KAP Limited (KAP) Earnings Call Transcript

Good morning, ladies and gentlemen, and thanks for taking the time to come in this entire results presentation. So these are the results of the 6-month period ended 31 December 2019, and they are unaudited interim results. My apologies from Jaap. As is customary, Jaap would usually introduce the results. He's got a bit of a health issue with a severe eye infection, which has affected his vision and he's on very heavy medication. So he tenders his apologies. He did dial into our board meeting yesterday and made some contribution there. So yes, we wish him a speedy recovery. Just by way of introduction, we have made some changes, which by nature of you sitting here, you're aware of. And this was the outcome of a lot of discussions with shareholders and analysts, just to find a more appropriate way to release our results. So firstly, we have released an operational update prior to the close period, which went out in December. And I think that provided fairly clear guidance in terms of where we were operationally. Then we also released our SENS after market close. We've got about 20% foreign shareholders, and we felt that it was fairer to release it after the results so that everyone has access at the same time. We have also decided to have one results presentation with the webcast. So again, everyone has access at the same time. And then lastly, we've continued to improve our disclosures. So you'll see in the interim results, we're starting to -- we have disclosed more. And especially on the assets, net assets from a divisional perspective, you can now work out clear returns per division. And we will continue to do that. So we'll continue to review our disclosures and improve wherever we can. If we then move into the presentation in terms of the KAP strategy, I think we're all aware of how difficult the environment is. It's what everyone seems to be talking about. And we're certainly not immune to that. So we've seen decline in global consumption, global trade wars, global polymers in a cyclical downturn, distressed SA economy, macroeconomic and sociopolitical. The result of that is escalating unemployment and emigration. We have experienced, for the first time in our business, a real impact of escalating electricity inconsistencies. And all of this obviously results in low confidence and low consumer spending. So as I said, we're not immune to this. In fact, by nature of our scale, we often operate in global markets, and we are directly affected by these factors. Having said that, I think it is what it is and we need to make our plans around that. So if you look at where we're focusing our attention, we've done a lot of work in terms of our human capital, so our management structures. And we didn't put it here, it was too extensive. But I'm actually going to tell you what we've done over the last calendar year, and it's actually enormous. So firstly, we split USCS. In other words, Unitrans South Africa from Unitrans Africa into 2 separate businesses. We did a very deep and extensive restructure of our SA Logistics business. We also restructured our Polymer executive. A new CEO, a new marketing director, 2 new operational executives and a complete overhaul of that. We also have replaced all the management in Safripol Durban operation. You'll recall, we had a very difficult project implementation there. Anyone involved in that is no longer with us, and we've appointed some really strong individuals in terms of running that business going forward. We restructured our Deslee Mattex mattress business. This is a business that produces fabric for the mattresses. So again, CEO's gone, marketing director's gone, supply chain director's gone, and we've implemented a new management structure. We also restructured our Unitrans Africa business, the executive, and put a new structure in place in terms of what our objectives are there and realigned their strategy in terms of where we see opportunity for growth. And then lastly, we restructured our corporate services. So we had 3 of our exco members. Those positions were made redundant at the end of last year, and we retrenched 3 high-level individuals out of corporate services. And then lastly, we restructured our statutory environment by putting all of our operating divisions in separate legal entities. Just from a governance perspective, it makes a lot more sense and gives us the ability to then operate better governance structures within separate legal entities. All of these things have actually had quite a big impact on the culture in the organization. So it's all revolved around getting the right structures in place and populating them with the right people and making sure that the right individuals are doing the right jobs according to their profile. So we've seen really positive results coming out of that, and that's something we will continue to focus on. We've appointed a new executive of Human Capital, and his primary focus will be continuing this exercise that we've been doing. As is customary, we will continue to focus on our existing businesses. We were quite clear with that in our previous results presentations. We see a lot of value in investing in new technology assets and processes and we will continue to do that. And we'll also continue to expand our existing operations. That is our first area of growth, and that generally will be in order to grow market share in existing markets. We've also got some processes in place to grow into new markets. So throughout this year, we've got some processes in place that we'll identify and put together