Mpact Limited (MPT) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Mpact Limited's Final Results Presentation for the year ended 31 December 2025. A special welcome to our Chairman, Sbu Luthuli, who joins us today. Bruce Strong, CEO; and Hannes Snyman, CFO of Mpact, will be taking you through the presentation. [Operator Instructions] After the video, Bruce and Hannes will take you through the presentation. [Presentation]

Good morning, everybody, and thank you for joining us for our 2025 results presentation. As Molly mentioned, I'll be taking you through the presentation with my colleague, our CFO, Hannes Snyman. And after the presentation, I'm sure we'll have ample time for questions. 2025 was a demanding year for Mpact. The operating environment was characterized by weak domestic economy and significant external headwinds, partially offset by strength in key end markets such as agriculture. South Africa's GDP growth remained below 1% for the whole year with manufacturing output and sales actually declining year-on-year in the final quarter, showing the pressure that, that sector faced. Persistent infrastructure challenges, particularly electricity and water disruptions, added costs, operational complexity and downtime risk for local manufacturers, including our businesses. At the same time, the global paper industry was and remains in a prolonged downturn. Structural oversupply across cartonboard and containerboard markets driven by offshore capacity additions some time ago and weaker global demand growth resulted in sustained downward pressure on selling prices. This global overcapacity translated into increased volumes of low-priced import alternatives into South Africa, intensifying competition and compressing margins for local producers. Input costs, however, remained elevated throughout all of this. As a result, selling prices in paper manufacturing declined faster than costs, squeezing profitability. Inflationary pressure did ease during the year with CPI declining to 3.6% by year-end, providing some relief on certain operating costs. However, this was partially offset by sharp increases in input costs. Our key notable input cost increases such as recovered paper prices, which rose about 15% amid strong export demand as well as ongoing above-inflation increases in utilities such as water and electricity. Against this challenging backdrop, agriculture proved to be a critical source of resilience for the group. 2025 saw record agricultural output in South Africa, particularly in the fruit sector. And I was just reading over the weekend about we've been through a prolonged phase of La Niña, which has been very good for rainfall in South Africa and hence, product crop yields. The Citrus Growers' Association reported an all-time high of 204 million cartons exported in 2024, which is up over 20% on the prior year. This is well ahead of the CGA's Vision 260 target, which only forecasted similar volumes in 2027. And you might recall that around 2024, the CGA, Citrus Growers' Association revised their target downwards from 260 million to around 240 million cartons. And so in spite of that, the growth has still been pretty robust, which has helped us. And this bumper crop drove strong demand for both corrugated cartons in our paper business and also plastic crates in our Bins and Crates business. It also helped offset weaker demand in industrial packaging and certain local consumer goods segments. In addition to the agricultural demand, we also benefited from efficiency improvements across many of our businesses during 2025. So in summary, trading conditions were tough and the outcome financially fell short of our ambitions. However, in the context of a weak economy and significant global paper overcapacity, we are encouraged that Mpact was able to increase net asset value and maintain EBIT and EBITDA broadly in line with the prior year. This performance was supported by the resilience of our agricultural end markets and the benefits of our investment in some of our businesses such as Felixton in 2023. Moving on now to an update on our strategic projects and some of the portfolio actions that we've undertaken. Despite the challenges we faced, 2025 was a year of major strategic progress for Mpact. We substantially completed our long-term investment projects and took decisive portfolio actions to focus the business on areas of strength. Our multiyear project at Mkhondo Mill was substantially completed during the second half of the year, and I'll just take you through some of the key aspects of that project now. We successfully commissioned the upgraded pulp digester and the new SLS spray drying plant during the second half of the year, and these assets were capitalized on the 1st of December 2025. The upgraded pulp mill is already running more efficiently, improving containerboard production quality and costs, bearing in mind that this will ramp up to full capacity in the coming years. As may be expected for a project of this kind, the SLS plant is still ramping up, and we have identified some technical bottlenecks affecting our SLS quality, and we're installing additional equipment, which should be finalized by the end of May this year to address these bottlenecks. So we anticipate meaningful SLS powder output and with that valuable U.S. dollar-linked revenue stream from the second half of 2026. Importantly, the Mkhondo expansion remains on budget at about ZAR 1.3 billion. With the main work done now in this project, our focus is on optimizing throughput and costs to fully realize the expected boost to the Paper division's performance in the years ahead. Moving on to some of our portfolio actions during the year. Most of you will recall that at the end of 2024, we sold our Versapak plastics business, the one that did styrene trays and PET trays and also film. And all the working capital was subsequently recovered during the first half of 2025 from Versapak after Versapak sale. The last aspect of this portfolio optimization is the contemplated sale of properties that are currently leased to Versapak, the new owners of Versapak. And those have an estimated market value of well over ZAR 200 million. So that would be another value unlocking step that will further strengthen the balance sheet once we complete it. In terms of our restructured FMCG plastics Wadeville operation, that project has taken the last couple of years, where we were previously reliant on low-margin beverage preform contracts, and we have now refocused the business on sustainable margin products, which are able to deliver a return that is acceptable. By the end of 2025, this repositioning was largely complete. And we have secured new contracts in other FMCG segments other than beverage bottles, reducing its dependence on those bottles. We are confident that Wadeville now has a credible sustainable future with the long-term market trends in mind in that sector. I'll deal with the Springs mill last because I want to go into some detail there. So just to summarize on the other aspects in terms of renewable energy, we advanced those projects through the year. And by the end of the year, we had expanded our embedded solar PV generation capacity to 18 megawatts, and that generated over ZAR 45 million in electricity cost savings in 2025 by offsetting grid consumption. So these investments not only reduce our operating costs and carbon footprint, but they also improve resilience against power disruptions, which has been a strategic objective for our manufacturing operations over the past years, especially the smaller converting operations, very difficult to offset the interruptions at a paper mill, but certainly in the converting operations has made a big impact. Moving on now to the Springs Mill and the contemplated closure of Springs Mill, which we announced in early 2026 in February. This decision reflects structural rather than cyclical pressures, although the cyclical pressures have expedited the decision. And those include sustained customer attrition driven by structurally low-priced imports as well as ongoing energy and water supply disruptions in Ekurhuleni that have undermined our cost competitiveness over the past several years. As a matter of interest, over the last 5 years, we've had 180 days of downtime attributable to Ekurhuleni's