Good morning, everyone. It is an exciting day for PPC, particularly for me, to be here presenting the outcome of my first full financial year as CEO of PPC. I want to extend a warm welcome to our investors, our board, employees, and members of the media, as well as other stakeholders who have joined us today. Your support and interest in PPC are greatly appreciated. Brenda Berlin, our CFO, and I look forward to sharing our FY25 financial results, key highlights of the year, and the progress to date on our strategy plan implementation started one year ago. My introduction will cover the key highlights of the year, and then Brenda will take us through the group financial results. I will follow with the business review and close with some looking ahead comments.
In my initial interaction with the market one year ago, I laid down the need for the beginning of a new chapter for the PPC group. We needed a fundamental reset of the organization, a new direction, a new strategy. We received a company in a very poor operational, commercial, and logistic situation. The fundamentals of the business were broken. I know that this was met with some disbelief, surprise, and even some discomfort. This was due to the loaded narrative that external factors were exclusively driving PPC decline, while the impact of weak internal performance was largely unknown. Personally, before joining the company, I knew PPC was in a difficult place. However, the extent of the change needed was even greater than what I thought.
In my early interaction with some of the investors and analysts, I couldn't even explain the detail and size of the problems because the company didn't have accurate fundamental business data to measure the extent of the issues we were dealing with. This was aggravated by a complacent organizational culture, lack of ownership across the teams, and a spread sentiment that PPC was a worldwide benchmark organization. Clearly, it was not. To address this, we chose not to follow the comfortable path. One year ago, we commenced a tough but necessary journey to get PPC back on solid ground. It wasn't easy to discuss internally the significant gaps and underperformance, but we knew that we needed to reset the old ways of operating and introduce fundamental changes to take the company forward.
This reshaping of the core of the organization does not happen overnight, but early in the year, we started to see traction, revealing a change in trajectory from the second quarter of the financial year. To start delivering ahead of plan is meaningful, taking into consideration the complexity of this process and, more importantly, the quality and sustainability of these results. This year's performance is not a result of a once-off cost cutting, but rather the outcome of operational improvements, introduction of best practices, and a refocus on our core business drivers. I am particularly proud to see early signs of changes in the organizational behavior that we expect to further entrench into the company corporate culture. Our belief in this strategic turnaround plan was strongly grounded, but we needed to make sure we were able to execute on it.
With the right people and the right leadership, we are off to a great start, underpinning confidence in the planned growth strategy. FY2025 results clearly represent significant progress today, but we also know the turnaround process takes time and will not be a linear process. Plans are in place, the turnaround is gaining momentum, we have the right team, and we are operating with confidence, clarity, and direction. Focus on competitiveness is our strategy. This is the path to recover PPC competitive edge, reveal profitability, and become a sustainable market leader. We operate in competitive markets in which important changes are happening that will change the landscape. International cement groups have entered the market with a strong investment in technology and cost efficiency. This trend will continue, challenging the sector all business ways. We need to make sure we are in the best position to compete.
We are focused on creating a more efficient organization that is better equipped to meet our ambitious objectives. As I mentioned recently in our Capital Market Day presentation, competitiveness requires three fundamentals: business knowledge, having people who know how to run operations and businesses throughout the different levels in the organization, and know how to identify the challenges and the opportunities, and then prioritize and address them. Cost focus, a lean structure, ownership mentality, and accurate managerial information for appropriate cost management. Road to market, focus on our portfolio, where to sell, how to sell, to whom we sell. Underpinning these three fundamentals, we have technology, ensuring we have modern equipment correctly maintained. People, meaning people with the right knowledge, experience, training, and correctly incentivized. Culture, specifically a culture that reflects urgency, accountability, and is performance-driven.
Our plan is to focus on leveraging our quality asset portfolio, capabilities, and experience. We are also building on our core strengths, such as our premium brand, leadership position in the market, extended footprint, technical expertise, and service levels. Raising the bar and continuously investing in our people and technology will allow us to create a culture of performance. In previous communications and engagements, I emphasized our view on key industry matters. Particularly in South Africa, the sector's real issues have been misunderstood nor were they properly assessed and addressed, starting with understanding the overcapacity in the market. Installed capacity is not the same in terms of readiness, cost competitiveness, and CapEx needs. All inefficient plants can't compete with modern plants. We will see all plants shutting down in the next years because they will not be able to compete with new technology.
Competitors selling cement to external independent blenders, in other words, outsourcing their blending process, needs to be addressed in terms of public safety and fair competition in the market. Number three, attempting to increase market share without being competitive has proven to destroy value and is not sustainable. Some cement businesses in South Africa have been operating already for a very long time with unsustainable margins due to them looking desperately to sell at any cost. The South African cement industry cannot be properly assessed without understanding these three matters. This is why PPC Awaken the Giant strategy is competitiveness. Now, turning to the numbers. The Awaken the Giant strategy announced last November has already contributed to the group's result in FY2025. In a context of restricted growth, we have implemented structural changes that will be embedded going forward.