opportunities in terms of entering new markets. With that, we will also dispose of nonstrategic assets. So over the 7 or 8 years that KAP has been in its current form, I think we've been quite effective in disposing of those operations that are not part of our long-term strategy. We will continue to do that. We did a little bit in the last 6 months, which Frans will refer to, and that will be a continuing trend for us going forward. And obviously, all of this with the objective of growing returns -- sorry, growing earnings, improving our returns, generating cash, and above all, to improve shareholder returns. We have presented our strategy several times. Through this last year, we actually reviewed the strategy to -- just to check ourselves in terms of the relevance in the current environment. And we feel that now more than ever, the strategy needs to be followed with absolute discipline. And the strategy, just to reiterate, we want to be leaders in the markets that we serve. That gives us the confidence to be able to invest heavily in those markets. We want to operate in areas with high barriers to entry. And that is the main area where we -- if we don't have a strategic fit, we will sell off operations. So high barriers to entry. We like adding value. As I said, we like to invest in new technology, new products, add value to improve our margins. Sustainability through diversity. So we are diversified by design. And I think as you go through the results, you'll see the value of that, with a global polymer sector that is severely distressed has had an impact on us. But I think the nature of our diversity has really shielded us from the full impact compared to operations that operate within that one sector. And then leveraging our African base. As I said earlier, we've restructured our Unitrans Africa operations. We've got a new executive structure with certain new positions, which will be focused on growth in that region. So that has and will continue to produce strong cash flows, and we will utilize that cash in the way that we have up to now by investing in technology of people, processes and products and continue to focus on market share growth. So this strategy remains intact. And as I said, now more than ever, is to be focused on and followed with discipline. In terms of our 5-year review, you can clearly see the impact of the polymer sector globally as well as the deteriorating macroeconomic position in South Africa. Revenue is still up 10%, but declining in the last year. EBITDA, still 9% compound annual but flattening off. Operating profit coming down and HEPS coming down. And that's really the impact of the environment within which we operate in. If we then move on to the divisional review, just giving some more color to the operations themselves. So just to provide some degree of context in terms of the relative scale of the different segments. In terms of revenue, Diversified Industrial, 30%; Chemicals, 31; and Logistics 39%. Operating profit. You can see there the impact of the Polymers division. It used to be roughly evenly split. It's now 54% in Industrial, 12% in Chemical and 34% in Logistics. Operating assets, fairly even split. And I think what's interesting to note there is that our heaviest investment is actually in the Industrial business. And as we go through the results, I think you'll see that they've performed very well. And that's an area that we will continue to invest in. So if you look at the Integrated Timber business, operating under the PG Bison brand. Revenue was down 4% and operating profit down 5% -- sorry, up 5%, which I think in the context of this environment is a fantastic achievement by the team. The panel products business, where we make particle board and MDF, performed well. We've invested a lot over the years in that business, and all of those technology expansions operated ahead of our expectations. We were able to increase our volumes, both in terms of raw and upgraded products. And we were able to redirect sales away from low-margin exports into the local market at higher margins, and that's really an indication of market share growth against our competitors. Also in line with disposing of noncore or nonstrategic assets, there were certain traded products which we bought in and resold, which were complementary to our board products. We stopped that, and the impact of that was a lower revenue but far higher margin for the remainder of the business. We commissioned an MFB -- sixth MFB press. So that is a melamine-faced board press, which presses the melamine paper onto a raw board, creating a value-added product. We installed a sixth press in August, and that was successfully commissioned and it's now in full operation. With that, we were able to increase our value-added ratio. So the ratio of melamine upgraded products compared to raw products, we increased that ratio to 61% from 54% in the comparative period. And that gives us the ability to earn more rands per unit. In terms of the Southern Cape fires, we've now completed the recovery and salvaged operations in relation to that. And we've installed a new cutting equipment, which has now been commissioned and is in the process of being ramped up. And that should give us the ability to cut quite a different log mix from what you would had those fires not taken place. So that will give us the ability to improve our efficiencies and extract value out of the forestry operations. In terms of our resin business, we had slightly softer demand coming out of that business. However, we were able to manage the product mix in such a way that we move towards