KAP Limited (KAP) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. This is the audited results presentation for KAP Limited for the year ended 30 June 2025. As our normal practice, we do have a questions tab on your screen. So to the extent that you have any questions in relation to our results, please feel free to type them in during our discussion, and then we'll address them at the end. There's obviously fairly extended engagement with analysts and investors post this presentation. So there will be plenty of opportunity there as well to answer any questions. Just in terms of the agenda, I'm going to go through the operational review. Frans will then go through the financial review, and then Frans will also take you through the outlook just in terms of where we see things going. And then for the Q&A, both Frans and I will be available to do the Q&A, although Frans will do most of that. So if we look at the results for the year, some key takeaways, highlights and lowlights. I think overall, we found the environment challenging. We were actually tracking quite well right up until Q3, and Q4 was particularly challenging for us, particularly the month of May, actually, very, very tough. June did recover, which is positive. And hopefully, that momentum carries through into F '26. So through the year, exposed to lower levels of activity, lower volumes, pricing pressure, margin pressure, and that was broadly felt across the group in different areas and to different degrees, but fairly common theme. So that was the environment. If we look at the highlights for the year, we're really pleased. We were engaged in 4 large projects. All 4 of them were concluded either at the end of last year or into the beginning of this year. We've ramped all of them up to full capacity. So really pleased with that. Through that process, we remained within our covenants despite the impacts of ramping these projects up as well as a weak trading environment that offered very little support actually. We've also refinanced all of our debts through into 1H '26. We did a lot of work in rationalizing our executive structures. So we went from almost 80 people down to close to 60 people in that executive layer across all the divisions. And of that 60, about 19 were actually new people coming into the group. So really strengthening the executive layer within the group. We had good performes from Safripol and Sleep Group. And then Feltex, after a difficult H1 came back very strong in H2, which is very encouraging for us. Lowlights, the single biggest impact on our results actually comes through the major projects. And Frans will go through a slide where we actually illustrate just the impact of that from the PG Bison project on its own, which I think illustrates the point. That had a material impact on our numbers. Unitrans' performance after a good H1 weakened in H2, largely in the fourth quarter. And then Optix obviously remained below our expectations, which we'll explain a little bit further. That general environment and how we see things in the near term has led to some impairments in Safripol, our PET plant; our Maxe aftermarkets plant, and then Optix, which Frans will also go through and explain in a little bit more detail. If we look at the divisional contribution just in terms of how the group is comprised. From a revenue perspective, we've got a bar graph F '25 in the dark green and then F '24 in the prior. On revenue, no major impacts during the year, no major change. However, on the operating profit side, you see a change there, the impact of the new plant start-up in PG, reducing their contribution to group profit and then an improved performance from Safripol primarily through increased production and increased sales coming through and contributing in a greater proportion to group operating profit. Otherwise, no major change just in terms of where we generate our profits. So if we go into divisional review, just looking at each one of the divisions in isolation. So PG Bison, ramp-up of the MDF line, and we made significant progress in selling through in that MDF line. So revenue up 10% to ZAR 6.3 billion. Operating profit down materially, 28% to ZAR 717 million and obviously, operating profit affected as a result. So as I noted earlier, we're really pleased we've got the MDF line up and running, and it actually ran for the fourth quarter at full capacity. So you may recall, we gave ourselves 4 years to get to full capacity. We got there within 1 year. And looking into next year, we anticipate running that plant again at full capacity for the year. The operational feasibilities of the plant have been achieved. So in terms of throughputs, cost per cubic meter, the yields, et cetera. So really pleased in terms of that project and really a phenomenal job done by the team that actually installed that plant, got it up and running and really got involved in the sales efforts to move the product. So India sales, up 85%, so almost double in first year of operation, which I think -- listen, it was below our expectation, but I think still a very commendable achievement by the team, largely exported. So local volumes were up slightly, but generally flat, so mainly exported. Encouragingly, we were able to recover our value-add percentage. Last year, we were a little bit down. We managed to recover that. So a good value-add percentage. So as I noted, Frans will give a breakdown in terms of the impact on earnings of that start-up. So I'm not going to go into too much detail. But effectively, we started the project on a start-stop basis as you would a project of this scale. So you have operating costs in total for the full year, but your utilization goes up slowly over time. And obviously, you're buying your way into new markets. So sales prices and margins aren't what you would expect over the long term, and we obviously bore the brunt of that in total in this year. We remain positive, though, on that plant. MDF globally is a higher growth category than particleboard. So that remains positive. Likewise, more so upgraded board, which is key to our strategy. Just in terms of the margins, as I said, we are