poor supply of electricity and water. And that's in a factory that's designed to run 24/7. Unfortunately, approximately 380 employees are affected by the process currently underway at Springs Mill. And if a closure proceeds, it will result in once-off restructuring costs of approximately ZAR 130 million and asset impairments of approximately ZAR 200 million in 2026. Importantly, a closure is expected to be cash positive and margin accretive for the group over time, notwithstanding the trauma that one goes through in getting to that point. And that would remove a structural drag on earnings and allow capital to be redeployed to higher-margin opportunities. This is all consistent with our disciplined portfolio management and return-based capital allocation. I thought it would be quite important just to go through a few more details around the Springs Mill so people can get a better picture of how things might play out. And so I will spend the next couple of minutes just explaining some of the nuts and bolts of Springs Mill, so you get some context in that regard. The Springs Mill has 2 paper machines We call them board machines. One is called BM3, board machine 3 and the other is BM6. BM6 is a larger of the 2 machines. And on BM6, we produce coated cartonboard products, which is used in -- as primary packaging for products such as biscuits, cereals, teas and fast food. And you all know that, that's the highly decorated packaging that you'll buy your cereals in or your biscuits in or your teas in, highly decorated coated board, quite a high-value product. So in the case of -- let's just use as an example, a box of biscuits, the packaging cost represents a relatively high proportion of the total product cost of that box of biscuits sitting on the shelf. At the level of tariff protection required to sustain BM6 if we were to protect ourselves against very cheap imports, locally produced packaged goods would become less competitive than fully imported finished products. And that would increase the risk of downstream volume loss and customer exits, which would ultimately undermine the intended protective effect of such tariffs. Why I mentioned that is because we've asked for tariffs on BM6 before, several times actually, and they've been turned down by ITAC. But the level of tariffs required now would mean that, for example, a biscuit producer in South Africa, who's already facing import competition in the retail sector from imported finished goods, finished box of biscuits, which are selling, in some cases, more than 10% or 15% less than the locally produced biscuits, all of a sudden, they would be out of business as well because of the packaging costs escalating. So any tariff would be completely uneconomical for the broader supply chain. And that's why we've said that, that is not a feasible option for BM6 and the products produced of BM6. BM3, on the other hand, is a smaller machine. It produces about -- it's got a capacity of about 35,000 or 36,000 tonnes per annum of coreboard. And coreboard is used to make paper cores, the typical paper cores you find in your kitchen tissue at home, you know the kitchen towel that you have, the paper towel or the toilet rolls, a cling wrap, if you buy cling wrap, it's got a core inside, and that core is typically made from the paper that we produce at BM3 -- on BM3. And also incidentally, the cores that are used to reel our paper on, cartonboard, containerboard, fine paper, they all use cores and those cores are made from coreboard, some of which comes from BM3. Now the packaging component represents, in this case, a very small proportion of the total cost of the overall -- of the finished goods. Just take a reel of paper, for example, weighs about 2.5 tonnes, just for example, let's say, ZAR 12,000 a tonne, that will get you to ZAR 30,000 for the reel of paper and the core will cost you a couple of hundred rand, a fraction of that price. And for that reason, targeted tariff protection on coreboard could support local demand without materially distorting downstream economics, making it a more viable and proportionate intervention if it was to be implemented. And so accordingly, we've engaged with ITAC. We've been engaging with ITAC and the DTIC to assess whether commercially viable protection measures could support the continued operation of BM3. But I have to emphasize that any decision to proceed in this regard will only be supported by our Board and the company if it is attractive on day 1, measured strictly in terms of cash generation and return on capital. So we have no intention of just running with a hope. It needs to be running with fundamentals that are in place already, and we're engaging on that basis. In summary, through all of these strategic project completions and the portfolio actions, we are strengthening our position. We modernized our asset base, focused the portfolio on higher growth, higher-margin segments that are more sustainable, and we've addressed and we are addressing the underperformance head on. With the major CapEx cycle largely behind us, we are now leaner and more competitive as we enter the new period 2026. But that said, we're under no illusions. There's still significant work ahead and significant opportunity to optimize and improve our performance. Moving on now to the group financial overview. Despite the headwinds we faced, Mpact delivered a resilient financial performance in 2025 with growth of the top line and stable operating earnings. Group revenue from continuing operations grew 5% to ZAR 14 billion. This was driven by higher sales volumes in our paper business, especially containerboard and fruit packaging and slightly higher average selling prices, which offset volume declines in certain plastics segments. Group underlying EBITDA increased just over 1% to ZAR 1.5 billion, while underlying operating profit declined just around 1% to ZAR 914 million. I have to say that these results were ahead of the expectations we held halfway through the year, you might recall, which reflects a stronger pickup in the second half of the year compared to the year before in key areas of our business. The net asset value of the group ended the year 6% higher than the prior year at ZAR 37.76. Group return on -- the return on capital employed came in at 10.9%, which was lower than the prior year of 11.7%. And that decline was largely anticipated because it reflects the substantial capital investment in the Mkhondo Mill that is not yet contributing to earnings as well as higher working capital, and Hannes will talk more about that shortly. Net debt at the year-end was ZAR 2.5 billion, and our balance sheet remains healthy with gearing around 29%. And in November, we successfully refinanced our bank debt facilities of ZAR 4 billion at more favorable interest rates. So in summary, while net earnings are clearly below our ambitions, it's worth highlighting that in a very tough market, the businesses we've invested in delivered strong returns with ROCEs above 20% for most of them. That gives us confidence in the direction we've taken and the direction in which we are moving. Moving on now to the segmental performance, starting with the Paper business. The Paper business showed mixed results in 2025. Revenue grew 7.4% to ZAR 11.8 billion on a 5% increase in volumes. However, underlying operating profit declined ZAR 804 million, which is around 14% as significant margin pressure in the paper manufacturing business and project-related downtime at Mkhondo outweighed the solid performance that we had in paper converting. The global paper downturn with oversupply and cheap imports -- import options driving prices down more than input costs hurt our mill margins even as we increased output in the paper mills. By contrast, our converting operations, which are Detpak and corrugated achieved better results in 2025. And now I'll go through each of those divisions in a little more detail just to give you some sense of how things played out. The performance of our paper mills -- starting with the paper mills, of course, the performance of our paper mills was impacted by market conditions and major project activity. On the positive side, we increased containerboard sales by around 9% in 2025, leveraging the enhanced competitiveness of our Felixton Mill, which you might