about a ZAR 1 billion investment in energy, which will give us an expected 15% IRR.
We've already started, the first plant is on the go at Safripol, targeted to be finished shortly. That is a site that consumes roughly 20 megs, and we're installing a 10-meg plant. Very exciting for us. We're super excited about that, and I think it's just the first step, and I think the potential to roll that out is gonna be significant. We've spoken for some time, we've often been asked what the implications of load shedding, et cetera, are. My answer has always been, it's not material for us. We generally do it in cooperation with Eskom or the municipality, where they won't cut us out completely, we'll scale back and scale up.
If you look cumulatively over the time across all of our plants, including interruptions through power dips, so it's not load shedding, it's just dirty power, cumulatively the impact is escalating, and that's why we're embarking on this project. Thank you. Those are my three topical issues that I wanted to cover.
The topic we'll be having a panel discussion on is world-class manufacturing in South Africa. Why this particular topic? As you're all aware, COVID-19 has exposed vulnerabilities in global supply chains, significantly disrupted global trade, and also highlighted the benefit of having a level of local supply. One could also argue that some local manufacturers were able to capitalize on these strengths by taking market share from imports. In addition to this, against this backdrop, we've seen President Cyril Ramaphosa table his economic reconstruction and recovery plan with localization one of the key factors to stimulate equitable and inclusive growth in South Africa following the COVID-19 pandemic. Where does this all leave KAP's manufacturing businesses with these two big themes at play?
Is there a benefit to localization, or might we see deteriorating performances if global supply chain issues resolve? To unpack this for you today, we are joined by Gerhard Victor, CEO of PG Bison, Nico van Niekerk, CEO of Safripol. Also joining us is Penwell Lunga, our Executive Director of Corporate Affairs at KAP, that Gary spoke about earlier. Of course, we've got Gary on the panel as well. Gerhard, if I can kick off the discussion with you. We've seen some good demand coming through for PG Bison post COVID-19, driven by increased home spend, to some extent, influenced by global supply chain disruptions. Can you please unpack what the current dynamics in the market are?
In addition to that, have supply chain disruptions really benefited your business, and how do you see that going forward?
Yeah. Thanks, Christina. I think first of all, if I can just go back a little bit, and Gary alluded to 2012 restructuring, and PG Bison that went through an enormous big restructure then. As from then, we've been on a steady growth path year on year, as most of you must probably know. To put in context, when we went into lockdown, we were almost sold out anyway. Hence we announced investments that we're making that will now start up in September, and which start also in February. Did we benefit from what happened in COVID? Yes, especially in our value add side of our business, that ratio. I think I wanna unpack that just a little bit for understanding.
In PG Bison, we've got two, if I can call it two base materials that we manufacture, which is particle board and MDF. We have value add processes, where we put layers and decorative papers and colors on top of that, and that's what we call value add. If you take back, 2012, PG Bison had two value add presses, which was an Ugie and Piet Retief . In September, we will commission our seventh melamine press and our second hot coat line. It's important for me to explain that, because if you look at our value add growth percentage over the past five years, you saw that it's 7% growth on an annual basis, which is phenomenal. We are able to take our low-end commodity products, we add value to that, and to enrich our revenue as well as our margin.
Now, it's important to explain how do we get it right. We are very successful. We've been very successful this past three, four y ears. We always engage and promote the products with our direct customers. We have gained the confidence in our customers and the trust that we now go beyond our customer to their customer. That is where we create the demand for our differentiated products, being our value-added portfolio that we've got. We have a wide, wider range in that portfolio which our competitors don't have locally. Yes, they can import, but then you compete against import parity pricing. We're quite successful in that and doing that with dedicated teams that's employed in PG Bison that works in that enterprise development spaces, where we really go and train and promote our products with the customers of our customers.
Also in that sense, you engage with the consumer. Because at the end of the day, we differentiate our model a little bit, our strategy in terms of it's not a push strategy only anymore, where we force our products down the value chain to our direct customer. We're creating now real demand from the customer's customer as well as the consumer. Our products that you see today when you woke up as well, most probably, is a look and feel product. People aspire to something different. They don't just want to walk into a big box anymore today and buy the same product as your neighbor. They want to play with different color matching and stuff and personalize your own living space that you're in, your own office space that you're in, your own. In factory spaces where you go into canteens and stuff.
People want to feel they make an emotional contact with our product nowadays. I think that is really why we're creating this great pool for our value-added products in PG Bison. Did we benefit from the supply chain disruptions? Definitely, we have. We do control our value chain where from seeding to a lifestyle in terms of our products that we import, there is definitely some raw materials, but the value add to those raw materials we do here in South Africa. I mean by that is we cook our own resins, we impregnate our own paper, decorative papers that we put on our products. We will import a raw deco, but the impregnation happens here. See, whereby in the past, we were fully import aligned and as well as the other competitors that's in the country. They are on full import strategies.
We've got that flexibility. We're able to manage our supply chain for ourselves a lot better. On the incoming product side, definitely, we all saw the disruptions, especially in the sea freight side. We didn't have any disruptions in there. Could we have capitalized more on the pre-COVID demand? Definitely. 'Cause I can tell you guys that we just out of COVID, we had to go on allocation, and we're still today on allocation, which is not great for our customers 'cause they could have capitalized more and we could have capitalized more. Our plants are, for now, still sold out. I think there we did a pretty good job in controlling that whole COVID-19 spike. As well, to do with the whole localization and manufacturing.
Proudly South African manufactured goods that we are part of. We had to take some of our value-added products, tone it down a little bit, and support local manufacturing on request of government to make sure that they can revive the local manufacturing initiative again and get the traction. That is very important for us. I mean, especially with new capacities coming online, that we create the demand of localization again in the country. A big drive and we proud to be part of that.
I think, Gerhard, just for the interest of the audience, the enterprise development team, there's an element of the informal market. Growth in the informal market and as Gary also mentioned earlier, the affordable housing segment as well.