higher value products, which gave us -- which protected margin. Lastly, we have raised a contingent liability in relation to the Competition Commission referral of a complaint to the Competition Tribunal. This is a matter that's been around since 2016. In terms of that process, during the process, we discovered certain information which we felt may have breached Competition Law. We immediately applied for immunity in terms of the Competition Commission's Corporate Leniency Policy and cooperated with the commission for roughly 18 months, during which time they were able to prosecute our competitor in the sector. As it turns out, the commission, 18 months later, has decided to decline our CLP application and prosecute us. So that decision we are taking on review to the high court. That is in process and any potential to try and prosecute us will be suspended, pending the outcome of that. So unfortunately, we're going to have to live with that uncertainty for some time. We are in the hands of the court now, and that is unfortunately not a quick process. We released a SENS announcement in relation to that. And we've posted a more comprehensive update on our website, and we'll continue to update that as the matter progresses. Then on to the Automotive Components division. Revenue was flat, operating profit down by 3%. Again, I think in the context of that sector, I'm really pleased with that result. Industry new vehicle assembly volumes decreased by 4%, largely as a result of slowing global demand. And this -- to the extent that 2 of our major OEMs actually closed on the 21st of December for the -- 21st of November for their annual shutdown and only reopened in January. So that obviously had an impact on our revenue as well as our model mix, which impacted profitability. So in spite of that, I think the division performed well. In our aftermarket business, Maxe. There, we're exposed to predominantly LCV, light commercial vehicle sales as well as passenger sales, which were also down over the period. And Maxe continued to grow in that space, which I think is really a fantastic achievement. We disposed of Autovest. So that was something that came together with Maxe. It was loss-making when we bought it. We thought we could fix it. We couldn't. We've disposed of it, and it's out of our system. So Maxe still continue to perform well. We've got great growth plans there, and we see that being part of our business going forward. At the final results last year, we mentioned that we would be in wage negotiations during the upcoming period. We're pleased to say that a 3-year deal was struck in the sector with no strike activity. And then lastly, just to that team, really well done in achieving Level 4 B-BBEE with our ownership structure is actually quite a challenge. And that's something that's required in terms of the APD program. Integrated Bedding. The revenue was down 1%, operating profit up 2%. And I think, again, in the context of the furniture retail sector, that that's a phenomenal achievement. The furniture retail sector continues to focus on specialty bedding, and we continue to see store conversions from traditional furniture into specialized bedding space. Promotional activity continues, so I think it's here with us to stay. I think that is going to be the nature of retail going forward. It's going to be dominated by big promotional activity and big sales peaks during those times. You may recall this time last year, both the retailers and ourselves and our suppliers were all caught completely offguard in terms of the scale of Black Friday, and that resulted in some inefficiencies in our system. I'm really pleased to say that, that management did a fantastic job in terms of forward planning, forward manufacture, really efficient logistics in order to operate through Black Friday. And we are fairly clear in our minds that we were able to grow market share over that promotional period. We continue to focus on the independent market. That way, we can really drive our own brands and start to create brand equity, and we will continue to do that. We continue driving growth at the front end of the business. So growth in mattresses themselves, bearing in mind our fully integrated value chain where we make our own firm, we make our own fabrics, our own springs, our own insulation pads, injection molded components. So the more volume we drive at the front end, we are able to create value through that backward integration. With that, we acquired a small business, which is a fiber recycler, the biggest in the country. It's a relatively small sector. And that is a primary supplier into both our automotive as well as our bedding business. And as I said in the earlier slide, maybe it's still coming, it's an area that we're going to focus on is recycling and utilizing more recycled materials in our processes, and this is really the first step in that direction. Our foam volumes, we found to be challenging. The furniture sector generally, we feel, was down. And as a result of that, we had an impact on our foam sales. In addition, foam is a relatively expensive component of a bed, and we saw some product reengineering to reduce the amount of foam in beds and replace it with other materials. So that had an impact on us. Fortunately, we have entered some new product categories in that Vitafoam business, and those performed well. And we are able to grow our market share in that space, which offset the impact of lower foam demand. As I said earlier, we restructured our Deslee Mattex business. That's where we make the mattress ticking. And we're really excited