recall was upgraded in 2023 to displace imports and boost exports. We also avoided any market-related downtime at the 2 containerboard mills, Felixton and Mkhondo, by finding these outlets for our production. However, as I've mentioned already, industry-wide selling prices fell amid the global overcapacity and the wave of low-priced alternatives. And while our input costs -- that was while our input costs, notably recovered paper and energy climbed and that eroded our mill profitability. In addition, our largest project caused a temporary hit to earnings. The Mkhondo Mill upgrade required a major planned shutdown during July and August and running the mill under construction conditions and incurring this downtime translated to a significant swing in profit at the Mkhondo Mill for the year. The good news, of course, is that this was a once-off impact and Mkhondo's expansion, certainly the construction all goes with that is now complete. The mill is running, and we expect a much stronger contribution going forward as it ramps up. The Springs Mill faced extremely tough conditions. Not only were the prices under tremendous pressure, but volumes also fell, although only 2%, but off a low base already. And that was on the back of weak local demand and relentless import competition. To avoid stock build, we took 32 days of commercial downtime last year, and that's compared to 9 days in 2024. And we also had a further 21 days of stoppages due to external power and water interruptions and versus 27 days in 2024. So in total, the mill was idle for nearly 2 months of the year, which combined with elevated municipal electricity costs led to a drop in profitability with the Spring breaking -- with the mill belly breaking even in 2025. And that's despite the best efforts of the management, we've got a really good team there, and they put in everything that you could possibly ask of them under the circumstances. The Recycling division also had a busy year with increasing its collection volumes to nearly 8% to ensure the reliable supply of raw material to our paper mills and also to other external customers. And in total, we collected nearly 640 million kilograms of recyclables in 2025. And that's a new record for Mpact in terms of recoverable items being collected. About 70% of the recovered paper we collect is used in our own production, underscoring the crucial role that our recycling business actually does play in our circular business model. However, as I mentioned, the cost of recovered paper did increase due to strong export demand. Those prices on the export side have now stabilized, and we expect recycling's financial performance to improve in the year ahead. Strategically, the recycling infrastructure we've built over many years remains a key part of our integrated business model, supporting our cost base, security of supply and also our customers' environmental objectives. So it was a difficult year for our paper mills, but the decisive actions we've taken like completing the Mkhondo project and addressing Springs position us well in this segment for future improvement. Our paper converting operations, which constitute basically which are made of corrugated and Detpak, delivered an improved performance in 2025, thanks to better sales mix and improved efficiencies. We saw strong growth in demand from the fruit sector, which helped to offset softer demand from industrial customers in the year. Both revenue and profits were up, which is a commendable result in a competitive market. We also completed a bolt-on acquisition in this segment by raising our stake in Seyfert Corrugated base in the Western Cape from 49% to 74%, which expands our capabilities in the Western Cape, and that's a sheet plant in the Western Cape. And that integration of Seyfert is well on track. With the ongoing efficiency gains and positive outlook for fruit exports, although we have to just bear in mind what's happening in the Middle East at the moment in terms of movement of some of these products. The paper converting business is expected to continue its solid performance into 2026 in this very competitive market. Moving on now to the Plastics business. The Plastics business delivered a strong recovery in profitability in 2025 despite lower revenue. Revenue in Plastics declined by 7.5% to ZAR 2.1 billion, mainly due to the anticipated loss at our FMCG plastics plant in Wadeville and a dip in demand for beverage crates. However, this was more than offset by improvements in product mix and cost efficiencies across that business. Consequently, the division's underlying operating profit doubled to ZAR 180 million from around ZAR 90 million in 2024. The Plastics business achieved a 7.8% increase in gross profit, absolute gross profit and significantly higher gross margins, reflecting targeted management actions and increased efficiencies through the year. And I'll deal with each of those businesses now briefly to give you a bit of color. Our Bins and Crates business had a good year. Although revenue was down, the underlying performance improved sharply. We saw strong sales of returnable agricultural crates and jumbo bins, which helped to more than offset weaker demand from beverage crates and wheelie bins. And the wheelie bin sales were impacted by lower or softer municipal budgets or in some cases, the difficulty that municipalities are having in spending their budgets. With an improved sales mix and rigorous cost control, including 22% lower production costs, the Bins and Crates business grew its profitability by 1 quarter. Profit margins also rose markedly, benefiting from those efficiency gains and also lower raw material prices. So Bins and Crates remains a cornerstone of our plastics business and its focus on reusable packaging for agriculture and supply chain puts it in a strong position going forward. In our FMCG Plastics business, we underwent significant change in 2025. At the Wadeville plant, as expected, volumes dropped sharply after we exited 2 large low-margin beverage preform contracts in mid-2024. Wadeville's full year revenue fell nearly 1/4 in 2025. We did secure a new replacement business as we previously reported, but not enough to fill the gap completely, partly due to a slower-than-anticipated ramp-up of new customer projects and an industry-wide shortage of vinegar for mayonnaise production that temporarily reduced demand for plastic jars in the first half of the year, has since been resolved. On a positive note, the restructuring and rightsizing of Wadeville have improved its cost base and operating stability and its financial result, while still very much unsatisfactory was better than the prior year. We do anticipate a much improved performance from Wadeville in 2026 now that its portfolio and cost structures have been reset. Meanwhile, our other FMCG plastics plants, notably Pinetown and Atlantis delivered both volume and profit growth in 2025. These operations benefited from a broad customer base and several new product wins, including increased orders in personal care, packaging and high export demand from key clients exporting into Africa and the Middle East. As a result, the combined operating profit of our FMCG plastics plants, excluding Wadeville, jumped nearly 40% year-on-year. And this helped mitigate the Wadeville downturn that we experienced. With the new projects coming online and solid demand in categories like home and personal care, the outlook for the FMCG Plastics business is positive. Overall, the Plastics businesses results underscore the progress of our restructuring and refocusing efforts. We've made the tough calls to exit unprofitable volumes like those low-margin preforms to concentrate on higher margin or more sustainable margin opportunities. And we've also driven efficiencies and there's still more room to move there. For instance, fixed costs in plastics were actually down in the year, which helped somewhat. And the payoff is evident in the improved margins and profitability, and we expect this trend to continue into 2026 because we still believe there is an opportunity for margin improvement in the Plastics business. So with that, I'll hand over to Hannes, who will take you through more details on the financial performance, after which I'll come back and talk about the outlook. Thank you.