As I mentioned, these changes are not once-off, but an aggregation of small actions in our internal drivers. Our approach to volume, price, cost management, and contribution margin are becoming systemic, and the improvements we have made are expected to reap benefits going forward. This makes all the difference when looking at this year's results. Our operating update on our 10-month performance indicated clear progress in our key financial metrics, and most of them have further improved for the full year. The improvement in results is consistent across all the business segments, and combine quality earnings growth with improved cash flow generation resulting in balance sheet strength. EBITDA has grown 28%, reaching ZAR 1.59 billion, coupled with a step change in EBITDA margin of almost 4 percentage points growth to 16.1%.
Free cash flow from continuous operations has expanded significantly from ZAR 260 million in the previous year to over ZAR 1 billion in FY2025. Record dividends from Zimbabwe and the South Africa business resuming a dividend payment. These outstanding metrics support investment that will sustain results' growth in the future. The new integrated plan in the Western Cape. With no changes in the macro and market context and no tailwinds, the FY2025 results are the highest since FY2018, considering the current group portfolio. Plus, and to me, a significant plus, we have resumed an ordinary dividend payment from the South Africa business that has not been declared since 2016. Having led several turnarounds, I knew the challenges represented significant opportunities, but I have to admit, I did not expect to get as much traction so soon.
Later in this presentation, Brenda will unpack in more detail the group financial results for the year, and I will explain which were the key operational drivers for the performance of the year. When we presented H2 guidance at half-year results, I delivered a positive outlook. The traction of the initiatives, organizational changes, processes, and controls implemented intensified in the second half, delivering higher results than expected. Despite being a seasonally weaker half of the year, the EBITDA of the second half of ZAR 798 million was slightly higher than the first half. This represents 81% growth on the prior year comparable period. The growth in EBITDA for the South Africa and Botswana group in the second half was 79% higher than the previous year.
With no changes in the cement market environment, we had a strong quarter 3, but quarter 4 was penalized by the difficult weather conditions in some regions, namely North West, Mpumalanga, Limpopo, and Gauteng. In Zimbabwe, coming from a lower comparable EBITDA base in the first half, the impact of the turnaround initiative being rolled out had a step change on all the line of cash cost, resulting in a second-half growth in EBITDA of 82% on the comparable period. Regarding the last point on the slide, we announced in November that we were working on strategic projects, and in March this year, we announced the construction of a new state-of-the-art integrated plant in the Western Cape. It is encouraging to see the PPC team's commitment to action, driving results as we build momentum in the implementation of the turnaround plan.
As you can see in the slide, the turnaround plan is at the early beginnings of our supply chains, operational, and commercial transformation. To implement significant changes in those areas of our business takes more time, but eventually, we'll bring the highest returns. I will hand over to Brenda now to cover the financial review. I will deal with the business review and outlook after her.
Thank you, Matthias . Good morning, ladies and gentlemen. As usual, I will first cover the consolidated group, followed by some more detail on the South Africa and Botswana group, and then Zimbabwe. I will then close on capital allocation, capital expenditure, and returns to shareholders. Moving to the consolidated group highlights, all the metrics on this slide are compared to continuing operations in the prior year. In other words, excluding the metrics attributable to CIMERWA, there were one operation in 2024.
In the context of group revenue being marginally down, the group EBITDA margin expanded by 3.8 percentage points to 16.1%. The results are also reflected in headline earnings per share, which is 111% up at ZAR 0.40 per share. The operating results of both the South African and Zimbabwean operations, combined with strict working capital management, have allowed for a dividend of ZAR 0.176 per share. Later in the presentation, I will deal with the components of this dividend. The group continued investing in its equipment and spent ZAR 373 million on CapEx during the year, most of which was maintenance expenditure. Free cash flow before financing activities increased significantly from ZAR 260 million in 2024 to ZAR 1.1 billion, an increase of ZAR 789 million. Despite declaring and paying both an ordinary and special dividend during FY2025, the group has improved its net cash position from FY2024.
I will show you a detailed bridge on the SA and Bots group cash later. This slide sets up the key line items on the consolidated income statement. As I mentioned, I will cover both the SA and Bots group and Zimbabwe in a bit at the EBITDA line. The only aspect regarding EBITDA that I would like to deal with on this slide is the ZAR 37 million that you see below the trading profit line as land grant Zimbabwe. This relates to previously expropriated land in Zimbabwe known as Arlington land, which is located in Harare. A portion of this land was returned to PPC Zimbabwe by the government in December 2024.
In terms of relevant accounting standards, it was raised as an asset at a nominal value of $2 million or ZAR 37 million and appears as a separate income line item on the face of the income statement. Notwithstanding that this item appears on the income statement below trading profit, it is included in PPC Zimbabwe's EBITDA and consequently group EBITDA of ZAR 1.593 billion. Moving on to some relevant items below the trading profit line. Dealing with impairments first. All the impairments taken in the current year were specific asset impairments with bespoke reasons. No cash-generating units needed to be impaired. ZAR 155 million of the ZAR 181 million relates to De Hoek mine and the Riebeeck factory in the Western Cape. Both these assets are affected by the decision to build the new integrated plant.