about where we are in that business now. We've shown great growth in that business. We stagnated for 2 years. We've changed management. And that business now, we believe, will grow again going forward. So overall, the Industrial segment, I'm pleased with. I think that performed well. Yes, and in spite of the environment. We're then on to Polymers. And if we thought some of the other areas were difficult, this was more difficult than any of us expected. So if we just look at the relative scale, we produced 3 polymers, polyethylene terephthalate, which is PET, which is effectively your plastic bottle; high-density polyethylene, HDPE, which, an application, is an example of the lid; and then polypropylene, which, again, as an example, is actually the label on this bottle. So that's what we do. We manufacture the pellets, which then go to converters that actually manufacture products or packaging materials. So PET in terms of revenue, 42%; HDPE, 33%; and polyprop, 25%. In terms of volumes, 44% PET; 32%, HDPE; and 24% polypropylene. So fairly evenly balanced. Just in terms of this business, we've explained this a couple of times, and I think it's important that we continue to ensure that we all understand it. The main drivers in this -- in the Polymer business is firstly the import parity price of the products we sell, so PET, HDPE and polypropylene. Those are global commodities. They traded around the world. They are imported and exported, and we operate at import parity pricing. Then the next primary issue is the raw materials. So we follow globally indexed dollar-priced raw materials on ethylene and propylene that we buy from Sasol. And then lastly, we acquire the PET raw materials, which is PTA, MEG and PIA, on the open market at global dollar prices. So the rand-dollar also has an impact. And then lastly is the volatility that takes place within our procurement sales cycle. So in a declining market, we're buying raw materials at a point in time and selling the finished product when markets are lower. And in the escalating market, we're buying raw materials at a price and selling at an equivalent higher price as the market arises. Management, I think, have done a good job in managing that a lot more effectively than we have in the past. As I said, we appointed a new Polymer executive structure. Part of that, we've appointed a supply chain director or executive that has done a fantastic job in terms of shortening that supply cycle and reducing our inventory levels and our risk. And I think you'll see that through Frans' presentation. So those are the drivers of our business. There were some fairly significant factors which impacted the results globally of Polymers. Firstly, global consumption levels are depressed, which affects all commodities, not just ours. In our specific area, there's been significant expansion of capacity in the U.S., both in terms of the monomers, so ethylene as well as the polymers being polyethylene. The U.S.-China trade war has actually had very strange implication in that significant volumes of PET were redirected from a destination of the U.S. into Europe, which has created an enormous oversupply of product in Europe. We've seen European prices plummet. And unfortunately, Europe is able to export to South Africa duty free. So that had a significant impact on our marketplace. So in spite of us being able to obtain antidumping duties against China, we've now got equivalent price material coming in from Europe. And then lastly, the one -- single-use plastics. This is something that we have been trying to work on behind the scenes with the relevant industry bodies, so plastics, [indiscernible], poly, PET, et cetera. And we'll be taking a far more proactive approach. Plastic is a fantastic material, has got multiple uses, is almost infinitely recyclable and has a far lower carbon footprint than all of its alternatives. And the issue with plastic is not the plastic. The issue is consumer behavior. And that needs to be addressed, and that's something that we will be a lot more proactive in going forward. So global margins for the industry are at unsustainable levels. If you look at the major polymer producers, so Dow, Shell, ExxonMobil, they've all reported trading losses in the fourth quarter of last year leading up to December. So something is going to give. It can't continue on this basis. And we're hopeful that we will see some improvement. So all of those factors, as you can see from the above, we follow global margins. The impact on our margins over this period are shown on the table in front of you. And we've made 2 comparisons here to give you first in the first column, a comparative first half with prior year first half, which is a direct comparison in this period, with PET margin down 45%, HDPE down 33% and PP relatively stable at 2%. The other comparative we've given you is just to indicate the trend. So it is the change in margin from the second half into the first half. And there, we saw PET reducing by 20%. HDPE, relatively stable. So we believe that, that has now more or less bottomed out. And then polypropylene actually showing some improvement through the 6 months -- into 6 months. So if we then look at the performance of the division. We've given some key measurables there. So firstly, revenue. Revenue down on all polymers, in spite of sales volumes on all polymers being up on prior. And that is an indication of global prices being down, and that's also in spite of a weaker exchange rate which is usually in our favor. Production volumes were relatively stable. So overall, the division revenue was