Yeah. Unfortunately, that is a market that are sometimes referred to as informal, but it's not. It's not somewhere registered or you can't account for that, but the demand in those traditional township markets outstrip the higher LSM markets. That's where the build happens. If you take the value-added products that PG Bison produce, I can tell you now that at high end of that product, 60% of that gets sold into the township markets. We would have sat here and we thought, "No, it's not that." People aspire to have something different.
Mm.
They want to have great value for their money. They want good quality products.
Mm.
Not everyone, but our products cater for the whole LSM range.
Mm.
From the bottom to the top. If you look in that, Christina, if you go into the northern side of our country, Polokwane, those areas, guys, that's one construction site. The building that's happening there is insane. It's not measured. You can't measure it in terms of building plans passed, but it's happening out there.
Okay.
Massive volumes.
Okay. Thank you, Gerhard. Nico, over to you. Similar, Safripol, really good demand for products post COVID-19. What's your take on the current dynamics for local supply and demand in the local market, and your take on supply chain issues and how that's impacted Safripol?
Thank you for the question, Christina. I think it's plastics. If you use plastics responsibly, there is no doubt that it add to the quality of your life. Relative to COVID, it has to be said that polymers have done very well globally during this time period. The sectors that's associated with that is health and hygiene. I mean, look at so Safripol already decided in 2019 that we don't want to go into face masks because that's a thing that is limited. It will not be sustainable. Look at the tables that we have today. People are much more health conscious than what they were in 2019. The amount of sanitizer and all these kind of things that's being used in smaller quantities, much more than what we have had in 2019.
That sector is obviously a sector in which we participate, and I think it will be there forever. Yeah, it has changed. That part of global use have changed significantly. Also for South Africa, infrastructure build. You know, the government have announced infrastructure build and a lot of spend in that kind of sector. If you take a look at these kind of water reticulation pipes, black plastic pipes that's associated with that's a sector in which we have added quite some capacity. It is a sector which we have seen quite some growth in the last year. I think it is projected that that will grow significantly going into the future. We have an energy crisis in South Africa, similar kind of pipes being used for gas reticulation.
There's a shortage of gas in South Africa as it sits now. Ultimately, that will be resolved. That's an area in which we are participating and actually increasing our volume in there. Look at water tanks. As Gary have alluded to previously, electricity is the issue as it sits now. The biggest thing that is coming is water. Not so easy to solve as electricity. That's an area, whereby we will have on the market a grade specifically for water tanks, within the next two or three or four months. That's an area where we have seen quite some growth as well. If you take a look at, interpolymer substitution, argument's sake, you are seeing much more of these, blue, plastic drums relative to metal drums because it's cheaper. It's cheaper to manufacture.
There are higher circularity. Greenhouse gases used is much more insignificant. There's quite some of that that is happening. Take a look at e-commerce as it sits today. Online shopping, that has become a thing that is now with us forever, and it's much more severe than what you have had in 2019. You buy stuff online, it comes in packaging. All of that is overwrap. A huge demand for polymers. As Gary has alluded to, polymers will be the growth rate of polymer consumption will exceed that of GDP, we think also in South Africa. Our polymer plants in Sasolburg, polyolefin plants in Sasolburg is obviously sold out. What we are doing is we are differentiating to go into higher value type applications, as I've mentioned before.
Rather produce a 220-liter kind of drum than a face mask. Rather produce a high-pressure pipe than a face mask. If you go into HDPE, you know our technical capability of the plant rather produce a fuel tank than a milk bottle. You can import that type of material, and it's less sophisticated, and it helps our type of facility that's there as well. If you go back and you take a look at the PET plant in Durban, 240 kilotons capacity, 237 as per Gary's numbers, we have around about 90% of the South African market as it sits today, and that value is around about 180, 185 kilotons. The rest of the material is easily imported into the rest of Africa or either into the U.S.
If you then come back to global supply chains. Global supply chains severely disrupted, as you have mentioned. Safripol, we most probably on an annual basis move around about 300,000 tons through the Durban harbor. That is quite a number. Obviously, the complications associated with the disruptions of global supply chains have benefited us because us being a local producer of specifically PET have put things in place to mitigate the disruptions, and that made it easier for our local suppliers or our local kind of customers because easier to buy the product from us, the supply chain is more reliable, and that makes it easy from that perspective. The plants in Sasolburg, obviously all the raw materials coming in by pipeline. Being a local producer have benefited us quite some.
Is it sustainable going into the future? We think that the global supply chains will be disrupted at least for the next year or two or three . I've seen the latest estimates is saying that the war in the Ukraine is going to last for either three to five y ears. That's the horizon that they are talking about. With that said, global supply chains will not resolve itself soon. That on the one hand. The other thing also is if you take a look at global supply chains, polymer prices in Southeast Asia is significantly lower than what you will find in the West. The cost of global supply chain is discounted in the price differential. As global supply chains will resolve themselves, the arbitrage between polymer prices in the East versus the West will actually reduce significantly.
I think, as a local producer, there's a huge amount of benefit that can be had from being able to have efficient global supply chains. Also, as a local producer, Safripol, we have technical service and development teams. Us as a company, we can't be effective if our customers is not efficient and effective. Our engineers go to our customers to make sure that our material can convert as cost effectively on their machines as any other kind of import. I think that brings a huge amount of local value that's associated with it as well. As I've said in the beginning, Let's Plastic Responsibly. You know, the brand owners in South Africa is global brand owners. You have the Coca-Colas, you have the Procter & Gambles, all these kind of guys. They've got global sustainability targets.
Our Let's Plastic Responsibly sustainability strategy speak towards their targets. They have found like-minded people in South Africa, and obviously, as the world works, you migrate to like-minded people. Obviously a lot of challenges that we have seen in the last several years. I think South Africa have adapted very well to that. It will give us sustainability going into the future.
Okay. Yeah, that's a very comprehensive answer. Thank you, Nico. So just getting into the gist of our discussion on global competitiveness. You've touched a little bit on that, Nico. Maybe do you wanna add anything on that? What makes your plants globally competitive? Then I'm gonna throw that question to you, Gerhard, specifically to PG Bison.