Mining De Hoek will largely cease in FY26, and De Hoek factory will be supplied with better quality limestone from Riebeeck. Consequently, capitalized overburden and primary and second crushers De Hoek were impaired. In addition, the existing raw milling lines at Riebeeck will cease to operate once RK3 is commissioned, and these were also impaired. Moving on to the tax rate. The effective tax rate on the face of the income statement at 40% is significantly below the 62% the prior year. The prior year did, however, have some big ones off, being very briefly non-deductible expenditure relating to the disposal of CIMERWA, withholding taxes that were paid by PPC also due to the disposal of CIMERWA, and an increase in the corporate tax rate for PPC Zimbabwe by 1% resulted in the deferred tax having to be restated at the higher corporate tax rate.
In the current year, the effective cash tax rate before once-offs is at 33%, which is in line with previous guidance. There was a once-off negative impact of 3.5% relating to provision for a prior year adjustment, and the balance to get to 40% are all non-cash items, mainly being the lack of raising deferred tax assets for tax losses. As a final slide of the consolidated group, this slide depicts contributions to both revenue and EBITDA by the South African Botswana group and PPC Zimbabwe, respectively. The numbers inside the wheel depict FY2025 percentages, with 2024 comparatives being depicted on the outside. As can be seen, the relative contribution from the SA and Bots group and Zimbabwe is stable over the two years in respect of revenue and EBITDA. The SA and Bots group contributes 68% of revenue, but 47% of EBITDA.
This is all attributable to differences in EBITDA margin, and Matthias will later speak on this in the business review. I will now move on to give you an overview of the South Africa Botswana group, followed by Zimbabwe. The South Africa Botswana group is an aggregation of three components, with the main driver being SA and Bots cement. The materials businesses comprise ready mix, ash, and aggregates, with PPC Limited and other being essentially a listed company overhead. Aligned with our initiatives to simplify our structure, there were quite a few changes during the year between the components. In that group, services that previously held to the corporate head office staff changed the way it charged group fees in the first half of the year, and then all these staff were transferred to Cement South Africa with effect from 1 October, 2024.
Touching on key features of SA and Bots cement, price increases offset a volume decline of 1.3% to leave net revenue higher by 2.2%. Matthias will deal with this later, but cost management was a key feature of the year, contributing to the increase in EBITDA of 22.4% and margin improvement of 2.3 percentage points. The materials segment shows a decline in EBITDA, but to remind you, the previous year EBITDA included a once-off non-cash item of ZAR 55 million in the aggregates component. Adjusting for this would result in a prior year loss of ZAR 12 million, which has now increased to a positive EBITDA of ZAR 24 million. On the next slide, I will deal with the cash flow bridge for the SA and Bots group. It remains ungeared on a net debt basis.
Previously, we showed the gearing covenants as gross debt to EBITDA, but this was changed during the year when we refinanced our facilities to net debt. The covenant is essentially not applicable as we were net cash positive at both 31 March, 2024 and 31 March, 2025. Right, dealing now with the SA and Botswana cash flow. What is shown now on the slide is the waterfall for the prior year up to net cash generated by the core business of ZAR 118 million. What you can see now is the overlay of the current year so that you can easily see the main drivers of the improvement in cash flow. Operating cash improved from ZAR 557 million to ZAR 765 million, an improvement of ZAR 208 million or 37%. What is very clear on the waterfall is the outcome of the intent focus on working capital management.
Overall working capital for the SA and Bots group reduced by ZAR 410 million, with all three components, inventories, receivables, and payables contributing positively. The reduction of ZAR 410 million represents a 62% reduction in the overall working capital during the year. Cash CapEx was down by ZAR 71 million, mainly due to the deferral of some projects due to reevaluation and reprioritization. Overall net cash generated from core operations increased from ZAR 118 million - ZAR 779 million. I mentioned briefly the restructure of our debt facilities on the previous slide. We did so in September 2024, and at the same time, also reduced our drawn facilities by ZAR 275 million. Cash was supplemented by a gross dividend before withholding tax of ZAR 234 million from PPC Zimbabwe during the year.
Two dividends were paid by PPC during the year, being an ordinary dividend of ZAR 213 million and a special dividend of ZAR 521 million, totaling ZAR 734 million. Overall gross cash declined by ZAR 57 million during the year. Debt also declined per the debt repaid on the waterfall, resulting in net cash increasing from ZAR 14 million - ZAR 234 million. Set out on this slide are the key metrics for Zimbabwe. We have retained US dollars for presenting the slide so that you can see the numbers in PPC Zimbabwe's functional currency. Volumes were 9.1% down in H1 2025, but recovered in the second half as volumes were actively recovered from importers, leaving annual volumes down by 5.5% and revenue down by 4%. EBITDA on this slide at $46.6 million is inclusive of the $2 million income resulting from the return of Arlington land.