at the production feasibility metrics. So really, the work now needs to take place on the sales volumes, the sales mix, the pricing and the territories in which we operate to get the margins back up to where we expect them to be. So we will get there, but near term, we will remain below historic margins. Just to recap on the plant and the scale of it. So it was roughly ZAR 2.1 billion. You may recall that number was ZAR 1.9 billion previously. We had a slightly higher spend in our electricity through Eskom and a slightly higher spend through our water reticulation. Other than that, from an internal perspective, we were within budget and on time. It's big for us. So it's roughly 1/3 more capacity for the group, the PG Group. And it really consolidates us as the leader within the Southern African territory. As I noted, MDF remains a growth market globally, more so than particleboard. So very, very comfortable that we're in the right marketplace. The ramp-up is done. We have done a lot of work just in terms of market-specific demand creation. So in both primary markets where we effectively truck a product as well as secondary markets where we effectively ship a product. So most of the attention on building those primary markets, generally, a much closer relationship, much more demand creation and generally better margins. Globally, market prices are not strong. So we are seeing some rationalization globally in terms of plant capacities being rationalized. So we do expect that to improve the situation in the near term, and we're already seeing global prices starting to improve. So positive for us. As I noted, upgrading is key to the PG Bison strategy. So we've approved a seventh MFB -- I think it's the seventh or the eighth MFB press. It's a large-scale press, which will take place over the next 2 years at a cost of ZAR 240 million. And that is in line with our strategy to sell value-added products, support sales and support better margins. So overall, we've been asked, would -- in hindsight, would we still do this project? Yes, we would. It still gives us very good returns, IRR post-tax of 15% to 16%. It is a big project. You don't get that in year 1, but we do anticipate still being able to achieve that over time. If we then look at Safripol, as I noted, much improved production volumes, which gave us the ability to sell more product that had a big impact on our results. So revenue up 4%. Generally, selling prices were lower. So revenue up on the basis of volume. And likewise, operating profit up 43% on the basis of increased volume. Here again, a big project for us. It was an HDPE, one of our polymers, a conversion and extruder project, a big project. We did it internally as well, and that was successfully completed, commissioned, ramped up. And again, in that project, we're actually ahead of our feasibility metrics. So on the basis of that as well as a nonrepeat of prior year production disruptions, we saw production go up 19% and as a result, sales up as well. Generally, we felt local markets subdued. So all of that increased volume, we unfortunately had to export, not at the best margins. However, we moved it through and it was still profitable for us. So operating profit up 43%, as I noted. Generally, we found margins to remain subdued. Globally, margins remain subdued. We're not immune to that, unfortunately. So we did see our margins remaining under pressure. And as this kind of cyclical low continues, it also appears to be being pushed out. So we had previously said it would start to recover in F '27, all indications are from industry publications now that that's being pushed out closer to F '30. And unless we see global growth starting to come in, that may even be pushed out further. We had to impair our PET plant. So that is a polymer that is under particular pressure. It's driven by different dynamics to the other 2 polymers. And as a result of that, we required an impairment on our PET plant, which again, Frans will discuss in a little bit more detail. We released a SENS announcement during the period, which indicated that we had entered into a price and volume dispute with Sasol. These are both determined according to our ethylene supply contract and will follow a dispute resolution process that's documented in that -- in those contracts. It is going to be complex. It is going to be a protracted process, unfortunately. However, the status quo environment remains in place until those are resolved. We've also lodged a complaint with the Competition Commission just in terms of Sasol's behavior as a monopoly ethylene supplier. So that sits with the Competition Commission and will be conducted according to their internal processes. And while that's in progress, we've also applied for interim relief, again, to preserve the status quo until the commission deals with that complaint according to their own process. If we then look at Unitrans, this is probably the most disappointing division for me in the sense that we've done so much good work in this division in terms of repositioning it. And unfortunately, it hasn't filtered through to the results yet. It will come. It's just taking longer than we would have liked. So revenue down 4%. That's a combination of both market conditions where we've experienced lower activity and lower volumes, as well as an intentional process of exiting low-margin, low-return work, part of repositioning the business. Operating profit down 14% as a result largely of the lower revenue and operating margin impacted as a result. So we had a good first half. Second half impacted largely in the fourth quarter and to a large extent by 2 divisions. Firstly, our Agricultural division, where we didn't see the season starting as anticipated. It was delayed by adverse weather and wet infield conditions. So the volume is not lost. It's just delayed and gets pushed further out. And then in our petrochemical business, lower activities and work that we need to do in that business in terms of improving utilizations, improving cost structures and winning back some of the revenue that we should have with the size of that business. So overall, as I said, a bit