Yeah, thank you for that. The global polymer business, 300 million tons of polymer that is being produced globally. You can't do anything in South Africa if you are not globally competitive. That is freedom. You need to be globally competitive. In our environment, we use the services of Phillip Townsend Associates, and they benchmark the facility on a biannual basis, both the HDPE as well as the polypropylene type facility. On that scale, we make sure that from a business value point of view, for argument's sake, we differentiate. We moved our material or the part of the market where we participate to the more technical, complex type of polymers because that suits our plant size better, and that brings us into first quartile on a business value, and that's very important for us.
The other thing also, as you use benchmarking, it tells you where the world is moving to so that you can keep up with those kind of developments. It doesn't help that you are effective today. The rest of the world is also moving on. Relative to the PET plant in Durban, as Gary have alluded to, we overcame our startup related type issues. The plant is running above design capacities as it sits now. That gives us, on the cost curve, first quartile performance, because that plant, from a PET perspective, is some of the bigger plants that you have for a single train on a global basis. So, yeah, I think very important again that you do that. You have to benchmark that. Also the support that you offer in the South African market.
As I've alluded to previously, our tech service engineers are some of the best out there in the world. They know the application, and they assist our customers to beat competitors from the final application perspective as well.
Okay. Thank you. Gerhard, just your opinion or your view on global competitiveness at PG Bison.
Yeah. It's important we do also compete globally. I mean, that's why there's imports coming into our country. Not so much on the particle board side. I mean, the product that you'll see inflow into South Africa, especially if you look at the stats in the past two years, is because we've been sold out. The demand with it, what COVID created. And then specialized products that we don't produce, but we're quite good in that when we go into the international trade fairs, we like to see what is the trends. We look at what's possible and that we can localize. We're quite good in that, and we're not scared to take on any new challenges. On the MDF side, it's very interesting as well, and that's what I said.
I mean, that's where we have growth happening in the, in our country. We're part of what they call an MDF club in the world. Whenever LIGNA happens, okay, it didn't happen now. This is a big trade show in Germany which didn't happen now with the COVID. It's a platform where you sit and you, on a production side, present new learnings and things that you achieve in your own production facilities. Quite interesting, we had now twice already the outflow of that, where international companies, big players, visited us to say, "But how is it possible that you guys in PG Bison can achieve this operational efficiencies what you do?" This is specifically to do with your raw materials and a lot into the resins. We are seen as the front runners.
I can sit here and tell you, if you look at our Piet Retief and the Ugie facilities, that is world-class in terms of the efficiencies that we run. Guys, as I say, come and benchmark themselves against us. We also do benchmarking towards other companies, which is important for us. I think I need to explain this just quickly, and it's not. I don't want to be too technical. Why we are leading edge in technology with the plants that we install? You have two choices when you make investments, and we saw one not long ago in our country again. You can go for what they call a reciprocating press. The difference between that and the continuous lines that we use, every time a reciprocating press closes, it sits with a 23% waste factor.
That is resin, it's energy, that's your timber, it's all your consumables, everything that goes in there, versus on a continuous line, which is 11%. What it means, for the same input timber in that gate, we pushes out 12%-13% more product. Through the same OE type of structures, more or less. That is a big differentiator. Now, one would think, but the rest of the world is there. They're not. I can tell you guys that in Australia three years ago, they commissioned the first continuous particleboard plant, which is a carbon copy, a 100% carbon copy of the Ugie plant, which we commissioned in 2008. Australia only got this three years ago. A lot of the other countries as well operate still on multi-daylight presses because a lot of these companies is owner businesses.
You get the big guys, they will have the type of technology that we install as well, and that's where the difference is at. We make sure when we invest, because it's big investments we make, and it's long-term investments. Our plants is 25, 30 years, long investments. I mean, a plant. I always say a plant doesn't get old, you just don't maintain them. Okay, eventually it will get fatigued over many, many years. We invest in the best technology, and we make sure that we keep it on par with what's happening in R&D on your supplier side, and also that we, South Africans, are very creative. We must never shoot ourselves down. Creative in finding better ways and means to do things.
Being leaders in technology, that's kind of key.
We stay relevant, and we try and improve on that as well all the time.
Okay.
Christina.
Yeah.
Just to add there, I think, well, the one thing that both Gerhard and Nico neglected to add there is that key to our competitiveness is also our raw materials. Globally, whether it's timber or ethylene or propylene, the fact that we buy in certain raw materials and upgrade through backward integration, I think that raw material element is also a significant factor in our global competitiveness.
Let's shift gears a bit to Penwell. He's been a bit quiet on this side. It's nice to talk about global manufacturing, but this doesn't happen in a vacuum. Can you maybe talk us through the key challenges that you see with building a thriving manufacturing sector in South Africa? Obviously, you can now touch on all those government interactions that you have and the policy development that you're involved in.
No. Thank you very much, Christina. All the KAP businesses, our businesses have lots of policy interaction with government, and it is a priority of ours to participate in all of the government structures, engage government effectively to shape policy. One thing that has happened, particularly with the current government, is that they realized that it's difficult to implement industrial policy and trade policy without industry involvement. They've initiated quite a number of processes for priority sectors through industry master plans. What you see is that these master plans are agreements between industry and government, where government undertakes to implement certain policy initiatives, regulatory issues to support business and ensure that we create businesses and manufacturing businesses in particular that are world-class.
We participate in all of the master plans because all of our businesses are in priority sectors. Nico's business is in the chemicals as well as the plastics master plan. Gerhard in two master plans, which is the furniture as well as the forestry master plan. We participate in all of these structures, and the key goal there is to work with government to design sector-specific incentives that improve our manufacturing capabilities so that we manufacture products that can supply the local market, but eventually that can be exported mainly into Africa through the African Continental Free Trade Area. We effectively engaged in that, and it is through these structures as well that government has driven localization. This localization is not happening in a vacuum.
