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Good morning, everybody. Thanks for joining us for the presentation of our results ending 31st March. I'll take you through a presentation, and then we can deal with any questions if there are any at the end of this. I'll give us an overview of the group, and then Craig and Kim will take us through some of the financial highlights. [audio distortion]
This year was a performance which, by and large, we were comfortable with. There was an improvement in our print business, which was easy. Only the residual paper costs we've now flushed out of the system, and we got back to a normalised trading environment. Improved some of the efficiencies in our plants, and the Management teams there have worked quite hard to ensure that we continue to improve manufacturing efficiencies, but there's still work to be done, as you'll see later in the slides. We managed to deal with some significant competitive pressures in the market, which reduced margin for certain lines of business significantly. If you compare it to the prior year, it was a good performance. Still, the print industry as a whole is tough, and it's an industry which we have to work hard to optimise as volumes continue to decline.
Pleasing is that the book business, I think, has stabilized and is growing. There seems to be a level of interest in people reading paper books, which is continuing. The education business and changing the education business provided some support for the print business as a whole. During the year, as you know, Media24 decided to close some newspapers, which had an effect on our operations. I guess we expect that trend to continue over time. In the first section of the publishing and distribution segment, we acquired the businesses of Media24, one being a distribution business, On the Dot, and the other being the community newspapers, mainly based in the Southern part of the country, so everything excluding KZN and the Gauteng regions. Those businesses have now been integrated in the group.
We've still got some IT systems that have to be ported, which hopefully will be done pretty soon. By and large, those acquisitions have been integrated very well. We're very fortunate to have inherited some very strong management teams, and we look forward to working with them to building and growing those businesses. Our distribution business requires volumes to grow. We're working hard on that. The community newspaper business, I think, is a steady-state business, which we have now transformed into a Digital business as well. We hope to include the Digital segment as part of its growth path going forward. We also acquired two sports titles, being Lad uma and KickOff, the one being a digital-only platform, which we've transitioned into print as well in the magazine, and Soccer Lad uma, which is a print product, which has also got a strong digital presence.
Both of those assets, I think, we think have got a future in the group, and we can grow those assets. We have now created an internal sales structure, which hopefully enables us to sell more advertising going forward. On the education side, I think you'll notice from our write-ups that that business, let's say, as a result of the curriculum change, was under pressure. The curriculum change is well publicized. The government has decided to, I call it a refresh of the curriculum. It's probably a lot bigger project than that. As part of that process, it creates uncertainty in the departments across the country with regard to the buying of textbooks. There was some uncertainty as to when that process was going to be kicked off. We got a letter recently which said that procurement of materials would be continuing.
Although the budgetary constraints which we can see the various education departments are suffering from across the country does create some uncertainty about how much new material they'll be able to procure. Interestingly, government has decided that all children from Grade R going forward will now be required to study Coding and Robotics. Every child that goes to school in South Africa will be compelled to actually go through a process where they study Coding and Robotics from a Grade R level. Now, if you think about this, one, there's a tremendous amount of material that has to be acquired for this. Studying Coding and Robotics, by its nature, you just can't study out of a textbook. It requires ancillary material, even at a young age. Shapes that have to be moved around. They're actually teaching children logical thinking rather than just regurgitation of facts or techniques.
One, the level of material that has to be procured for that is significant. Secondly, the teachers all have to be trained to actually teach this. Just that change on its own is a mammoth change which the education system in South Africa has to go through. We still do question, one, whether there is enough budget available to be able to do this. Two, whether the curriculum change should be the imperative at the moment, and the teacher training should not be the imperative. That said, we will go with what the department decides to do. In the face of it, even if you look at Coding and Robotics, with the advent of AI, the question is, will the skills in Coding and Robotics be relevant going forward?
Because more and more, when you look at what's happening in AI, the process of actually coding itself is fast going to be changed. The way which you code might be a natural language process rather than a process which requires logical gates and thinking, which was done in the past. We might even, as a country, be late in the process. As my AI team says to us quite frequently, if you're struggling to solve a problem in AI, if you go on holiday for two weeks and come back, somebody would have solved it for you. That's how quickly it's changing at the moment. In a fast-changing world like that, to sit with Coding and Robotics as your primary driver, it's a question which we've got, and we'll see where the department goes to.
Secondly, I think the ministers have announced that early childhood development and reading, and I think the presidency has announced that as well, is the priority in the country. If you look at our reading and basic literacy scores, we are so far behind the rest of the world there. The priorities, I think, can be seen out of step with what the priorities are, which the Presidency and the Minister of Education decides. There is a lot of uncertainty in our world as to what we should invest in and what we should prepare for. This year, long description. This year, we actually spent a lot of money developing and preparing materials which reduce the profitability of the Education segment.