down 9% and operating profit down 70%. I think with the factors within our control, management have done well. So we can see that we increased sales volumes on all polymers. Our local PET sales, which was an issue for us previously, we were able to grow by 50%. So we are fairly comfortable that we have won back the market share that we had lost and more. And that was at the expense of lower margin exports. The PET wide-spec materials, through the process, we produced second grade material. And with new management on site there, they've been able to reduce that from 12% in the prior period to 3%. Production levels were stable, as I said. And then as I mentioned earlier as well, in terms of managing that procurement to sales cycle more effectively, all of the PET-related inventory was reduced fairly significantly. We've also continued to concentrate on higher-value products. So in our space, the main opportunity is in copolymers, which is a further value-added product with superior technical specifications on which we can earn a higher price and a higher margin. It's an area, for whatever reason, Sasol decided to get out of. We see it as a huge opportunity, and we've grown actively in that space. So I think a lot of really good work by the division, but completely overshadowed by global margins. And I think that's really unfortunate. But we are in that space now, and we've got to ride through the cycle. If we then move on to Contractual Logistics. So this has been quite a tough story, quite a sad story actually for some time. As I said earlier, we split those businesses, Unitrans South Africa and Unitrans Africa, into 2 completely separate businesses. And during this period, they operated completely autonomously from each other. Obviously, the trading environment is tough. I think logistics is a leading indicator of the economic environment. So we certainly found that it's tough as everyone else did. But in spite of that, revenue was flat and operating profit up 16%. As I said earlier, that team did a very deep and rigorous restructure of that business. They've reconstituted the entire executive committee. So if you look at that exco now, there's not a single person on that exco that was there 3 years ago. It's a completely new executive. And I think the outcome of that has been good. So food operations, which comprised 29% of our revenue, performed really well. We were able to constructively resolve our dispute with Pick n Pay. Pick n Pay is a major customer for us and a valuable long-term partner. And it was important for us to resolve that dispute, which I think we did constructively. And that contract is now running well. The chemical operations, 12% of our revenue performed really well. They were able to grow market share by procuring some new work. Mining operations, quite small in our lives, only 4% of revenue, but performed well following a management change that we implemented there. General freight, that's probably the toughest space in the logistics. And there, I think, the team did a fantastic job in terms of remaining stable in this environment. The 2 areas where we struggled was in our fuel business, quite big for us, 19% of revenue; and in our industrial business at 11% of revenue. And the primary drivers there is lower fuel consumption. So just lower industrial activity, lower fuel consumption. And on the industrial side, 2 primary areas there are really, really distressed. Cement sector, which I think has been fairly widely publicized. So we're fairly significant logistics providers into that sector, so that we found challenging. And then also the sugar space, where, again, a fairly distressed sector, and both of those weighed on our industrial business. Overall, I think the most pleasing thing for me leading up to the 2019 calendar year, I don't think we renewed contracts or procured new work for a long time. And it's really pleasing for me to see in this period, we had renewals of ZAR 55 million. And then we procured new work of ZAR 195 million, which I think is really great and indicates the change in culture and the change in drive in that business. We did lose some contracts, ZAR 25 million worth on an annualized basis, and that was largely around price. And we're fairly strict in terms of our return parameters that we will go to. And if we can't get to what we require, we won't go into those contracts. So overall, I think the division did exceptionally well and really the outcome of a lot of hard work, restructuring that business and refocusing it. If we then look at the Africa business, revenue split there shows a fairly broad spread across the territories. Botswana is the biggest, and that's mainly our fuel business. And then the rest are predominantly agriculture. And on the right there, you can see it's a predominantly petrochemical agricultural business. As I said, we've put a new management in place. We've put a new structure in place really to drive growth. So I think it's an area that we've been very effective in executing what's in front of us. However, we've fallen short in terms of actively going out there and creating new opportunities and winning new work. And that's really where I talk about a realignment of strategy, and that is directed towards growing in the territories that we operate into work that we currently don't do. So we've put a management structure in place now that we hope will achieve that. In that structure, we've appointed 2 new executives. We've got 1 more that we still need to appoint. And then I think that business will be really well positioned in terms of growing our Rest of Africa