disappointing bearing in mind the amount of good work that we've done. We continue to focus on a couple of primary areas: revenue growth, not easy in this environment. Obviously, subdued demand, which leads to a more competitive environment. And obviously, we're putting strict parameters in place in terms of allocating capital and earning a requisite return on that capital. Work still to be done in terms of optimizing our contract performance, which then leads on to asset utilization. So a lot of work in terms of disposing underutilized assets, which will continue and then obviously, additional cost savings. During the period, as part of that process, we disposed of one of our commuter operations in the Northwest. It was supplying into government, which is not really an area that we want to be in. So that released about ZAR 110 million as well as ZAR 33 million still to come in terms of property transfers. As I noted, we are restructuring our petrochemical business. It's a big part of this business. It's a sector that we see value in, that we want to continue with, and we still see opportunity to have a much more efficient business that we can grow from in that space. There are still areas of underperformance, which we will seek to either close or dispose of in F '26, and that's something that Frans and the Unitrans team will work on in the next year. So as I've said, a lot of good work done there. We still remain focused on our target of ZAR 700 million operating profit in the near term. So that expectation hasn't changed in terms of what we see in Unitrans. If we then look at Feltex, tough H1. We had Toyota with their own internal challenges, which affected our volumes. And we had BMW changing their X3 model, which had a significant impact on us in H1, both in terms of volumes as well as in terms of our internal changeover process with the X3. Underlying that was an environment of lower build volumes. So all 7 of the OEMs that operate in this country were down on prior. So that obviously affects us. So revenue down 8%, operating profit down 37% as a result of those primary issues. I'm pleased to say they had a very good H2. Largely, the Toyota issues were resolved. It was a very good start-up of the X3, and we saw a much improved second half coming through from that division. So almost back to normality in H2, which bodes well in terms of moving into F '26. Unfortunately, in that business, we have seen some changes, both in terms of how models are presented to the market from OEMs as well as the model mix, and that led us to impairing our Maxe business to an extent, just on the basis of low demand for our traditional products. So obviously, a lot of work going on in that business now in terms of repositioning how we approach the market with which products. So looking forward, we're seeing hopefully, a return to normality in terms of vehicle build with a much more stable look forward into F '26. Sleep Group, good results. A lot of the work that we've been doing in this business over the last 3 years is coming to fruition, and we're seeing it in the results. So revenue up 7% to ZAR 1.8 billion, operating profit up 27% to almost ZAR 160 million and operating margin close to 9%. So you'll recall from those metrics on the right, we're not back to where we'd like to be yet. However, we're building good momentum in this business and its solid sustainable momentum. It's largely on the back of increased mattress volumes, and that is largely on the basis of extensive marketing, demand creation, promotional activities that the team is doing in a subdued market where we're continuing to see volume growth. So I think it's really well done to that team. We're continuing to focus on our internal efficiencies. So good cost management, better efficiencies. We've seen a material improvement in our quality. Obviously, that has significant cost benefit implications for us, but also gives us far better credibility in the market and the ability to support our sales with lower returns. So we'll continue with this business in terms of the investments in marketing, sales and product development. We see that as a significant differentiator and barrier to entry, and we'll continue to build in that area. And we've got the capacity to supply it. So we've done our investments in terms of our facilities. We've upgraded our foam line. We've put new fiber tiering capacity in place. So we've got the capacity to be able to deliver on the demand that we create. Our foam business remains a challenge. And it's material enough in that business that we are focused on it. We're making good progress now. We've changed management again. And I think we finally have found the right structure in terms of how we run that business and populating it with the right people that will now be able to deliver and return that business back to where it should be. Lastly, Optix, a disappointing result for us. We continue to invest in this business. It remains a business which we believe has significant opportunity to build a global footprint and operate in a global space in a tech environment. So we've continued to invest in developing our products and developing the infrastructure, and we've now developed a much stronger team to deliver on that. So we've reconstituted the entire ExCo of this business, much stronger individuals with greater experience in running out a global business, which is what we're aiming to do with Optix. So unfortunately, revenue relatively flat. We made an operating loss of ZAR 44 million, which is well below our expectations. And really, it boils down to our ability to close the sales pipeline and actually build the subscriber base in this business. So that remains our focus. It's the absolute focus of this team, which we believe is the right team now to be able to deliver on our expectations. So with that, a bit of a mixed bag in terms of the performance. Results not what we would like to present to the market, but I think a lot of positives in terms of ramping up 4 major projects and creating the right foundation for the business going forward. So with that, I thank you, and I hand over to Frans.