If the curriculum change goes ahead as indicated, next year, we'll have to do Grades four to seven, which will again be a significant investment. None of those investments, you've got to guarantee payback. You spend the money, and you develop material. You submit your material to the department, and then hopefully you get an answer that you're on the Catalogue and that the various education departments will be able to procure material from you. Just to give you an indication, the material for our first submission was two full truckloads. We had to actually send two trucks to Pretoria to deliver at a front door building in Pretoria. It is a vast amount of material. This is not a small exercise.
One, in terms of the cost of just developing material, printing the material, because these are all bespoke print and hiring people to do this, there'll probably be a cost which drags the profitability of the Education sector down for the foreseeable future. In addition, we've decided to invest in our AI project. Without a doubt, Education is going to be transformed through AI. We have to make that investment. We haven't got a clear revenue model yet. Nobody, I think, in education has got a clear revenue model yet. You can say subscriptions or this or that. I think it's all wishful thinking at this stage.
If you are going to be in Education, you have to find a way to incorporate the material and the vast resources which you developed over time into a framework which you can deliver intelligently to your customer base, from your customer base to a student, a teacher, whoever your customer base is. Not only have we started a project where we're developing the tools, and we've gone through various iterations, building our own models, using open-source models. It's just changing so fast in that you have to move very, very fast. We have gone through a process where we invested some money into the development of our tools. We have also invested money into developing multimedia facilities. It is not only developing a written product, it is also developing visual products with or without the use of AI.
That cost will also, I think, decrease the education sector's profitability going forward. In terms of guidance going forward, very difficult to give you guidance. There are budgets, and we adapt these budgets on a, I guess, virtually on a monthly basis as we get more information about procurement from the department. On the packaging side, the packaging side is steady. We've increased our investment in equipment there, and that business, I think, is growing in a steady way. You'll see from the results. It's a steady, well-managed business, and we hope to increase our exposure to packaging. If we find the right acquisition opportunities, we'll pursue those. Otherwise, it will be an organic growth process. We are really linked, I guess, to the level of sales of our customers. In general, the Retail and Consumer segment in South Africa is under pressure.
For that business to stay on a growth trajectory and retain margins and manage their Working Capital was a good effort during the year. I think I've covered all of these sections. I'd say that point number five there, we increased our investment in Working Capital. You'll see that is a theme throughout the year is when we increased our inventory from ZAR 300 million to ZAR 400 million because we started to print a bit earlier. When we print earlier in the year, it enables us to free up capacity for the latter stages of the year. Our busiest months are September, October, November. To the extent that we can move volume earlier in the year, we are able to take advantage of opportunities in the market. The final point here, I don't think there's any significant capital expenditure which we're going to incur this year.
We're looking to do things in our print business, but any investments in our print business will be carefully evaluated in terms of payback. On Education, I think I've said everything which I wanted to say there. And our investment in AI and our digital platforms, which I haven't said much about, but our digital platforms and look to sell e-books and provide a better e-commerce interface that's also consuming some investment at this stage. I think we were behind the curve there. Hopefully, in the next 12 months, we'll be ahead of the curve rather than behind. Packaging, I've said. Craig will take us through the financial. Craig can take us through the financial review.
Excellent. Very pleasing when you look at that slide. You'll see overheads up 25%, but 90 million of that is bringing in the new businesses.
We call OMS on the Multimedia and Sport. Another ZAR 80 million of one-stop costs. That does skew the results a little bit this year, the one-stop costs. There we are looking at investment in technology, like Mustek and AI Tutor, investment in the Foundation Phase Submission, a lot of acquisition costs as well with the investments that we have been busy with. Also, one-stop payroll costs. If you normalize, let me start from the top. Revenue up 6.6%. If we take out OMS, the traditional business was down 0.5%. Very consistent, but flat, basically, if you look at the three traditional businesses. Part of that is because of the drop on the MML side with uncertainty in the curriculum. Gross profit up 14%, about half of that from the new businesses and the other half from the traditional businesses.
Gross Margin looking good. The overheads I mentioned is because of one-stops and the new businesses. If we look at that operating profit, which is flat, if we add back those one-stop costs, which was ZAR 83 million in this year and only ZAR 3 million in last year, then we're looking at a 20.6% increase in operating profit rather than being flat. The Operating Margin would have gone from 10% last year to 11.3% this year. It is showing an improvement in the business. Headline Earnings likely will similarly would have gone from ZAR 0.794 last year if you add back those one-stop costs to ZAR 1.077 this year, which is an increase of 35.7%. Only a small portion of that really coming from only 4% coming from the new businesses.