One, it is in priority sectors, and it is sectors that government has prioritized and has seen potential, not only to manufacture world-class products for the local economy, but also export as well.
Mm-hmm.
That is where we've been actively engaged, and we engage through industry bodies and in almost all of our businesses. It's not only these two that are involved in these sector bodies because we are all in high-priority sectors from a government perspective.
Penwell, on that localization comment you've made and exports, how important is global competitiveness for government? Is localization a freebie, or is there more to the story?
No, it is not a freebie. It is not blanket localization. What would happen is that government would identify a sector and see growth potential in a specific sector. Remember, our government has been a key leader in the development of the African Continental Free Trade Agreement, and localization is specific to those sectors that can add value, not only from a local manufacturing perspective, but enable our industries to export, which means we will definitely have to compete with other global players-
Mm-hmm.
In the export markets.
No, that's an important point. Thanks, Penwell. With that localization theme just now, PP expansion potential for Safripol. Nico, can you touch on just that localization opportunity for Safripol, and then Gerhard, your take for PG Bison?
Oh, thank you. Yeah, Gary has alluded to that as well. Safripol has a very specific relationship with Sasol, and to Gary's point, I've worked on three continents, and the raw material contracts that we have in Safripol with Sasol are some of the very best in the world. Basically, utilizing our raw material advantage that you have in South Africa, we are evaluating to effectively increase the size of the polypropylene plant by 50%. Again, we want to place that material in the automotive sector. The automotive sector is usually supported by government as well. It is basically 95% of the material is based on imports. Again, for us, it's an area where we can play effectively. Key for that, however, is efficiency and best-in-class technology.
You can only be sustainable if you have the best technology today and tomorrow. We are putting quite some effort into that. If you go back and you take a look at the plastic master plan, there are two key items that's associated with it, and one of them is actually beneficiation production for polypropylene. South Africa has some of the very best polypropylene positions on a global basis, and then localization. That's the two areas where we are very keen to play in, and I'm quite confident that we will be sitting here in two years' time and tell you about the automotive advantages that we are playing in.
Gerhard, your views.
Yeah. If we take PG Bison. Let's talk first about the Piet Retief expansion that we just concluded. That is obviously to support the local demand first and the localization of local manufacturing in that space. Not only limited to South Africa because we also pulled out of export markets in this last two to three years, where the demand locally was just higher, and we made sure that we could first supply local before we exporting. In saying that, we never cut off our key customers that we needed to keep that relationship going. We always kept on feeding them something.
On the MDF side, though, there's big opportunity because you can imagine as we create more and more demand with our value-added products, especially on our hot coat lines and our glass, which we're now putting in the second plant, that consumes MDF. That's on the back of already an MDF import replacement history that you could see was coming into our country for quite some time. The Piet Retief expansion, that MDF that will come online in 2024, is really based on import replacement and then as well as an export component 'cause Africa is still very much used to hardwood furniture and stuff that's heavier, and there's a lot of perceived value in MDF as well into the African continent.
There's reasons where there's higher moisture, areas that you would rather want to work with MDF, and that's where we see big opportunities for that plant when it starts up in 2024. It will serve both localization as well and as an export strategy.
That links to the localization targets in the furniture sector as well.
100% correct.
Okay. I'm pleased to say we've got a few minutes left, and I wanna circle back to you, Penwell. Gary spoke about the resilience strategy earlier in the session. Specifically at eMkhondo with the MDF expansion. You're doing a lot of work in that space with the municipalities and ensuring the sustainability or the supply to the site. Can you just sort of shed some light on the processes that you follow? You can use Ugie as an example 'cause that's a key area that's been successful. Just the process to help investors understand how that site is being de-risked.
Insofar as infrastructure is concerned in the country, there is a long-term play. The long-term play has been initiated by government, where you've seen quite a number of structural reforms, and there are long-term projects which government will implement to try and address our infrastructure challenges as a country. However, in the meantime, we have real infrastructure problems, and you see these in Ugie, in Sasolburg and in eMkhondo. But more so in eMkhondo as well as Sasolburg. The municipalities in those areas are dysfunctional. They are not in a position to maintain infrastructure and build new infrastructure. We have, through the DTIC as well as the Department of Cooperative Governance, a framework.
It is called the, I think Gary showed it earlier, it's called the Business Retention and Expansion Program. Through this framework, national government and provincial government are in a position to work with business and the local municipality and other community players to try and address the issues that matter to retain business and grow businesses in the sectors where the, in the districts where those municipalities are located. We are in the process of establishing one in Sasolburg, but however, we are quite advanced in eMkhondo. We are putting one together. We're going to play with all of the other businesses that are in the area. We're working with the local municipality. We've looked at their IDP.
There is something called an IDP program, where they have themselves identified key infrastructure projects that they need to invest in and that we can help maintain on their behalf to make sure that we maintain the sustainability of the infrastructure in those districts so that our businesses can function optimally.
Yeah. That links to the video we had earlier.
Yeah.
Doing does.
Yeah. You're right.
That concludes our panel. Gary, would you like to just summarize KAP's view on supply chain disruptions, global manufacturing, and localization? Yeah, that would be good to conclude. Thank you.
Yeah. Thanks, Christina. I think from my side, something very important that we've learnt is, we've spoken about it for many years around wanting to assume leadership positions within certain sectors. That, for a long time, was really inward-focused, that we built our businesses, grew our market share, and tried to get as big as we could within those sectors. What we've learnt is that to do that sustainably, and to be able to continue growing, you need to take an active role in shaping the industry, and we actively participate in that. As an example, Penwell didn't mention it, but he's the chairman of the Road Freight Association, as an example. It's getting involved and actively participating in industry. Hugo is the president of NAACAM.