Improvements were realized across all metrics of cost, fixed, variable, and administrative, resulting in the 7 percentage points margin increase. CapEx increased by $2.4 million, mainly due to two kiln stoppages during the current year versus just one stop in 2024. Cash balances at the year-end were strong at $6.4 million, and this is after record dividends of $13 million declared and paid during the year. On this slide, I would just like to cover the funding of RK3. At year-end, we had ZAR 1.5 billion in facilities, of which ZAR 500 million was drawn, leaving ZAR 1 billion headroom. We believed an additional ZAR 1 billion in long-term facilities would give more than sufficient capacity to fund the construction of RK3. Subsequent to year-end, amended facility agreements were entered into with our relationship banks for the additional long-term ZAR 1 billion.
The way it has been structured is a shorter-term, well-priced trade facility of $66 million, which will be used to fund the letters of credit required for the offshore portion of the contract. This will then be refinanced by the existing headroom and the new long-term facility. The new long-term facility only opens in April 2027, but has been secured upfront. Based on our forecasts, we expect net debt to EBITDA to remain below two times in the peak funding period, being FY2027. However, to further de-risk PPC's balance sheet, the net debt to EBITDA covenant has been increased from 2 times - 2.5 times for that peak funding year. As explained when we first presented the project, the EPC portion of the total cost is dollar-based and amounts to $134 million.
To eliminate foreign currency exchange risk, a hedging strategy was approved, and the full exposure has already been hedged. Moving on to capital allocation now. On the left-hand side of the slide, you can see the actual CapEx spend for the group over the last three years. The forecast spend for FY2026 is also shown. The budgeted ZAR 450 million for the group in FY2026 includes some catch-up on value-accretive and reprioritized projects deferred from FY2025. This increase on actual 2025 spend is almost all attributable to the SA and Botswana group. The spend on RK3 also commences, with an estimated ZAR 1.18 billion being spent in FY2026. Return on invested capital, or ROIC, remains a key focus, and all expansion capital has to, amongst other criteria, meet or exceed our WACC. The ROIC for 2025 is set out at the top right and has improved by some 4% compared to 2024.
This has largely been assisted by the increase in EBITDA. The calculation is consistent with that used in the prior year. Lastly, before I close, I would like to deal with PPC's group capital allocation model for dividends to shareholders. Firstly, for the purpose of dividends, we manage capital in two distinct pillars, being the SA and Botswana group and Zimbabwe as separate entities. For the SA and Bots group, we determine what the part of available cash is for dividends. How we do this is to determine what cash is available from either cash holdings or debt facility headroom, such that the utilization of the cash and/or drawdown of debt would leave our net debt to EBITDA ratio in a range of at or below 1.3 times-1.5 times on a 12-month forward-looking basis. Expansion CapEx that meets our capital allocation criteria is included in the forward-looking cash flows.
The board has approved the dividend from the SA and Bots group of ZAR 0.019 per share or ZAR 30 million. This leaves the 12-month forward-looking gearing ratio below the bottom end of the targeted range, but is prudent given the peak funding associated with RK3 in FY2027. Regarding Zimbabwe, the distribution policy is to flow through to PPC shareholders and amount up to the gross dividend received by PPC from Zimbabwe. Management is confident in its forecasts and expected gearing ratios, and the board therefore also approved the flow through of the dividends received from Zimbabwe in full, amounting to ZAR 0.157 per share or ZAR 244 million. Combining the two pillars of dividends results in a total ordinary dividend to shareholders of ZAR 274 million or ZAR 0.176 per share.
As a final word on this slide, it is worth noting that subsequent to year-end, PPC Zimbabwe's board approved the dividend of $6 million, which is expected to be paid in July 2025. To conclude, looking forward, our priorities are retain sound profitability and continue to focus on cash flow generation. Focus on keeping a solid balance sheet. Our expectation is that net debt to EBITDA will only exceed our relatively conservative gearing targets in one year, being FY2027. Disciplined capital allocation will be maintained and the distribution policy for dividends applied. Thank you. I'll now hand you back to Matthias for the business review.
Thank you, Brenda. Before we dive into the business review by segment, I want to take a moment to set the stage for the key achievements of the year.
We have set out a comprehensive plan aligned across all parts of our business, with significant interventions on cash generation, investment, and our asset utilization. At the FY2024 year-end and FY2025 half-results presentations, we reported on the importance and urgency of tackling the internal gaps identified and turning them into opportunities. The past year has resulted in a fundamental change for the business. We successfully secured strategic personnel and simplified the previously complex organizational structure, while starting to implement our turnaround strategy. Moreover, we have visibility on vital management information and business KPIs necessary for better decision-making. It is a continuum process. We need to be resilient and deliver our plan with consistency, unlocking further internal value without relying on the overall economic environment. We have also launched the growth platform to focus on medium-term operational improvements.