Thanks, Bruce. Good morning, everyone. This is a snapshot of the EBITDA movements for the year by operating segment, which highlights that improvements in the Plastics business were more than offset by lower profitability in Paper and more specifically in paper manufacturing, where increase in revenue was hampered by higher input costs as well as project-related downtime at the Mkhondo paper mill. The favorable variance in the corporate segment relates to a decrease in corporate costs, an increase in external rental income and Versapak-related costs, which did not reoccur in the current period. The group's absolute gross profit for 2025 was up by 3% as the 6.3% increase in variable costs exceeded overall revenue growth. There was a material difference in both absolute gross profit and margin performance between the Paper and Plastics businesses, reflecting the different margin structures as well as where they find themselves in the cycle. In Paper, absolute gross profit in rand was up with 1.7% compared to the prior period, but the margin percentage was lower by about 2 percentage points. That is because the increase in sales volumes and revenue was offset by higher variable costs, which were driven primarily by higher recovered paper prices, an increase in external paper purchases and higher electricity costs. In Plastics, although revenue was down by 7.5%, the absolute gross profit in rands was up by about 8%, and the margin percentage improved by more than 6 percentage points due to a favorable change in product mix, lower input costs and improved efficiencies. Looking now at the specific cost categories, paper raw materials was up by 8% due to an increase in sales volumes of 5%, higher OCC prices and an increase in external paper purchases. This was somewhat offset by lower pulp and recovery prices. To expand on the high recovered paper prices, on average, OCC pricing was up by about 15% when compared to the prior period, driven by increased export demand, especially in the first half of 2025. As you can see from the OCC benchmark price graph, although international prices have come off according to RISI from 2024 already, South African export prices for OCC only started to come down in the second half of 2025. I'd just note that these SA export prices used in this benchmark are based on external data from industry sources and SARS and it's more just to give an indicative indication of the trend. The decline in OCC prices has continued into 2026 as most local mills are well stocked, and we have seen export volumes and prices also starting to come off. As a significant user of OCC, the impact of the potential closure of Springs Mill on the recycling industry is still uncertain. The increase in external paper purchases by paper converting was due to good growth in the agri sector, which requires more virgin paper grades as well as project downtime at the Mkhondo Mill, especially in the second half of 2025, which led to paper converting purchasing more from external suppliers. Plastics raw materials decreased by 7%, primarily driven by lower sales volumes, a change in product mix due to a decline in hard toll sales at FMCG Wadeville and a continued decline in prices for most polymer grades. Given the geopolitical instability in the Middle East, the short-term impact on polymer prices and logistic costs are uncertain. Although we do import from time to time, most of our polymer are sourced locally, and we also import from other regions. Energy costs increased by 2.4% due to an increase in regulated electricity prices, which increased by more than 12% in 2025 as well as increased production in the paper manufacturing business. This was offset by a 20% decrease in plastics energy costs, mostly due to lower production at Bins and Crates and FMCG Wadeville as well as benefits from our solar investments. Variable selling and distribution costs were higher in the paper business due to increased transport costs associated with moving OCC from the Eastern to Western Cape to our paper mills. Other costs increased by 7%, driven primarily by higher starch and water usage due to increased production at the containerboard mills. Moving on to fixed costs. Fixed costs were well controlled and increased by 3.7%. If you exclude an unfavorable ForEx movement of ZAR 36 million in 2025, the additional fixed cost from Seyfert and insurance income, total fixed costs for the year increased by 2.7%. Personnel costs increased by 6%, mostly due to less downtime at the paper mills in 2025. Although personnel costs are largely fixed, it does contain variable elements such as overtime, production bonuses and leave pay movements due to less short time. Net operating expenses increased by 3.6%, but if you exclude the items I mentioned earlier, the unfavorable FX movement and insurance income, it actually decreased by 1.8%. Maintenance costs decreased by 4% to about 4.5 percentage points or 4.5% of revenue. Maintenance costs have been high for the last couple of years due to the various ongoing projects that have started to moderate to more normal levels, which historically has been between 4% and 4.5% of revenue. We remain focused on cost control and taking restructuring actions where necessary. This is evidenced by the reduction in fixed costs in the Plastics business as both Bins and Crates and FMCG Wadeville reduced their fixed costs over the period given the tough trading environment. I would like to spend some time on this slide to go through the accounting for 2025, what we expect for 2026 as well as the accounting versus cash flow impact of these anticipated changes. Depreciation increased by about 5%. We capitalized the Mkhondo pulp mill and SLS plant on the 1st of December of 2025, which contributed about ZAR 5.5 million of additional depreciation for that month. For 2026, we expect about ZAR 60 million to ZAR 70 million of additional depreciation in paper manufacturing related to the Mkhondo project, which will be a drag on our accounting profit in the short term while we ramp up production. Based on capitalized assets for the project to date, this equates to an average useful life of about 15 to 20 years for the assets. Net finance costs were lower than the prior period due to lower interest rates, slightly lower average net debt as well as ZAR 71 million of interest costs capitalized to the Mkhondo project in 2025 compared to the ZAR 47 million in 2024. However, the full interest cost was carried in our cash flow statement. Given that the majority of Mkhondo project has now been capitalized and completed, capitalized interest will be minimal in 2026. The effective tax rate of 20.8% is below the statutory rate, mostly due to the recognition of a deferred tax asset of ZAR 44 million attributable to previously unrecognized tax losses in the Bins and Crates business. As at 31 December 2025, all tax losses have been recognized, and we expect our 2026 tax rate to be in line with the statutory rate. Although there's no further