That's the one element. We sit on all main industry bodies in senior positions. Then with that, Penwell just alluded to it now, is to actively engage with management in shaping policy. I think that's been an important realization for us, and that's why most of Penwell's time is actually involved in that space. It's taking a more holistic and certainly a more strategic position on how we wanna grow. With that, I think once you start creating the linkages of shaping policy, shaping industry, investing in the latest global technology, having global technology partnerships, which we have actually in all of our businesses in some form, you're starting to really take a position on a sector within the country, which is our strategy.
I think overall, each one of these kinda areas starts to fit together and talks to our strategy of saying we wanna identify sectors where, across all of these different areas, we can actually dominate that sector.
Irrespective of what happens to global supply chains. Okay. Well, that concludes our panel. Thank you very much. We will now head into the operational update and Q and A. Gary, Frans, I'll leave that to you.
Great. Thanks, Christina. We released a operational update yesterday evening. There was no requirement at that stage to adjust our trading update in terms of our forecasting numbers. I think that will take place as we get through year-end, get into the audit process. We'll be able to give clearer guidance around where we see that going. Really just from a operational perspective, really, the slide says it all, continuing political instability, deteriorating state infrastructure, the civil unrest, not only in SA, also in Eswatini, which was severe, had an impact on us. Obviously, COVID continued to impact on certain areas more than others, particularly like Botswana. We had the floods. I mean, it's like a perfect storm of all of these issues.
Volatility in commodity prices, which has actually been both positive and negative for us in different areas. We definitely saw a more subdued consumer environment. Global supply chain disruptions actually not improving, in some areas getting worse, and again, potentially positive and negative for us. Most recently, the war in the Ukraine. PG, I mean, global supply and demand has supported local. Our plants have all operated at full capacity with strong support from home spend. We completed the eMkhondo upgrade, 14% extra capacity. We certainly saw inflation starting to build in that business, particularly in, for example, our resin manufacture where we buy methanol. We certainly saw inflation coming through there. We have had price increases, which has largely passed that on.
Just as Gerhard mentioned earlier, we've done a lot of work finalizing the installation of our seventh MFB press and the hot coating line, which will be commissioned in September. That's PG. We've spoken a lot around it and no major surprises. Safripol really will have an exceptional performance for this year and really being driven by a lot of what we've done internally around optimizing our Durban plant, renegotiating raw material contracts, and winning back a lot of market share that we had previously lost. Then obviously being supported by global supply and demand and global margins. Those were the big items around the Safripol business. If you look at Unitrans, the SA business has performed well. They've had a good year.
You'll see improvement in margins and returns. We spoke earlier around the termination of a major contract in that business. We were unsuccessful in renewing it. That will terminate at the end of July, beginning of August. There is a structured handover process, we do see some work continuing beyond that, some revenue generating opportunity, predominantly in relation to the assets. We've retained those assets. If you look globally around a lot of what we spoke, in semiconductor chip shortages, global supply chains, if you order a vehicle now, it will come in, anything from 6 to 18 months. Long lead times, significant congestion and constraints, supply constraints. We've kept that fleet. We will lease elements of it.
We can use it as asset replacement internally, and we believe that that will give us some revenue generating opportunities going forward. We are well advanced with the Section 197 transfer of our staff to the new incumbents. And then there's a termination penalty, which we will get through the cancellation of that contract. The Africa business has been a really challenging space. We had kind of severe weather events with flooding up the east of Africa. We had civil unrest and strike action with our customers in Eswatini. We had continued COVID impact on Botswana.
Through our agricultural business, no fault of our own, just yields were lower, and our customers, specifically one of them had fairly significant mill performance issues, which obviously then impact on our ability to produce volume and deliver it. Unitrans Passenger, Derek Lewis, we appointed recently as the CEO of that business. He's sitting in the room here. We've had a leadership change there, which has. That transition has gone very well. Nico Boshoff remains involved in the business as part of the handover process, which for us is very important, that management transition is important for us, in terms of a transfer of skills. That's progressing well. Pretty stable performance out of Passenger. Restonic have had a really challenging time.
We had a record year last year, coming out of COVID. We had this kind of revenge spending, enormous demand, a record year. We saw that transition into significant cost inflation and subdued demand from consumers. That's obviously weighed on that business. You saw that in the first half results. Unfortunately, that business has seasonally a stronger first half than second half. You would see in the results that we publish, second half weakening coming out of the first half. We then move on to Feltex. Feltex, a tough first half, with flooding and semiconductor shortages reducing build volume, around the world and in our marketplace. We saw distinct and kind of tangible improvement coming into H2.
We were actually quite excited about how H2 started and the momentum we were building. Obviously, we've had the floods in KZN, which has taken Toyota down for several months. As I mentioned in the earlier presentation, we've got pretty good diversity in terms of our OEs that we supply, but Toyota is still a pretty material part of that mix. That will affect us in the fourth quarter. DriveRisk we acquired effective 1 December. Very excited about it, and the integration has been progressing well.
We've inherited great management in that business with great ideas, great opportunities, and we're progressing quite fast in terms of promoting the brand, building a kind of social movement story around road safety and what we can do in that business, which is, I think, gonna be very exciting for us going forward. That's operationally where we are. No major surprises, we hope, but at this stage, I think it's gonna be a good overall set of results, but a mixed bag when you start to look at it from a divisional perspective. Thank you very much, and happy to take questions, which I assume Christina's got.
Yeah. Thank you, Gary. Let me start from the webcast. First question, is DriveRisk a service that you could sell internationally, or are you looking only locally at the moment?
We currently operate in 23 countries already. We have an office in South Africa. We have an office in Singapore, and we have an office in Australia. Then we have a distribution agreement into New Zealand. Those are kinda hubs. But then outside of that, we sell in 23 countries on different continents. Significant potential to grow broader than our current marketplace. That's where I think the technology partnership that we have with Lytx is so important. Lytx is an American company, focused primarily on America and complete leaders in America. They see us really as an opportunity to grow outside of America. Great opportunity for us. Probably. Well, not probably.