Good morning, everyone, and thank you, Gary. Yes. So I'll take you through the financial review and then lastly, the outlook. Firstly, just from the salient features, just to highlight a couple of items. Revenue up 2% to ZAR 29.6 billion, EBITDA down 7%, operating profit down more than that, 14% and headline earnings 47%. And that's where I'll spend some time in the presentation just to explain the differences between those percentages. Good for us or achievement for us is the free cash flow. It's short of our target that we wanted to achieve, but we still managed to generate free cash flow before dividends of ZAR 482 million. If you look at the group revenue bridge from FY '24 to FY '25, the 2% is made up mainly of PG Bison. We've got the new MDF capacity. Also in Safripol, we've got the normalized capacity and the increase in sales. And then the 2 areas where it's actually down compared to the prior year's Unitrans. And Gary also explained that it's due to restructure, subdued demand and delay in the start-up of the harvesting season for agriculture. And in Feltex, we also experienced lower revenue, and that's mainly due to the lower new vehicle assembly volumes, particularly in H1. If we look at the operating profit bridge from ZAR 2.3 billion to ZAR 1.9 billion, the items standing out is specifically PG Bison, down ZAR 284 million. And that mainly relates to the start-up and the ramp-up of the new MDF line, and I'll unpack that in a little bit more detail in a later slide. We've had weaker performance from Unitrans and then also Feltex with the lower vehicle volumes and start-up of a specific model during the first half of the financial year. That was offset by improved performance from Safripol and Sleep Group. Optix, Gary explained it just now, where the subscriber base was -- the growth in the subscriber base was not sufficient to cover the increased cost in terms of investment in product in that business. If you look at the income statement, operating profit down 14%. We went through the detail in terms of the divisions. So 2 main items to highlight between operational, the 14% and then the 47% in terms of headline earnings is the 18% increase in finance costs. In the prior year, while we were still building particularly the MDF line, but also in Safripol, the HDPE conversion, we capitalized ZAR 173 million, which did not take place this year. And also the normalization of the effective tax rate, where we had the benefits of incentives with the new plant that did not repeat in the current year. If we unpack the impact of PG Bison and specifically, the main reason here is the plant, the new MDF line, our reported headline earnings last year was 45.3 cents. And if you take the new PG Bison results, that makes up 20 cents reduction from last year, 45 cents. So that is the main reconciling item between the 45 cents and the 24 cents. And if you unpack the 20 cents, it sits basically in 3 items where you have the new plant, ZAR 286 million additional production overheads, ZAR 82 million depreciation, not sufficient sales at the great margin to set that off. So that's ZAR 284 million on the operating profit. Borrowing costs that we capitalized in PG Bison, that was ZAR 136 million in the prior year that did not happen in this year. And then the impact of the section 12I tax allowances on our results. So excluding that, if you take the ups and the downs of all the other divisions, it's actually less than 1 cent. If we look at the capital items, 3 items mainly. Firstly, the total is ZAR 765 million. Optix, we impaired goodwill of ZAR 145 million and intangibles of ZAR 215 million, and that is due to the performance remaining below our expectation, and that impacted our forward-looking forecast in terms of our impairment assessments. Safripol, the PET plant, ZAR 293 million that we've impaired. The reason for that is the continued weakness in prices and raw material margins and where that's only expected to increase through the global cycle in FY '30. And then lastly, Maxe, where we impaired ZAR 57 million of trademark, where there's a shift in consumer preference demand, decline in demand for vehicle accessories, but also in terms of models that sold in the country. Tax rate. Firstly, at the bottom of the slide there, I think that's the important number. Headline -- if you take tax rate on a headline earnings perspective, excluding the capital items, it increased from 15% in the prior year to 30%. The 2 main items for that is in the prior year, we had the benefits of the incentives -- tax incentives on the new plants, which did not repeat into FY '25. But in FY '25, we had some tax losses that we unrecognized. We previously had deferred tax assets recognized on those tax losses, and that's particularly in Optix, where we did not -- we reversed that in the current year. So if you look at the total tax rate recon, I've discussed the tax losses. There's the portion of the impairments that's not deductible for tax that impacts the tax rate. We've got the government incentives and then there's some