accounting benefit, we do expect cash flow benefits from the wear and tear allowance related to the Mkhondo project and the usage of tax losses in the Bins and Crates business in the short to medium term. Other items to note include the earnings from equity accounted investments, which decreased mainly due to Seyfert being consolidated as a subsidiary from the 1st of August 2025. The increase in noncontrolling interest is because of high profitability in our Bins and Crates business, of which Mpact owns 66%. Special items include a fair value gain of ZAR 45 million, which is ZAR 33 million net of tax. So when you increase your shareholding in a company, accounting standards require that you revalue the existing shareholding. So in our case, we were required to revalue the existing 49% shareholding we had in Seyfert when we acquired the additional 25%, which led to this fair value gain. This is excluded from headline earnings per share as well as underlying earnings per share. Moving to net debt. Net debt ended up at ZAR 2.5 billion, which is slightly higher than the prior period, but lower than the ZAR 2.98 billion as of 30 June 2025. As at 31 December 2025, ZAR 3.1 billion was drawn against our committed bank facilities, leaving headroom of ZAR 900 million. I'd note that, that calculation excludes any cash on hand, so it's just the gross debt that's drawn. We remain well within our bank covenants at 1.5x net debt to EBITDA and 5.1x interest cover. It is also worth noting that our covenant ratios exclude IFRS 16 lease liabilities and interest costs. We successfully refinanced ZAR 4 billion of bank facilities in November 2025 at more favorable rates with no changes to our covenant ratios. We have reduced the overall debt package from ZAR 4.3 billion to ZAR 4 billion, which includes ZAR 3 billion of revolving credit facilities with 3- and 5-year terms. 3-year RCF also has an option to extend for a further 2 years, subject to credit approval. This is a snapshot of the movement in net debt from December '24 to December 2025. As you can see, we generated ZAR 855 million of cash after net finance costs, taxes and funding working capital. From an investment perspective, we spent ZAR 744 million on CapEx, of which ZAR 315 million related to the Mkhondo Mill project. Dividends paid, including dividends to noncontrolling shareholders amounted to ZAR 170 million and the increase in our investment in Seyfert included under other items. Working capital increased when compared to 2024, but was still well below the levels in 2022 and 2023. We did highlight last year that the 2024 number was particularly low and unlikely to repeat this year. The increase in 2025 is largely due to an increase in activity in the Paper business, where revenue was up by 7.4%, which resulted in higher stocks and debtors. However, the downtime taken at Springs Mill in December 2025 resulted in lower payables due to little procurement in that period. We continue to see pressure on working capital in the current environment due to an increase in exports, growth in the agricultural sector as well as continued pressure from multinationals to extend bank payment terms. However, this is a key focus area for us this year, and we will look to improve on this in 2026. ROCE for continued operations decreased to 10.9% in 2025, mostly due to the substantial investment in the Mkhondo upgrade project, which is not yet contributing to earnings. As of December 2025, most of the capital work in progress related to the Mkhondo Mill has been capitalized. The majority of CapEx spend, and these are cash flows, not approvals, its actual cash flow spend in 2025 was in the paper division, of which ZAR 315 million was for the Mkhondo mill project. In August last year, at our interim results presentation, we estimated that we would spend between ZAR 900 million and ZAR 1 billion of CapEx, of which ZAR 400 million would be for Mkhondo. Although we came in quite a bit lower, some of the CapEx we anticipated to spend in 2025 will carry over into 2026. Based on our current projections, we expect to spend between ZAR 800 million and ZAR 900 million during 2026, of which ZAR 250 million is related to the Mkhondo project. This includes the environmental projects, some of which may slip into 2027, depending on weather conditions and approvals. While the cash outflows are currently at these levels, you can be assured approvals will be much lower going forward. You'll note from this slide that CapEx levels have started to come down already. And excluding Mkhondo, we are tracking close to current depreciation levels. The focus going forward is to manage CapEx to SIB or stay in business levels, which is closer to depreciation. There are no major projects anticipated in the short to medium term and investment will be funded from stay-in-business CapEx budgets. This slide contains the same information as the previous slide, but splits out the CapEx, excluding Mkhondo into stay business expansion and property-related CapEx. The expansion projects related mostly to investments at our Felixton and Bin & Crates business, both which are currently earning good returns on their capital. The increase in SIB CapEx in 2022 and 2023 relates to investments at our Epping, P.E., Nelspruit and Limpopo corrugated operations, which are all focused on the fruit sector. Although we classify these as SIB given that it relates largely to the replacement of equipment, they also contain an element of expansion as the new machines are more efficient. We also acquired 6 properties, which we previously leased and installed 16 megawatts of solar over the period. Over the last 5 years, so from 2021 to 2025, the SIB CapEx as a percentage of depreciation was about 103% on average. The contemplated closure of the Springs Mill was announced early Feb 2026 and consultations with the various parties ongoing. Based on current orders in the system and subject to the outcome of these consultations, we expect to run both machines until the end of May 2026. If the mill is subject to closure, there may be a potential impairment of the assets and capital spares, which was on the balance sheet at about ZAR 200 million at the end of December. There could also be potential retrenchment and closure costs, as mentioned by Bruce. However, it should be net positive from a cash flow perspective over time as we can unlock the working capital and reduce the CapEx requirements. It will also be less of a drag on our earnings going forward and will improve our margins. The Board has declared a final dividend of ZAR 0.30 per share, which brings the total for the year to ZAR 0.60 per share. Although the Board targets a dividend ratio of approximately 3x cover on underlying HEPS through the cycle, it was decided to reduce the payout ratio for this period to reflect the current trading environment, which includes a global oversupply of most recycled paper grades, persistently weak local demand as well as the potential close of our Springs Mill.