The opportunity is bigger than our capability currently, and that's really a major challenge for Steve, is building the internal execution capability to be able to exploit the opportunities that we see. We in the final stages of completing a very small acquisition as part of Steve's business, which I think will assist in unlocking that, and that's really the back-end development part where I spoke about building the user interface, building business intelligence, and productizing a lot of what we do. Once you productize it's much easier to roll out.
Mm-hmm.
Yes, lots of opportunity.
Sticking to DriveRisk, you sort of touched on the question now. What is the profile of your typical customer, and what value do you market to them? What is the route to market, and is this going to be a pillar within Unitrans?
It's not gonna be a pillar within Unitrans. It is completely separate, and it's a completely separate value proposition. The route to market is direct. It is a direct one-on-one relationship with corporate fleet owners. We don't want to sell to individuals like a Tracker or Ctrack or Netstar. That is primarily around stolen vehicle recovery. This is primarily around risk management and safety of fleet vehicles, which are generally driven not by the owner. That's kind of a definition, and it cuts across our whole spectrum. Mining, as an example, is a significant market for us. If you just consider the risk around the mining sector, if you have a fatality on a mine, the mine stops.
The mines spend an enormous amount around risk mitigation, incident, accident prevention, and that's a large part of what DriveRisk does as a business. What a typical client would look like is it could be a transport operator. Unitrans is a customer, as are other transport customers. We've got forestry customers. We've got waste management customers. We've got mining customers. It is really a broad spectrum of any fleet with moving driver-operated equipment.
Sticking to DriveRisk, Steve, your business is in vogue today. Could you give us an idea of the sales and margins of DriveRisk and your assessment of market share in telematics?
Yeah. I think, I mean, the revenue growth and margins and returns are in the presentation. I think that is there and people can see that on the website. In terms of market share, we are not in telematics that are not video. From a video telematics perspective, we are the leaders within South Africa. We certainly have the highest market share in video telematics. I believe that market share will grow. We have one main competitor, but our video offering is superior. The technology and the richness of video is superior. The response time of the incident, the clip being recorded, the clip being reviewed, that review coming back to a call center, and that being actioned is far superior in DriveRisk.
Lastly, our technology platform is far more current. Our competitor has a closed source technology platform. Ours is open source and linked to Lytx in the U.S. and linked to Geotab, and it's constantly evolving and being updated. Yeah, I think that's it from a market share and technology perspective.
Just moving on to other topics. What percentage of your timber needs come from your own plantations?
Up to now, it's been roughly 50%. Obviously, as we are expanding, that ratio is reducing. We see timber as a strategic resource, so it is certainly on our agenda to secure more timber resource, whether it is through purchase, contract or leasing. Obviously owning timber resource, it does cause a bit of a drag on our returns, so our preference is contracting. But bear in mind, the plants that we build, they're 30-year plants, and no one's gonna give you a 30-year contract. So it will continue to be a combination of own, lease, contract and a degree of open market, which gives us the ability to be opportunistic from time to time, within kind of a manageable risk profile.
Okay. Thank you. What does your M&A playbook look like? Is it local versus international, across existing value chains or new businesses? Could you give us an idea of the size of potential acquisitions?
The range is fairly wide. As I said, we are finalizing a very small acquisition now, which is ZAR 20-odd million. It's from small, where it's strategic or bolt-on. I think looking forward, we have the capability to do something a lot bigger than that, so probably in the region of ZAR 1-2 billion. We are not looking at anything international. If we did, it certainly wouldn't be anything that we don't do here. We're not gonna profess to be able to know more or do something better than people in a different country and something that we've never done before.
Anything outside of our existing territories will be aligned to what we currently do and where we believe we have a core competence.
Okay.
There's nothing on our agenda currently. We are looking at some corporate activity, which could potentially be quite material, but it's very early stage currently. I think we've got big expansion projects on the go. Early stage and it'll take some time for them to materialize.
Okay. Thank you. Moving over to Safripol. How do raw material margins compare to operating margins?
I mean, Frans would be able to give more detail, but we've said, or I said it quite clearly. It's a very high percentage relative to, for example, a manufacturing business like PG, where generally your raw materials are roughly kinda 50% of your total cost and your overheads are 50%. Safripol is weighted more towards probably 75%.
Yeah. 75% to 80%.
75%-80% raw material weighting out of total cost.
Okay.
That's why it's so critical for us. You've gotta get your raw material purchasing and procurement and supply chain 100% right because if you get it wrong, it has a fundamental impact.
Okay. Frans, for you, why do you use a return on capital employed as a target and not return on equity?
Yeah. Thank you, Christina. Firstly, both is important for us. I think it's important to measure people on what they have control in. When we talk return on capital employed, we specifically use that for the divisions, where you have the total assets and the net working capital. What we do is we take operating profit divided by your total capital employed. In that calculation, we don't have tax and we don't have interest. Both of those, specifically the interest line, we fund from the center, and we determine what debt levels and what interest rate we charge the divisions. That's why from a divisional perspective, it's in their control, operating profit and their net assets, and they need to give us a return on that.
Obviously, if you roll that up to a group level, it remains equally important, but then you add the level of tax and you add the level of interest, and we get measured on the return on equity. It's your headline earnings per share on your actual equity or NAV of the business. Both is important, just depends where you measure it.
Okay. Thank you, Frans. Moving over to Feltex. Could you please give more clarity on the Toyota situation? When is it expected to be back to normal volumes? A similar question to that, can you walk us through the timeline to restore the production at the Durban plant? Are you concerned about the economic viability of this plant and the risk that it could be moved?
Yeah. I mean, we can talk. I mean, it's I suppose out of turn for us to talk on behalf of Toyota. But what we understand is that it will be mid-July that they will come back. I mean, Toyota have shown enormous commitment. If you look at the resources that they pulled globally to get that plant back up and running, I think firstly, it's phenomenal what that organization can do. Secondly, it's a very clear indication of their commitment. I think if they had any doubt about the future, I think this would have been a perfect opportunity to get out. That gives us a sense of security. How they see the longer term situation and the risk involved.