We will invest in value-accretive efficiency projects in our plants to be aligned to our plant performance improvement plan that we launched last year. This will drive increased cash generation and enhance shareholders' returns. We got off to a very good start in FY2025. Let me take you through the main drivers of our growth. I believe that by now, some of you are familiar with our strategic pillars: three interconnected work streams, which we are addressing simultaneously. Tackling and fixing the gaps was the initial priority, and this is well advanced. The second pillar is the turnaround plan itself, and in parallel, we have been actively working on strategic opportunities and projects. Amongst others, the new integrated plant in the Western Cape and the strategic partnership with Sinoma are getting traction. The combination of these three pillars will redefine the shape of PPC competitiveness.
Now, I will expand on the turnaround pillars, the importance of each one, and how we are progressing. To recap, we have eight directives grouped in four key focus areas: operations and supply chain, commercial, less is more approach, and cost discipline mindset. While we have made good progress over the last six months, most of the performance improvement opportunities remain. From the numbers of stars under each focus area, you can see the level of execution. The less is more and cost discipline mindset deliver impactful results, namely reduction of general expense cost, manpower cost in real terms, and working capital. In the operations and supply chain pillar, we are just in the beginning, but we already have early positive impacts in terms of efficiency, logistic quick wins, and procurement centralization, significantly contributing to offset inflationary cost pressure.
The commercial area and route to market needed a lot of groundwork before implementation. We now have detailed management information regarding contribution margin per product, customers, and source plant that allow us to focus on growing our margin-accretive sales. The full reach of our commercial plant is connected to our competitiveness strategy, and this will progress together. The giant is awakening and getting fitter as we deliver and get traction. Let me take you to the results and introduce the operational metrics per segment that really drive our business. Starting with South Africa cement, it is really encouraging to be able to talk about good numbers, progress, and achievements. This year, revenue for the segment has a small 2.3% increase compared to the previous period, when volumes were down around 1%. This reflects the effect of price increase, as well as the better margin-accretive sales.
As I mentioned, with the new data available from October last year, we were able to start introducing sales optimization, leading to a recovery in sales in the second half. This was achieved even with the persistent abnormal rainfall in the last quarter of the financial year that affected production in our Slurry and Dwaalboom plants. Both plants had to stop because the mines were flooded, and it was not safe to produce. On top of the impact on production, our sales in Gauteng, North West, Mpumalanga, and Limpopo were also affected for the same weather reasons in February and March. Our EBITDA growth of 22% coupled with over 2.3 percentage points margin increase. This is deeply rooted in our contribution margin per ton growth of 4%.
In a muted market, our price increase discipline was maintained, but the benefit was, to some extent, eroded due to competitors' different pricing strategy. On the other hand, we were able to offset input cost pressure with early wins from our operation and supply chain pillar, driving our variable cost per ton almost 5% points below PPI. This performance was driven by quick wins in logistics. To remind you, this was managed externally, and we brought it in-house in February of this year. Improvements in both inbound logistics, and especially in outbound logistics, drove a 14% reduction in runs per ton per kilometer of delivered cement to our customers. On the operational front, our focus on the right priorities also had an early impact. Extension usage in our cement increased, leading to a reduction in our clinker incorporation by 1.2 percentage points.
Our coal consumption reduced by 1.4% and electricity by 2.3%. These three key drivers do not only reduce our variable cost, but also lower our carbon emissions, as I will present in a later slide. While the impact of load shedding was lower in FY2025, we are increasingly impacted by frequent power dips that affect our equipment production and output. As an example, our Slurry kiln line, the newest kiln line in South Africa, stopped more than 85 times, leading to over 100 hours of stoppage production time. Significant strides were made on the cost and cash management. General and administrative costs for the South African group are 11% down by introducing simple controls and redefinition of priorities. Besides the EBITDA growth, the driver of the free cash flow generation was the significant improvement in working capital.
This enhancement was achieved with improving in all components of the working capital. Inventory reduction was driven by actively managing all stock levels, from intermediate product to finished goods, while levels of spare parts stocks will be focused in FY2026. Very briefly, when looking at the materials segment, the consolidated operational or recurring EBITDA shows a tremendous evolution from ZAR -12 million in FY2024 to ZAR +24 million in FY2025. In general, the difficult market conditions did not change, leading to a reduction of 9% in overall revenue, particularly in the ready mix and ash business. This means each segment had to adapt to the tough market conditions and realize results through cost reductions and efficiency improvements. In the ready mix business, sales were down over 20%, but the EBITDA improved significantly and is getting closer to the neutral position we want to see in this segment.
This was achieved with an increase of 21% in contribution margin per ton, based on a cash cost management approach. However, as we see our ready mix business as an important channel for our bulk cement sales, we are looking at increasing our volumes going forward. The ash business EBITDA reduced by 18% due to lower volumes and higher variable cost. Price adjustments were required, and further price increases are needed. The consequential loss of market share is a price to pay for the rationalization and margin improvement in the ash sector. The aggregates business delivered an important improvement across the board, from sales growth of 17% to contribution margin per ton expanding 14%, resulting in recurrent EBITDA turning from negative to positive. In addition to the initial efficiency improvements, the main highlight was the increase in sales of value-added product.