More than 30% improvement on the existing businesses if you add back those one-stop costs. That very much shows the same story. You can see revenue still up. It would have been flat without the new businesses. GP percentage up. The operating profit flat, but if we add back those normalized costs, we would have gone from the 10% to 11% operating profit. In terms of cash flow, maybe just to highlight some of the funniest there. Those big green bars going up, that's what we generate out of the income statement. That change in Working Capital, which is an increase in Working Capital or a net consumption of cash or net outflow of 144. MML had a very good late charge, let's say, which is unusual, January, February, March.
They had good sales in January, February, March, which means their debt is more higher than the previous year. In Novus , there was still some of the workbook money outstanding at year-end. That is really for the change in Working Capital. That stock increase that we saw earlier was really funded through trade payables, so you do not see that impact on the cash flow. Pretty normal in terms of tax paid, acquisition of PPE, and dividends paid. The big number there is the 273, which is 221, sorry, of acquisition of investments. That is 221 of Mustek in there, 30 million of ByteFuse in there, and 20 million of the Media24, the OMS businesses. Cash, very similar to last year, but there were a lot of those debts, that extra debt has already come in.
We're looking at a very good cash position at year-end. Then Working Capital. You can see slightly up on last year. If you look at total Working Capital, which is going to differ slightly from what you see in the cash flow statement, that spike in September, that's our traditional heavy Working Capital. We're in the middle of sort of just finished up volume one of DBE Workbooks and going into volume two. We received ZAR 599 million on the 1st of October, which did skew that number a bit. If you take that out, we would have been at ZAR 700 million, which is also pleasing when you look at the previous two September.
On the outlook, the big item you can see at the moment is the offer for Mustek. As of today, we're sitting just under 39% of Mustek.
As we said in our results, we'll continue to invest in attractive opportunities. May or may not be directly related to the group. We've looked at Mustek for a while and know the business fairly well. We thought of the pricing for the Management team there. It's an attractive acquisition for the group. We're hoping to complete that offer. What's the final date, Craig? Complete towards the middle of July, somewhere towards the middle of July, that offer will hopefully be closed. We'll see where we end up there. That was a big acquisition for us. We just got to continue to work with the Management team there. I think the Mustek results have said quite clearly what they want to do. They need to focus on Working Capital, which they're doing. Need to reduce their investment in inverters, etc., etc.
They just get back to their old stable business, which we think is a very good business. As they reduce debt, the interest charges come down. They generated $600 million in the first half. They generated a similar amount of cash in the second half. That reduces their debt burden significantly. The interest cost just flows through to the bottom line. It is a pretty simple investment case. Management team that you can work with and we like. We hope to acquire more of that business rather than less. For our Media businesses, advertising spend, this anaprint business, advertising spend remains uncertain. As I have said many times, the brand owners and retailers vacillate between spending digitally or spending on print. It depends what option offers them more value. We have seen people go away from print and come back to print. We still think.
We can prove that with our demographic and our split of where people stay and how they consume media in South Africa, print definitely still remains a very, very attractive option in order to promote your product. We continue to work with that. Now with the acquisition of our community newspapers and our print titles, I think we will continue to work on that. The internal sales team which we've got now as well is focused on promoting our print products. It's a trend. I can't see any 22-year-old marketing person coming into a university site screaming that I want to print. One day they start digital, digital, digital. If you ask them about print, they say, "What?" More and more of these people coming out of universities, advertising academies, probably are digitally focused.
They are probably reading more correspondence about what is happening in the Northern Hemisphere, which is not a proxy for South Africa. You have to change those people's minds. That takes time. I do not know if anybody is ever going to be fired for doing digital ads, but they might get fired for doing print ads. That is a challenge which you sit with. You need a lot of data and need relationships. You need to work on that quite hard in order to convince them that print is a relevant product. We will continue to do that. It affects not only our print business, but also our Media business. I have talked about the curriculum update process and digital strategy. In our packaging business, what they do very well is continue to develop new and innovative packaging options for our clients.
I think that is what makes ITB successful. As a packaging product becomes commoditized, they continue to look at ways in order to retain their margin by finding packaging products that they're able to differentiate themselves with. Either investing in a new machine or a process, etc. We'll continue to do that. Our BEE Level 1 contributor, we managed to again retain and achieve that, which is very important to us. As I said, finally, I think our balance sheet enables us at this stage to continue to look at other interesting opportunities. We're remaining flexible in that regard. I think we've got a relatively low level of gearing at the moment. We've got gearing capacity. When we buy something, I guess the challenge will be, is it a cash-generated business?
How much gearing do you want to really put on the balance sheet in order to close that acquisition? Where it's more risky, we'll probably use our cash-weak resources. Where it's got cash-flow and cash-flow certainty, then we'll probably put debt on the balance sheet in order to close those acquisitions. It's nothing we're really working on at the moment. As I said, on the Mustek side, if there's an opportunity to buy something, we do that. We probably prefer chunkier acquisitions where we can obtain significant influence in the business. I guess in the private market, we've seen many assets. We've seen in the private market.