Thank you, Hannes. Turning now to the outlook. Looking ahead, we remain realistic about the operating environment, which we -- that we are facing, but we are confident in our positioning and our direction. The South African economy is expected to remain subdued in 2026 with consumers under pressure and ongoing infrastructure challenges, particularly power and water, continuing to add costs to doing business in South Africa. Globally, the paper industry remains characterized by excess capacity and pricing pressure. And as you all know, geopolitical uncertainty persists. As a result, we expect trading conditions to remain challenging in the near term. That said, we're better positioned today than we were a few years ago. The bulk of our investment program is behind us, and 2026 represents a shift from investing to realizing value. We now operate with a more focused portfolio, a modernized asset base, which improves our competitiveness in our core markets. Structural demand in agricultural packaging remains supportive. Industry forecasts point to continued growth in citrus exports over the medium term, benefiting both our paper and plastic crates businesses. It should be borne in mind that there will be ups and downs in the intervening periods, but the general trend is still very positive in terms of fruit exports. In the paper business, our focus for 2026 is on improving profitability in this difficult market. As the Mkhondo mill ramp-up continues, we expect containerboard production and sales to increase, supported by the mill scale and efficiency benefits. We also expect SLS revenue to begin contributing from the second half of the year, creating the new income stream for the Paper division. We remain mindful, however, that paper pricing is likely to stay under pressure until the global supply-demand conditions normalize. Our response in this business is centered on cost discipline, throughput improvement and a stronger focus on high-value products. The anticipated or contemplated closure of Springs Mill or part of that is an important step in this regard, dealing with a structurally challenged operation and improving the overall margin profile of the Paper Manufacturing division. It also allows us to redeploy capital and management focus to high-return opportunities. In paper converting, demand in fruit packaging sector remains strong, and our focus is on efficiency and competing effectively in a highly competitive market. In the Plastics business, we still expect an improvement in our performance in 2026. Both the FMCG Wadeville and Bins and Crates business have completed their cost base restructures and enter the year in a significantly leaner position. With some volume recovery and new FMCG customer projects ramping up and the beverage sector crate demand normalizing or at least improving, this should support improved profitability across the segment. I should just add here that in terms of the current developments in the Middle East, there's going to be -- we would think and we are projecting a rapid spike in polymer prices for a variety of reasons. How long that will last is uncertain and how we go about recovering because generally, those -- we lag our recovery of those increased polymer prices, that we have to figure out, but that will have an impact, I think, in the short term on the plastics business depending on how things pan out. But as Hannes mentioned, it's worth noting that most of our suppliers are local. The biggest proportion of our polymer requirements are sourced locally, and that does put us in quite a good position, although there's no doubt we'll face some pressure there. From a strategic perspective, our priorities for 2026 are straightforward, disciplined execution and delivering returns. A key focus remains optimizing value from the Mkhondo mill, increasing pulp mill production and progressing the commercial ramp-up of SLS. While the SLS optimization phase is taking longer than we initially anticipated, we remain confident in the long-term value of the product and the project. In the meantime, the timing of the volume growth relative to the depreciation and interest charges associated with the recently capitalized investment at Mkhondo will continue to influence the near-term performance because we might not be able to recover or cover the full depreciation and interest costs, as Hannes mentioned, with added revenue, certainly in 2026. But beyond that, we're still pretty optimistic about it. Across the group, we remain focused on operational efficiency and cost control. Active portfolio management remains central to our approach with ongoing assessments of each business's strategic fit and financial performance. And as you would have seen, a willingness to act where required. So cash generation and balance sheet strength remain key priorities. We'll continue to manage working capital tightly, moderate capital expenditure and prioritize deleveraging. In closing, Mpact enters 2026 having absorbed a number of short-term headwinds arising from deliberate strategic and portfolio decisions. While these factors continue to influence near-term performance, they do not change our confidence in our business. The actions taken in recent years have strengthened and simplified the group, and we are now increasingly focused on converting our investments into sustainable returns. With this more focused portfolio, a modern asset base and experienced teams, we believe that we are well positioned to navigate the current environment and create value for shareholders over the long term and the medium term. Thank you very much for listening. Hannes and I will be happy now to take your questions.