The results of Zimbabwe in FY2025 reached a record level and are a great sign of the potential to unlock value in our operations there in the years to come. Despite FY2024 EBITDA margin of around 20%, we knew that there was room for a step-change improvement. Normalized EBITDA increased by 20%, and EBITDA margin was higher by 6 percentage points compared to the previous year. As Brenda mentioned, for this analysis, I am excluding the positive property ownership recognition impact, and I am focusing on the operational results. The results of the year are more significant, given that the revenue dropped by 6.7%, and we still deliver record EBITDA, record EBITDA margin, and record dividends. Operating in an environment for a full year without any ban on imports resulted in 5.5% lower sales in the financial year. To remind you, imports were completely banned in half one of FY2024.
Our second semester sales saw an improvement due to specific actions to recover volumes from importers while defending price. The result expansion was leveraged by cost improvement across all the lines: variable and fixed costs, distribution expenses, and general and administrative costs. Behind this improvement, we can single out the renegotiation of contracts related to logistics, coal, and gypsum that deliver quick returns. As we mentioned before, the improvement of clinker production is a priority, and although it improved at a low rate of 2%, this was a new record high that needs to be consolidated and enhanced. Some of the operational initiatives are in the early stages, but contributed to a 13% increase in the cement contribution margin per ton. Combined with this increased profitability, and despite the higher CapEx in the period, PPC Zimbabwe also presented an increase in cash flow generation.
Cash flow generation will remain a priority, with room to be strengthened and thereby allow growth in dividends. The significant translation into result of the initiatives being implemented is a confirmation of the potential of PPC Zimbabwe. Crucial to securing a successful future for PPC, safety will always come first. Maintaining safe operation underpins everything we do. Since the beginning, safety was defined as the center of our business priority, not as a slogan, but as a truly non-negotiable. This is why we have established the safety indicators as a mandatory part for all employees' performance assessment and incentive system. In parallel, besides the frequency rate that has always been monitored in PPC, we have introduced the severity rate as a KPI. Combining these indicators allows for a proper understanding of our safety standards. It is an area of continuous improvement.
We have ambitious targets, but it's encouraging to see improvements in both indicators in 2025. Our sustainability and decarbonization roadmap will also deliver cost reduction and margin expansion. This is because it is designed to capitalize on key efficiency drivers, such as the reduction of coal consumption through an increased usage of non-fuel energy, decrease of clinker incorporation, and an increase of use of solar energy. As I have explained before, we have reduced clinker incorporation and coal and electricity consumption, all contributing to cost reduction while driving decrease in CO2 emissions. We have also signed contracts for solar energy that will allow us to continue this trend in the years to come. We are fully committed to a green transition that is sustainable for the business and for the environment. The PPC team is proud of delivering on the financial metrics, but also on safety and decarbonization goals.
As you may have already realized during this presentation, a lot of work has been done. Given the early delivery of the turnaround result in FY25, I am increasingly confident in the outlook for PPC. Our top priority was to create a strong foundation that allows delivery in the years to come. We now have a restructured organization to drive efficiency and accountability, with a laser focus on the execution of our Awaken the Giant turnaround plan. We strongly believe that there are opportunities to be captured and value creative sales growth to be pursued. Optimizing our competitive position in the current market scenario will also better prepare us for market changes. We remain cautiously optimistic about the construction market uplift in South Africa, but we don't know the pace or the scale.
Our plans are based on a scenario of low to no growth in demand, while we keep fully ready to quickly capture any growth opportunities when finally this long negative construction cycle comes to an end, and it will come to an end. At the same time, we will continue to implement price adjustment. Market share for us does not come at all cost. Our competitiveness strategy will naturally create the conditions for the market share recovery. We will maintain our capital allocation policy of investing with rigorous discipline, driving consistent returns and cash generation that, in turn, strengthens our balance sheet. As Brenda explained, we are in a very solid financial position for the investment in the new plant over the next two years, which will bring a step change in our results that I will deal with on the next slide.
Finally, we continue to evaluate projects and strategic options that will support medium to long-term value creation. I presented this slide at our Capital Markets Day in March this year. It is a summary of a bold direction for the short, medium, and long term. Underpinning our strategy, we have clear financial metrics that we will track and target: EBITDA margin and ROIC, EBITDA and free cash flow generation. Growing cash flows and returns will maximize long-term shareholder value. Our FY2025 was about rebuilding foundations. However, the combined effect of closing the gaps and accelerating the turnaround has driven results ahead of time, resulting in our 4 percentage point EBITDA margin growth to 16.1%. Over the next two years through FY2027, we expect to reap more benefits from the turnaround plan with incremental improvements in our metrics.
From FY2028, we will have a step change with the new plan in the Western Cape and the planned start of the solar energy project in Zimbabwe. This will allow us to be at the benchmark level above 20% EBITDA margin. In parallel, we will track the return on invested capital, making sure that capital is allocated to the highest return opportunities, and investment is done with rigorous discipline. We expect ROIC to surpass WACC by FY2028. It is not a straight line journey, and we will face challenges, but the foundations that have been and will continue to be built will deliver sustainable growth in the long term. It is a very exciting time for PPC, not only because of the results delivered in the recent fiscal year, but even more for the exciting chapters to come.