prior year adjustments where we provided for penalties in the prior year that we successfully defended that we could release in the current year. Balance sheet. We concluded in H2 '24, our major capital investment cycle. So if you look at the balance sheet, property, plant and equipment, stable from last year to this year. There's some reduction in intangible assets and goodwill due to the impairments that we've -- that I've explained. And then the one item to highlight is the increase in net working capital, and that's mainly due to increase in payables, but I've got a separate slide on that to give you more detail. Net interest-bearing debt reduced by ZAR 220 million. And we are continuing to focus on reducing debt into '26 and '27. If we unpack the movement in net working capital, that increased 13% to ZAR 384 million, 13%. If you look at the slide, the inventory, stable. There's ups and downs in that number. We had the increase in investment in engineering spares relating to the capital projects. That was offset by the net movement in PTA and PET inventory. So therefore, remained stable. We had good debtor collections and well done to all the management teams for making sure that we could achieve this. So receivables down close to ZAR 200 million. And then the major impact on the increase in the working capital is the increase in -- or the decrease in payables, mainly 2 items, lower PTA imports that we use for the -- in the production of PET in quarter 4. So that results in lower supplier balances. And also, we completed the capital projects, which resulted in lower CapEx creditors in the current year versus the prior year. The cash flow statement, we generated ZAR 3.4 billion EBITDA. That's lower than -- ZAR 272 million lower than the prior year. So that impacted our ultimate free cash flow generation. And then we also invested -- not invested, I've explained the movement in net working capital of ZAR 411 million. That's roughly ZAR 200 million more than the prior year. That resulted in cash flow from operations of ZAR 3 billion. That's down 13% compared to last year. Our cash flow conversion ratio at 88%. We target 90%. So that was just short of our internal target. If we look at the investing side of the cash flow statement, we intentionally invested less this year in expansion CapEx. So that's down ZAR 1.3 billion. We continued to invest in replacement. If you look at the numbers there, ZAR 921 million, last year ZAR 423 million, please take into account that in last year, we -- that included ZAR 319 million in terms of proceeds from Unitrans vehicles and trailers, underutilized trailers and vehicles, which that process is largely complete and it did not repeat in the current year. If you look at the disposal of the subsidiary, that is the Northwest contract that Gary explained. In the prior year, the ZAR 77 million, there was a bolt-on acquisition in Feltex. And then lastly, our free cash flow before dividends of ZAR 482 million, that increased by just over ZAR 500 million compared to the prior year. I've got 2 slides here just to explain basically the history in terms of the capital cycle that we went through. So firstly, we've got -- I've got 5-year history here of our CapEx and depreciation. And that's separately disclosed for our manufacturing businesses and logistics. If you look at the slide there on the left, if you add up that expansion over the 5 years, that's ZAR 3.6 billion. That's a material number that we've invested. And you can see the drop there in FY '25, where we intentionally reduced our CapEx spend after we've commissioned the large projects. If you look at the strategic items on the right there, those 5 items that we list there, that is a total of ZAR 2.9 billion. So that is 80% of the expansion CapEx, and they all complete and in operation. You'll see there's a small amount still outstanding for the MDF line. That's just final minor items that we're going to complete in the current financial year. If you look at the non-manufacturing or the logistics CapEx spend, the item I'd like to highlight is if you look at that graph at the bottom, it's proceeds from disposals. And in FY '21, that was ZAR 100 million. In FY '25, that's ZAR 138 million. So the process that we went through to actively redeploy assets or dispose underutilized assets is largely complete, and we're back to more normality. And then also to highlight is that our replacement CapEx is now in line with our depreciation. And we continue to focus even going forward on disposal or closure [indiscernible] performing operations. Net debt decreased ZAR 220 million to ZAR 8.1 billion. Three main items to highlight there. We have settled close to ZAR 2.1 billion in bonds during the period. We raised ZAR 1.55 billion in a public auction in May. And we also concluded the ZAR 1 billion invested -- or sorry, we concluded the ZAR 1 billion term loan -- 18-month term loan during this period. And we continue to focus, like I said, on our debt reduction in FY '26, FY '27, and that will be due to cash flow improvement