[Operator Instructions] The first few questions is from Warren Riley from Bateleur Capital. We have seen Smurfit announcing EUR 100 per tonne price increase due to the rapid increase in energy prices. Do you expect Mpact to be a net benefactor of higher European energy prices?

I think that would be, yes, although a lot of the recycled competition doesn't only come from Europe. So we have to -- the biggest impact is on our recycled containerboard. Let's take cartonboard out of it for the time being. And on that basis, we have to look at the global sort of supply-demand balance. And while Europe is a big factor and it will be beneficial for us, no doubt, we have to also look at the Far East. And funny enough, a fair amount of recycled containerboard has come in the recent past from the Middle East. So the current travails in the Middle East are probably good for stemming that flow of paper from the Middle East, although that's uncertain still. But certainly, prices in terms of shipping, when we look at our competitive position, the shipping prices are going to escalate a lot, and that's already reflecting the uncertainty around the security of supply, imports would be affected, especially from that sort of area, those regions. And those factors all play to improving our relative competitive position in the local market. Having said that, sorry, I must just add that we will also face the effects of higher fuel prices and distribution costs. I mean we're just looking just now the oil price was sitting at what, $117 when we started the presentation from $60 a couple of weeks ago, I think it was. So we're going to face the impacts of increased energy costs, and we're going to have to think about how we navigate that. And we are thinking about how we navigate that in the short term from a distribution point of view.