We have outlined a strategy to enable PPC to become a better company with an improved financial performance, generating cashback profits. We have started this journey with concrete and tangible results. Our strategy is competitiveness. We are becoming a leaner and more agile business. We have an experienced and committed team to execute. We are now better prepared to deliver. There are significant value growth opportunities ahead. Delivering has already started. We are focused on relentlessly driving improvements in result with no distractions. A clear focus in our core cement business as the leader in the South African region. The giant is awakened. Rise with the giant. Thank you very much for being with us today. We are going to open now to the Q&A.
Good morning. Please, can you put your questions in so that I can pose them to the management team?
I'm going to start with Mani Web. Roy Cockahen actually put questions in super early, and I want to respect that. Was the decision to invest ZAR 3 billion in building a new plant in the Western Cape prompted by a new international cement group entering South Africa with more efficient cement production technology rather than the need for additional future capacity or anticipated demand? It seems to be an extended question, so I'm going to read the whole question. You can answer it all at once. Which international cement companies are you specifically referring to, and will PPC's investment lead to the closure of one or more less efficient plants? If so, can you provide details on which plants will be closed or mothballed, and the time scales for these?
I will answer first the first question. The answer is yes and no.
We explained that in our Capital Markets Day. We were running a very old—we are running currently a very old plant in the Western Cape. One is 14 years old, the other one is 60 years old. Basically, those plants are not able to run efficiently from a cost margin point of view, but also from an environmental point of view. The project itself is focused on delivering better outcomes in terms of our environmental impact and our economic and our financials. Of course, also it's influenced by the reality that we know that if we were not going to do that plant in the Western Cape, eventually in the future, someone was going to do it and was going to affect our position in that market.
During the Capital Markets Day, someone asked me, "Which is the percentage, Matthias?" and I say, "70%," because we wanted to run a more efficient operation there to improve our margins and to have a better environmental impact, and 30% probably also because we wanted to secure that market for PPC in the years to come. The second question was, sorry? About international players coming to the market? I think that this is public, no? I mean, there are already two Chinese international companies that have bought assets in the country, and they have been implementing—obviously, they are bringing technology and they are going to change the landscape in the market. There is some rumor that a third player might be coming soon. That is what it changed. In terms of the questions about our plants, no.
Once we have replaced our two old plants in the Western Cape with a new plant in two years' time, actually, we are going to have the two newest plants in the country, the one in the Western Cape in Slurry, that currently is the newest plant and the most modern plant in the country in the North West. And our third plant, Dwaalboom, is also a pretty modern plant. The reality is that once that project in the Western Cape reaches to an end, we will be operating the most modern cement plants in the country. We are not planning to close any other plant in the future.
Great. Thank you. I'm going to shorten the next question a little bit, Roy. I know that you have other time as well.
Has the designation of cement by the South African government resulted in any benefits to companies which have invested in cement production facilities in South Africa? Have there been instances where imported cement has been used on government projects?
The answer will be no because the designated cement is basically focused on infrastructure. Unfortunately, we are not seeing the infrastructure plan designed by the government already unfold. We are very optimistic that it is going to happen. I think that the government plan of one region grants in investment is a very good plan. We are very confident that the new GNU government are going to put in place that. So far, they have not executed. We are looking for execution on that. The first answer to the question would be, so far, no.
About imported cement, many of you that are in the call know that I do not pay much attention to that. I think that it is true. It is very costly to produce cement in South Africa comparing what is happening in other countries. That is the cost why imported cement has come to South Africa consistently for many years, bringing more than 1 million tons of cement to the market. I think that that is not PPC priority, what is happening with imported cement. We are becoming more and more efficient, and we are sure that we are going to compete moving forward. Imported cement basically arrived to three ports in South Africa: Durban, Port Elizabeth, and Western Cape. 80% of the imported cement lands in Durban. It is basically a problem for my former company there, Natal Portland Cement.
Just 10%-15% lands currently in the Western Cape where PPC operates. I am very sure that with the new efficient plant that we are building in the Western Cape, we will be able to compete better with imported cement. Yes, it is true that I believe personally that the government should pay attention to why it is so costly to produce cement in South Africa. The level play field against importers is not here, and I believe that the government should pay attention to that. I do not give imported cement the magnitude as other colleagues do.
Thanks, Matthias. David Fraser, Peregrine Capital. What cash costs will PPC incur over the next few years on De Hoek quarry rehabilitation?
Yes.
Very little, if any. We obviously have the mining rights over that property, and we will only rehabilitate as and when we hit the end of the mining rights.
Certainly not anything material in the near term.
Thank you. Peter Bueta, who's a private investor, asks, "The CFO mentioned that all CapEx projects must meet or exceed the company's WACC. What is the current WACC of PPC?"
While we do have component WACCs, at a group level, it's just under 18%.