from our projects, cash flow contribution from our major projects and also the improvement of Unitrans. If you look at our debt serviceability ratios, net debt at ZAR 8.1 billion, giving us a 65% gearing ratio, slightly down from the prior year. Our net debt-to-EBITDA at 2.4x within covenant of less than 3x and our EBITDA net debt 3.5x, which is also within the covenant of 3.25x. The next slide, it's a busy slide, but it's for information mainly. Most of the items we've communicated on here. The item I would like to highlight is we are now at the end of the covenant ratchet that was part of the RCF. So as from FY '26, our interest cover ratio moved up from 3.25x to 3.5x. That's an important factor. And then also the proceeds of the ZAR 1.5 billion bond that we raised in May, we utilized that to settle maturities in H2 '25. And ZAR 1 billion of that funds is in our RCF available and that we're going to utilize to settle H1 '26 maturities, which will basically take a lot of the refinancing risk off the table with that placement. If we look at the debt maturity profile. On the left-hand side, there is the ZAR 1 billion, that available facilities is ZAR 1 billion, that's in our RCF that we'll utilize to settle ZAR 1 billion of the ZAR 2 billion that's coming up for maturity in FY '26. The balance of the maturity is the term loan of ZAR 1 billion, which we plan to partially refinance and partially settle. And then June '27, the ZAR 3 billion includes the RCF ZAR 2 billion that is due in December '26 and we're confident that we will, ahead of the time, either refinance or extend or do something with that maturity. Yes. So that is the end of the finance update. So now I'll go into the group outlook. Firstly, KAP is well positioned to weather uncertain economic environments, both locally and globally. And why we're well positioned is we've finished our major projects. We've completed them within budget, within time, they ramped up and they're fully operational. We refinanced our debt that's due, like I explained, for 1H '26. So there's no refinancing pressure on us. And we've got a strong executive team. We've got a team that is very strong. We've got a team that we trust and we back and they lead us in their specific sectors, and they can make the plans and execute going forward. The negative operational and financial effects of the major project start-up that we've experienced in this year will ease over time. And that's not unusual for projects to the scale and the nature that we've done, particularly the MDF line. We remain absolutely focused on 3 main objectives that will increase earnings growth and returns. And that is, the value realization from our recent investments, get those investments to feasibility, so we extract maximum value out of those, to address the areas of underperformance, of which Unitrans is the largest and then to continue to reduce net debt into '26 and into '27. And like I said, that is supported by the cash flow generation of our projects and then the recovery of Unitrans. There are absolute alignment between our strategy, our executive capacity and capability. Gary mentioned that in the beginning of the presentation where in the last probably 2 years, the changes in our executive layer. And then we've also agreed with all the teams' incentives that's aligned to executing the above objectives. All the divisions are constantly focused on revenue growth. We continue to focus on cost control and on margin-enhancing activities. Looking forward into the next year, our capital expenditure will remain constrained, mostly to replacements. And then lastly, the CEO transition and the CFO recruitment process is continuing constructively according to the communication time lines that we've provided previously. So if you sum that up, yes, although the market remains challenging, all our divisions have clear plans, all our divisions have clear strategies. We have the correct management teams, and we're all focused to execute that. So I'm looking forward to lead KAP in the future. We have done a lot up to here. We have the capital -- the large capital cycle that we've been through has been a lot, and we're now through it and we've done it. The market is not easy. And I do not underestimate and the teams also do not underestimate the amount of work that's still ahead of us. But we are aligned. We are going to execute relentlessly on our key projects, and we are going to do that with a matter of urgency. So with that, firstly, I would love to -- I would like to thank the staff. I know it was not an easy year to trade. I know it was difficult and there's been a lot of noise. So thanks for your support. Thanks for your efforts. We appreciate that, and good luck in executing on your budgets. I'd also like to thank the Board for your support, for your leadership during this period. It's valued by us. And then lastly, I'd like to thank our bankers, funders, shareholders, thank you for your support. Yes, you're always there, and thanks for that. That then lastly takes us to Q&A. Christina?