Within the Plastics division, which business has the highest potential earnings delta from the full year 2025 base? And what is the outlook for Bins and Crates where you have invested significant CapEx?

So the biggest delta opportunity, I'd say, sits in FMCG Wadeville in the first instance. And secondly, in Bins and Crates. FMCG Wadeville, we hope to see a quicker recovery, more coming sooner. In Bins and Crates, there's still a lot of upside there, but it won't necessarily all be realized in this year. A lot of its demand related over time. But there's a significant opportunity still in Bins and Crates to realize greater profitability. Just to give you some sense of that, I mean, just in Castleview alone, I think we're still running 9 or 10 machines. We did ramp up to more, but with the beverage crate sector being substantially softer, we've restructured and turned off some of those machines for the time being. So we can still grow into that capacity. There's still tremendous opportunity there. And then we're doing a lot on the project side. I'm not talking massive capital projects, but on different molds, different segments looking at expanding our presence in the fruit sector in crates. And so there are a lot of still exciting and innovative projects that my colleagues are working on there that still give us opportunities in the future.

Do you still foresee Mkhondo contributing between ZAR 250 million to ZAR 300 million a year at a steady state? And can you update on the pricing environment for SREs?

The answer is yes. We still are optimistic about the profitability going forward. Bear in mind, we are in a down cycle in the paper industry now. So that's something to bear in mind for the time being. But on the steady state, yes. SLS pricing, we've got in our model of $400. It's slightly below that at the moment. It depends on the quality. With our current quality, it will be substantially lower than that. And that's why we're doing these interventions now. And hopefully, by the end of May, we'll have a better sense of what the final quality is. And on that basis, we'd still be optimistic about the returns there. One thing must be remembered there that the rand strength obviously decreases the rand price of our exports. But having said that, the internal rate of return is determined or the WACC used in those projects was 2% higher than what the current WACC is in our business. So if you bring that into play, then you'd still find that the project is still very attractive.

As you move into a phase of stronger earnings, cash generation and improved returns, how should shareholders think around the potential for capital returns? And would you expect to distribute excess cash as special dividends post any debt reduction phase?

So I would say that the priority at this stage is reducing debt. Once you get to more acceptable levels, then we can certainly look at increasing so getting our dividend back to the 3x cover and even excess dividends if there's -- if that's the case. But just to emphasize the focus in the short to medium term is to bring the debt levels down.

Questions from Rowan Goeller from Chronux Research. How much will the SLS plant add to revenue?

I would say it's -- if you take a full year, 35,000 tonnes of SLS at the $350 to $400. And it depends on the exchange rate. I see it's almost ZAR 17 back here now. So if you take those inputs, it probably between 250 million to 270 million on a full year basis. But as Bruce said, we won't get -- we're expecting only about 6 months worth to come in this year. So it will be half of that. But in a steady state, it should be in that ballpark.

I think it will be less than half because while we'll have revenue in the second half, there won't be a full throughput.

Yes, that's correct.

What is the overall EBIT uplift expected from the CapEx spend at Mkhondo and Felixton?

As Warren pointed out, it's around ZAR 250 million.

The third question, can you give any update on Caxton continued presence as a large shareholder?

There's nothing notable to share here in that regard.

Okay. Thank you. There are no further questions. So on behalf of Mpact, we would like to thank you for your participation. Goodbye.