Thank you. The next question is from Rowan Goeller at Chronux Research. Please, can you give some more detail on the improvement in logistics costs and what you are doing differently?
Yeah, I will go to the concept and Ernesto can go to the details, but Rowan probably remembers that the management of logistics was outsourced in the past at PPC. PPC in the past did not have any control in terms of how the company was managing the logistics.
We did not have internal KPIs, and all the decisions were made by an outsourced provider. The first things that we did is we built a logistics area. We recruited from the market a very senior logistics manager. Since then, we have gained control. Since February of this year, we have gained control on our logistics. During my presentation, I mentioned that we were able to reduce so far 14% our cost per ton per kilometer, per ramp, per ton per kilometer in our delivered cement. During this year also, we are going to engage in some new tenders to try to bring even the cost down. Ernesto could share some specifics.
Thank you, Matthias.
Yeah, just to complement what Matthias just said, in the process to insource logistics department, we put in our books more than 90 new transporters, and we are handling, we are running the optimization model by our own team. The quick wins came from the way that we are handling currently the outbound deliveries, the portion around 50% that is not under a contract. We have 50% of our freight under contract and 50% we hire as ad hoc. In those ad hoc, there are huge price differences. Let me give you just one example. From Slary to Xochas Gumbe, that we deliver, there is 55% difference between the cheapest to the most expensive transporter. 55% price difference. With the new model and with our current team, we were able to capture 45% of that reduction.
I can give you examples of all the deliveries from each plant to each of our customers. That is why that huge reduction of 14% year to the fiscal year 2025 reduction in rand per ton per kilometer.
As I mentioned, we are in the early stages of our transformation in logistics, or like Ernesto always reminds us, we are in the early stages. There are a lot more opportunities ahead, and we are talking about the most important cost line of our business. Only in South Africa, above ZAR 1 billion per year.
Thank you. Next question is from Andrew Bishop, Excelsior Capital. You achieved an EBITDA margin of 16.1% in FY2025. You are targeting a margin of 17% in FY2027. Is this margin conservative? Are you predicting any margin headwinds in the next two years?
Whether it's conservative or not is difficult to answer because these are an assumption with the current scenario of no growth in South Africa, especially in the next couple of years. If that scenario were to change, yes, our assumption will be seen as conservative, and we were looking at the higher EBITDA margin. We put a lot of stress on our assumption. Under the current no growth scenario, and since the operational and supply chain efficiency coming in our turnaround plan is going to take a little bit more, we forecasted that EBITDA margin for the next couple of years. The question is correct. If there is some positive change in the macro environment, yes, that EBITDA margin will be considered conservative and will be higher than the one we are forecasting.
Great. Thank you.
We've only got one more question, and it's from Roy again. If there are any other questions, you need to submit now. Otherwise, this is the last question. Roy is asking, "How do you plan to address the public safety and other issues with blended cement? And what is the current state of the issue with cement imports, particularly in regard to alleged—" We've already covered that question. I think we just stay with the public safety on blended cement.
For us, it's the most important matter as an industry in the country. Some of our competitors some years ago decided to outsource their blending process to independent blenders. For everyone to understand, there is a possibility after you're producing certain types of cement that you blended that cement with extenders. That is a perfectly valid process that occurs all around the world.
Here in South Africa, PPC has blending plants. MPC has blending plants. Some of our competitors some years ago decided to outsource that blending process. Now what we are seeing is that they sell cement type one to those independent blenders, and then those blenders blend that cement. What our private studies are showing, or has been showing for a long time, is that in some cases, that blended cement produced by independent blenders is distributed in the market, and they have low standard strengths, which is why it is a public safety risk. If you are not producing cement under the standards required by South African legislation and actually by worldwide designation, there is a risk, a real risk that that cement will not have the strength enough for the uses they are giving to that cement.
We have been engaging with competitors talking about this for the past month, and we are trying to continue doing so because we believe it's not only a matter of unfair competition because, of course, when you sell cement under the strengths needed, the cost of that cement is going to be cheaper. That is why the sector is facing an unfair competition against independent blenders. It is not only that. Above all, it is a public safety risk for the country and for all South Africans. I come again, I'm not saying that all blended cement shows that low strength standard, but some consistently have shown that, yes.
We do have one more question from Mateem Dekani from Alan Gray. Is there a target clinker factor, and how much EBITDA margin can be unlocked from reducing the factor from the current levels?
A clinker factor depends on the type of cement, no? That is more an internal KPI that, of course, we have for the years to come, depending on each of our cement types. The second part is, of course, there are big, big opportunities in improving our EBITDA margin by reducing our clinker factor.
Thank you. We have no further questions. You may want to say some closing remarks.
We would like to thank all the persons who participated today, especially the ones who asked questions to us. As probably you have seen after our first year journey in PPC, we look at being very transparent to the market, and we try to share all our information and the knowledge we have to make our interaction very productive.
We believe that it's very important for the analysts and investors to be provided with the accurate information and the correct understanding and fact of what is happening in the industry and in our case, also in PPC. Thank you very much.