Thank you, Frans, and thank you to our audience for attending. I've got quite a few questions here. I'm going to try and group where possible. The first one from [indiscernible]. What does the tariffs mean for the export portion of sales of MDF? What is your exposure to the U.S. as an export market for group products overall?

Yes. So if you look at the MDF plant, our strategy is, firstly, to sell in a local market; secondly, to sell in our primary market. Primary market, meaning our regional close to South Africa where you road freight the product and then also into Africa markets like Kenya, et cetera. And then the access, we've spent a lot of time in the last year to find opportunities that you have a chance of achieving a fair margin. And that opportunities come in territories where there's undersupply or there's a freight benefit for us getting into those territories. And at the moment, we do not target the United States. So the tariffs does not impact us. And our largest 2 markets that we're supplying is the Middle East and Peru and South America.

Thank you, Frans. A question from Rowan Goeller. What is the target margin for PG Bison and how long will it take there as well as what is the rate of debt reduction plan over the next 3 years?

On the first question, the margin target for PG Bison, we have not revised that. So that's still the 18% to 20%. We, on a routine basis, go through our longer-term planning, which we will do again this year. And to the extent that we should adjust that, we will. But for now, it's still the 18% to 20%.

And then also a question from John...

On the rate of debt reduction?

Apologies.

So that's on the PG margins. On the rate of debt reduction, we -- like I said, we're going to constrain CapEx through depreciation. We see increase in operational trading. The PG Bison plant is now behind us. So if you take that into account, we are targeting ZAR 500 million free cash flow debt reduction.

Thank you, Frans. Just sticking to margins. A question from John [indiscernible]. What margins are you targeting for PG Bison, which is just answered and Sleep Group in the short and medium term?

The Sleep Group target margin remains 13% to 15%. Two to 3 years ago, when we restructured that business, we said we would -- it will take us a couple of years to get there. So I think in the medium term, that is still our target to get to the 13% and 15%.

Thank you, Frans. Two questions from [indiscernible] here. Do you have an estimate for what the financial impact of the Sasol dispute might be as well as was the Petrochemical division not part of the restructuring exercise in Unitrans?

On the Sasol ethylene dispute, obviously, we do internal calculations and assess the matter. But it's not something I'd like to talk on. I think Gary explained it well. We're in a price and a volume dispute, and we follow the legal process for the agreement. Second question?

Just the Petrochemicals division, was that not part of the original restructure exercise of Unitrans?

We've been clear and [indiscernible] has been clear with us to say that a large restructure and a turnaround like Unitrans is not in one wave or one process. It will take more than one reiteration of restructure. We've done the initial consolidation of the 3 businesses into 1. That's largely complete. We're now in Phase 2, of which the Petrochemical -- the Chemical business within Petrochemicals is now our key focus.

Thank you, Frans. With Mahindra boosting -- this is from Nick Rogers from Harvard House. With Mahindra boosting capacity at its SA plant by 2/3, is Feltex going to benefit from this?

I don't know. So -- we should, but I don't know. I'll have to get back on that one.

Thank you, Frans. A question from Charles Boles from Titanium Capital. The impairment related to the PET plant, is this structural due to changes in packaging materials used by consumers? Or is it cyclical in nature?