Hello? No, I'm fine. Thanks. I'm just listening to something at the moment.
Mark, your mic's on.
Thanks very much.
In the private market, many people have offered us assets last month.
I guess the private equity industry is in trouble. They also do a lot of assets. They're not raising new funds. They all have to outflow these assets. They bought them at high multiples. They're trying to outflow them to people at high multiples. You have a logjam there. You have a lot of private assets looking for homes. No listing capacity at this stage. No realisation that those prices, I think, have to come down. We see that quite a lot. I think we're judicious. We're not going to pay up for those assets. What are you going to acquire? What anybody can acquire assets in the listed market for? Why would you go pay money for a private business at those multiples? Hopefully, that industry shakes itself up at some stage as well.
They've got these continuation funds, which everybody's working on to move assets out of a private equity fund to continuation funds. Whether they're able to raise enough money to be able to do that, I don't know. To the extent that those multiples come down from the private side, then we'll look at those assets. I think the opportunity at this stage is limited. You're still sitting or six-time EBITDA multiples as a regular number out there. In our country, it is just not doable. We don't have growth in the country. You've got high interest costs. Those multiples are just crazy. From a shareholder point of view, I think that we're not going to race to the fence to try and buy stuff in order to grow. Rather sit in our cash and pay out dividends, increase our dividend this year.
There's no science to our dividend, I think, at this stage. We've got cash to pay out a dividend. We'll do that. We'll probably try and maintain consistency on the dividend side going forward. I said dividends are not our primary growth. Our primary focus at this stage is actually growing the group in totality. I think we'll be careful, as I said, with any acquisitions which we're going to do going forward. Let me leave it there. Any questions?
We have a question online from Charles. [Andrea,] can you explain the Tender Cycle for education materials? What is the risk of losing a large portion of this business when the tender comes up for renew?
Look, I think the risk, Charles, is significant. There's just no certainty about the process.
Just to give you an indication, I think under the previous system, there were about eight people on the Catalogue. For you to sell material into an education department, you need to be on the Catalogue. You go through a process to be qualified to be on the Catalogue. Once you're qualified, then any department can buy materials that are on the Catalogue. For the revised process, they reduced the Catalogue to, I think it was three people on the Catalogue. We're talking to the department, saying that number is a silly number because it doesn't enable publishers like ourselves, who've made substantial investments, to actually sell into the public market. Whether the Catalogue is the only process or not, there's still a debate about that. For now, assume that you have to be on the Catalogue.
If you're not on the Catalogue, you can't sell. That's the first risk. The second issue is that because there's a limited education budget, what happens with books that are on the Catalogue while a change process is happening? We know that every year, there needs to be a top-up buy because people lose their textbooks, etc., etc. You've got a limited education budget. How is that going to be spent going forward, given the fact that you've got a curriculum change happening, but you've got a top-up requirement? There's very little visibility or stability in that business while you go through this process. We had a very good outcome for our first submission. A very high percentage of our material went through pre-qualification. What happens after pre-qualification is also not certain to us. Do you have to submit a price now?
Is it going to be chosen on price or quality? How's the scoring happening? The concern is that because there's only three people on the Catalogue, how are those three people selected? Our view is that if you've gone through pre-qualification, you should by default be allowed into the Catalogue. There's limited risk of manipulation that could occur in the process. We've actively sent correspondence to the department in this regard. Why would the department want to only have three people on the Catalogue? It's a litigation nightmare. Look, we're not scared of litigation. If I have to litigate on these new masters, we will. I think it's silly for the department to be embroiled in a process like that when the easiest thing is to have eight to 10 people on the Catalogue. It's called free market.
As long as your material's deemed to be the right quality, then you should go through that. Along with Charles, we don't have a lot of revenue or profit certainty in that business. I think that the Management team and cash sitting here has done a lot of work just speaking to individual departments, what they're going to buy, what their needs are, etc., etc. The situation is in a state of flux.
Thank you. Just sent another message. Can you also talk about the print contract tender for education material piece?
Our workbook contract was extended for another two years, I think. The workbooks, in a sense, are an essential part of the education process in class. The teachers are used to that method of teaching. You've got a book, and then you've got a workbook.
In a sense, what's nice about a workbook is you don't have to prepare your class that much. Children can look through the workbook instead of having materials pre-prepared by the teacher. The workbooks, I think, are an important part of the education system in South Africa. I guess at the end of this renewal period, there'll have to be another tender. There'll be a decision who gets it. There's also a risk in that process. To the extent that we don't get that, then we'll have capacity available. We have to decide where we sell that capacity. The challenge of the Management team on the print business side is to make sure that they can deal with the contingency in the event that the workbook is not extended, the contract's not extended. [audio distortion] .
Thank you. Thanks, everybody. Thanks for joining.