Yeah, I think it goes around a broader principle, and it's not just Toyota. I think it's a broader principle around industry in certain areas that, unless there's significant investment in getting infrastructure right.
Mm-hmm.
I think it's not just Toyota. I think industry in that region is at risk where I think some of those assets could potentially become uninsurable if there's not proper protection, whether it's civil unrest or whether it's flood damage due to deteriorating infrastructure. That worries us. I mean, it's not just our Feltex business. It's from an economic perspective that concerns us, and that's part of our engagement with government is there needs to be tangible commitment and focus on reversing this kind of eroding state infrastructure if we are gonna continue investing in this country. That's something that we're happy to work with government. We're happy to do our part and get involved and work with government, but it's a major issue. Yes, there is an issue that the OEs could move.
I mean, it's a global industry. They manufacture vehicles globally, and they do move models around. Yes, it is a risk, and I think it's something that we take seriously and we hope government takes seriously.
Okay. Thank you, Gary. The last question from the webcast before we move to the floor. Given the lower barriers on entry in Unitrans South Africa, is the business still core to KAP going forward?
Yeah. We often talk about it. We've got three big businesses and now three small businesses. We've got Safripol, PG and Unitrans as three big businesses, and we've got Feltex, Restonic and DriveRisk now as three smaller businesses. I think if you look specifically at each business, none of them are actually perfect on their own. If we look at our key metrics that we measure, so revenue growth, margins, returns, cash conversion, capital requirements, each of the businesses have got areas to work on. I think within the Unitrans business, I think continuing with the current model is not in anyone's interest. To carry on chasing revenue for the sake of growing revenue on thinner and thinner margins is not KAP's business model, and I don't think it's healthy for Unitrans either.
The strategy that we are focusing on, I think is sound. I think it's the right thing for that business, and I think that's something that's important for us as KAP. We need to do what's right for the businesses as well. Yes, we need to do what's right for KAP and for shareholders, but it's our duty to actually do what's right for those businesses. The strategy of selecting core sectors which are in line with global themes and in line with South Africa's economic kind of backbone is sound. That aligns with specialized equipment, more specialized services and more opportunity to do, peripheral complementary services. That is the right strategy for Unitrans.
Over time, sure, we look at all of our businesses and look at how much value we can add to businesses over time. I think throughout time, we've always gotta be honest with ourselves, like is KAP the right home for a business? From time to time, it may be, and it may not be. I think it's important to know that it's not just Unitrans. We look at all of our businesses clinically, in terms of where they are in their cycle, what value they bring, and what kind of value it brings to KAP, now and in future. Is it core to us right now? Yes, it is. Will it be in a number of years' time? I don't know.
As I said, we look at all of our businesses all the time in terms of capital allocation, portfolio optimization.
Thank you, Gary. Are there any questions from the floor?
Thank you. Frans, maybe just a little bit more on your return on capital employed thought process. You know, you're talking about group targets of sort of across the divisions around about 16%.
Mm-hmm.
You know, when you take out the tax, you take out the interest, you factor in the debt. You know, you guys use a reasonable amount, but it's not really bringing inspirational returns on equity. Just your thoughts on that, particularly given, you know, I'm sure you realize your cost of capital has gone up this year.
Yeah. Just some thoughts there. Our cost of capital depends when you measure it, 11.5%-12.5%. If you gross that up for tax, you roughly get to a 16%-16.5%. Sorry, let me just clarify something. The 11%-12.5% weighted average cost of capital already includes a two-thirds equity, one-third debt. We actually bring that into our weighted average cost of capital. It's not our actual balance sheet gearing. If you look at that, yes, you're right. That's why we're saying greater than 16%. That's our target. At the moment, we're not there yet, and that's what we aspire for.
At least we are targeting something that's greater than our weighted average cost of capital.
Thank you. Just going back to your opening remarks, Gary, you said through that period, probably 2017, 2018, you lost focus within the sort of broader business. Could you just explain that a little bit more, why there was a lack of focus? Is it the decentralized nature of it? Not enough oversight from the center? And what have you sort of, I guess, corrected in terms of that focus? I know there's been personnel changes over certain years, certain divisions as well. Just a bit more, I guess, insight into the culture that's maybe changed within the business over the last few years.
Nick, I'm not sure I said that we lost focus. The collapse of Steinhoff. Leading up to the collapse of Steinhoff, I mean, I remember, and I was a very young CEO at the time, going on an overseas roadshow, and my story was, we're gonna double KAP in three years. I mean, they said to me, "Are you mad?" We did. I think kind of going through the collapse of Steinhoff, that occupied an enormous amount of time. If you look at what we actually achieved, at the time, we worked 14, 16 hours a day, not actually producing any returns or any money, but just actually maintaining what we had and protecting what we had.
Going into the polymer cycle, where we spoke about going from ZAR 700 million profit down to under ZAR 200 million profit. I think from a confidence perspective, that certainly had an impact on us because we were the ones that bought Safripol. That certainly damaged my confidence. It certainly created this inward focus of saying, "We better sort out what we've got here. We better sort it out and make sure it's properly efficient and running properly, and getting back to delivering the returns that we committed to." That's a large part of what we did. With that, it helped us to really refine our strategies and really work out what we're good at.
With that now, we feel a lot more confident that we've got our businesses very focused, very clear on what we can do with them, very clear on what our competencies are, and with our management structures in place and their ability to execute on that. We certainly now then starting to look more outwardly in terms of how do we grow the business back to a bit more kind of corporate activity, and starting to be more outward focused. I mean, that's a personal thing for me, but I think that actually speaks more broadly within the well, within the culture of the organization, is there's a lot more alignment and a lot more belief in terms of what we're trying to do as KAP now.
I think we used to get asked the question often, kind of, "You got all this stuff and, like, what pulls it together?" We are far more coherent, connected organization. If you look at the broad themes that we're following, that gives us a lot of direction in terms of where we're starting to look for opportunities.