When we initially invested in that plant and did the upgrade, the world looked different to today. PET prices were higher and raw material margins were higher. There is a shift in the market since then to now where there's been a lot of capacity increases in China and they also went from nonintegrated plants to fully integrated complexes. So that's why PET prices are forecasted to remain lower for longer and also raw material margins to remain lower for longer. So that's the reason for the impairment. It's not that the demand for PET is lower.

Thanks, Frans. Another one from Charles. Do you think that KAP needs a rights issue to fix the balance sheet?

No. If you look at our plans, if you look at the capital cycle that we've been through, and the major impact of that was the PG Bison plant. Going forward, the plant is going to operate at full capacity. Yes, we are still going to export at lower margins. But that all gives us good opportunity to increase future profitability and margins. We are on a clear path of reducing debt into '26 and '27. So there's no reason for a rights issue.

Thanks, Frans. So there's 2 questions here. One from Jesse at [indiscernible] and Clint from LBH. Just asking on the Petrochemical restructuring. What is the expected impact on the results? With the agri profit delayed, what is the quantum? And have you seen this realized post year-end?

The Petrochemical business is a large business unit in Unitrans. It's 1/3 of our revenue. So it's very important for us and the team, and the team is aligned and focused on it to get that business back to where it should be. So the recovery of Petrochemicals is an important component in getting the profitability of Unitrans where we expect it to be. We've seen in previous years that there's a delayed start-up in the agricultural season. Yes, that particularly hit us in the last quarter and some of that benefit we will get into the next financial year.

A couple of questions from [indiscernible]. When do you expect the costs associated with the MDF plant to come out of the numbers, i.e., when does the plant breakeven?

So the cost that we've showed, there is additional cost of running that plant. So the costs are not going to come out. The depreciation will stay and most of that ZAR 286 million is fixed cost. It's utilities, it's people. That is the cost now, the new cost base. If you run that plant at full capacity, you obviously reduce your cost of production, your utilization is better. And we now just need to continue to sell full capacity, make sure that we can over time, increase where we sell less exports, more local. We've given ourselves 4 years to sell the plant to capacity. We're quicker there. Prices are lower, et cetera. But we've given ourselves 7 to 8 years in the feasibility to sell all the volume into the primary markets. I think the team will do better than that, but that's our feasibility 7 to 8 years.

Thanks, Frans. Then [indiscernible]. Can you give us a steer on the scale of PPE and Unitrans and Petrochemical specifically that is still related to parts of the division that are underperforming?

Yes, that is -- I don't have that detail. But we are still looking and there are specific items that we look in the Petrochemical business and regions where we're in that we may consider low or underperforming that we are looking at addressing.

Thanks. Then from Byron from [indiscernible]. If you were to compare Q4 when the new plant was running at full utilization versus Q3, were you able to cover all of the incremental OpEx overheads from the new plant?

I don't have that detail, Christina.

Okay. We'll get back to you, Byron. Another one from Byron. Given the lower EBITDA run rate in the second half, how are you thinking about covenants going into F '26, including the impact of the last step of the ratchet? How are you thinking about debt reduction opportunities in F '26 and '27?

Yes. At the moment, our debt reduction plans is, like I explained, it's get those projects up and running, let them generate EBITDA, let them generate earnings and cash flow and fixing the underperforming businesses. We are targeting to be net debt to EBITDA below 2x. And in our forecast, taking the ratchet into account, we don't see a risk of getting covenant breach.

Then a question here from [indiscernible]. When is the ethylene supply contract due to expire? What are your alternative supply options?

Firstly, there's no alternative supply options. Ethylene, although it's a globally traded commodity, there is no port handling facilities in South Africa and pipelines. So it's not a -- and also the scale of ethylene market in South Africa is too small to justify any investment in those facilities. So our only option is the current supplier. The contract is of an evergreen nature. And we are in 2 disputes that will follow the contract dispute resolution process.

Okay. Thank you. So unfortunately, we've run out of time. There's a few questions left. You are welcome to just reach out to us via e-mail. We'll also see a few -- quite a few of you after our results where we'll address your questions. But thank you very much for your time, and thank you, Frans. Thank you, Gary.

Thank you, Christina, and thanks again for everyone taking the time to listen to us. Yes, and for the questions that we haven't answered, we will get back to you. Thank you very much.