Just secondly on, has there been any change to your management incentives along with these new targets? Are they purely financial, or are you starting to think about ESG-related targets as part of those incentive schemes?
Yeah. We have previously had ESG targets within our incentives and that was voted against by many shareholders. They wanted stronger financial targets. We are now on our share right scheme. 75% is pure financial, half growth and earnings, half returns, and 25% on individual KPIs, which actually incorporate a number of ESG measures. On the short-term incentives, it's predominantly earnings growth. However, there's a governance element in there around internal audit compliance. And so I think there's a more balanced approach to it. But Nick, as you would have seen in the presentation that I did, ESG is actually integrated into our strategy.
I think the ESG part of what we do is actually a lot easier now than it was because it's a lot more aspirational and integrated into what we do every day.
Thanks, Gary. Just wanna start off on strategy if I can. During the course of today, you've gone through how the base or the bottom of the chemicals business, how you guys have worked it to be a little bit higher than what it has been in the past through efficiencies within the plants, whether it's through the negotiation processes. That in mind, it would seem as though when we look at the market rating of KAP, that investors are still concerned about the volatile component that chemicals brings, which seems to overshadow the performances of some of the other businesses, i.e., PG Bison as an example.
From your perspective and from a board perspective, when you communicate to your investors, how do you give them some level of reassurance that the value of the remaining part of the business is being recognized, and not being overshadowed by the concerns related to the chemicals business?
Yeah, Brent. I guess today is a starting point on that journey. I think. Listen, as I said, we knew the business was cyclical and we communicated to the market when we acquired it that it was cyclical. I think what we experienced over a three-year period from when it collapsed to what you will see in our results this year, I don't think anyone in their wildest dreams would have predicted it. I think that's the nature of the world now is volatility is much shorter and much more severe. It's not only in this sector, it's in most things. What we have tried to illustrate today is there's a lot of work going on around moderating the impact of that.
Our downside protection is important to us. We want to take off the bottom and raise that bottom level of potential earnings. We're comfortable to give away a bit at the top if we need to as a compromise. I think over time, hopefully, we will be able to illustrate the impact of that, positively. I think through our investor disclosures, over time, we now are giving you a very clear mirror margin to model against. Hopefully, we will illustrate over time that we'll consistently beat that. Again, I think that will give the market increased comfort.
I think lastly, the one thing that we like a lot about Safripol, and it goes back to what I said, none of the businesses that we have are perfect in every sense. Some have very strong elements and some have challenging elements. The one thing we like about Safripol a lot is its high cash generation. Yes, it might be volatile from earnings, but it all comes out in cash. That gives us the ability to grow our business in different areas. That's why when Frans refers to kinda central treasury, how we gear businesses and how we grow them, that's very important that we have this mix of kinda growth potential businesses and businesses that may be mature but are highly cash generative because it generates the cash that allows us to invest and grow.
That's something which we try and do, is try and manage the balance of that.
Just two more questions if I have the time. Just wonder on your FY 2027 targets, particularly on the margins, I wonder if I could refine that a little bit just with regards to the underperformers, Unitrans, Feltex and Restonic. Obviously that's a five-year target. Can you sort of give us an idea of when you can reach more attractive levels of margins in those three businesses? Or is five years the sort of number that we should be looking at, or can we sort of refine that a little bit more, like particularly on those three businesses?
We need to get those businesses back now. Yes, while they are 2027 targets, I mean, that's our job, is we need to get them back to pre-COVID normality as quickly as we can. There's obviously potential constraints with that, but it is also possible that they will come back to those levels very quickly. Put it this way, our targets is not a straight line recovery from now to 2027. It needs to get back as soon as possible and then maintain that level throughout.
Just finally, I know you haven't disclosed the full detail with regards to renegotiation with Sasol on the HDPE front, but I just wanted to ask you, obviously that negotiation has proved to be successful to date. Just wanted to determine whether the yardstick in that negotiation or in that negotiated contract changes over a given period of time. In other words, if it benefits you today, does that necessarily unwind out in a two or three-year period? Does that benchmark change, or is the negotiation sort of set and those parameters are set and it doesn't change over a given period of time?
I think it's important to note, we or Safripol has had a long history with Sasol. Those contracts are legacy contracts, the addendums, there's like over 20 addendums to these contracts. They're very complex legacy contracts. One of the constraints, some of you may remember, I mean, I've been talking about renegotiating that Sasol contract for over two years. It was a very difficult contract to renegotiate, well, difficult mechanism to renegotiate because of the legacy nature of the contract. One of the things that we have brought in to modernize it a bit is to have a more regular platform to negotiate, and that's in both directions.
I think it's important to note that because the renegotiation that we had with Sasol was not either party wanting to be worse off or better off. There was a flawed mechanism in the pricing formula which we corrected. The benefit or the fact that we're better off now is not the fact that we negotiated a good deal which could be reversed. It was correcting a flawed mechanism which is fair to both parties. It's important to note that when you think about, is it a moving yardstick? Yes, it is. It's been now put in place on a fair basis. Yes, it is subject to change, but we also have certain protection, and this is what I've spoken about through the period, is that Sasol are the only supplier in the country.
They are dominant. We do compete with them on a global basis, and there's a degree of responsibility from both sides. I think the contract that we now have is a fair reflection of that.
No further questions. Gary, would you like to conclude the capital markets day for us, please? Thank you.
Thanks, Christina. Thank you very much. Thank you for those that are here today and for those that logged in and watched on screen. It's been quite a long session, so it's time out of your diaries, which we really appreciate. We're really proud of our story and where we wanna go and what we wanna do, so it's wonderful to be able to communicate it and share it. Thank you very much for your time. Christina, just thank you very much to you for arranging it. Christina's joined us, getting Frans and I out here more often than we used to, and communicating more than we used to, and disclosing more than we used to.
We proud of the stuff we've got to share. Thank you, Christina, for lifting that out and doing this. Thanks very much, and we will see you again, I think, on the 24th o f August around there for our results. Thank you.