footprint. During the year, the -- during the 6 months, they had a really challenging period. Revenue was down 5% and operating profit down 21%. There was some pretty specific factors which resulted in that. Firstly, in terms of some of our sugar renewals, we redesigned the work that we were doing, which resulted in less revenue for us, however, significantly increased the efficiencies of our customers. And so we see that really as a short-term impact. Over time, we see our ability through that kind of process to be able to actually grow our position with those customers by creating efficiencies in their system. We were obviously under margin pressure on our renewals. If you look at the sugar sector, generally, it is distressed. And obviously, that gets pushed back to their suppliers. But I think in the context of that, a couple of lines down there, you see that we were able to renew ZAR 749 million worth of work on an annualized basis. And if you consider, that division does a revenue of around about ZAR 2 billion a year. That's a huge number for us to have secured during this period. Also, one of our sugar customers, again, widely publicized, under financial distress, delayed quite a lot of work. That obviously impacted on us and that we were unable to earn the revenue, but we still set with the overheads. So that has now been brought back in line. So we see that recovering now in the second half. And then lastly, we've experienced extended border delays resulting from South African revenue services, investigations into cross-border activities. Not our activities, really, our customers that we transport fuel for. And I mean, just one example there, we had 6 vehicles impounded for 70 days, which then comes out of our system and affects our ability to earn revenue. So that's something that we are working hard on with both size and our customer. And we have already redirected a number of vehicles away from those cross-border activities so that we don't get affected by that going forward. So as I mentioned, the annualized value of renewal, ZAR 749 million, and most of those are 5-year contracts. ZAR 77 million new work that we've won, which will start in the second half. And then we lost work of ZAR 89 million. And again, that was mainly in the fuel space and it was price related. We also secured some contracts after 31 December, which will be implemented in the second half so they're not reported here. But we're quite excited about what that will bring, and we're hopeful that this division will recover its position relative to prior year. If we then look at the Passenger Transport. Revenue was up 2%, operating profit down 10%. And there's really one remaining issue in this business. The commuter and personnel operations, 54% of revenue. They were stable. They grew marginally, but really stable despite lower passenger numbers and increasing unemployment. So I think they did well. In one of our commuter contracts, we've got a very onerous fuel capping provision. We've mentioned it before, that we are trying to renegotiate that fuel capping out. We are making progress at dealing with government. It's slow. However, what we've done in the interim is we've completely restructured the routes that we do and the subsidies in terms of how they're allocated to those routes. So we have stopped the bleeding. That business is now profitable again, and it's not just to try and renegotiate the fuel capping. The real issue in this business remains the intercity and tourism. Tourism was able to recover and we're quite hopeful now looking forward. Intercity remains a major issue. We actually tried to sell the business. The sale collapsed fairly at quite an advanced stage. And it's really an indication of the sector. You would have seen 2 competitors in the press. One has been placed under administration and is unable to pay wages. And the other one, on an ongoing basis, is reported as being unable to pay wages. So we believe something will break in that sector. And going forward, we're hopeful again that we'll see a degree of sanity returning to that sector. Gautrain performed well, stable on prior year. Mozambique continued to perform really well. And we really see Mozambique as an opportunity for continued growth. There's an enormous amount of activity going on there. And we're in the thick of it with our commuter operations there and personnel, and we continue to see opportunity there. I think what's important to understand with this Passenger business, because we've reported for some time that they're in a difficult space, they're struggling, et cetera. But you'll see in the additional disclosures that we provided now that you're able to work out the return on capital employed. And although profits aren't where we would like them to be, the return is still close to 20%. So still a good business. If we then look just broadly at the revenue analysis. So Industrial, down 3%; Chemical, 9%; and Logistics, 1%; bringing us to ZAR 12.6 billion and a spread across there in terms of where those decreases took place. If we then look at the operating profit analysis: Industrial, up 3%; Polymers, down 70%; and Logistics, down 7%. And I think this illustrates the value in our diversity. So I think if you look at some of our peers in the chemical sector, you can see fairly severe decreases coming in terms of their overall profitability. Whereas in our business, it is shielded to a degree by Industrial and Logistics operations. In terms of the margins, really pleased with the Industrial margins. We've done a lot of work there, concentrating our efforts on high-margin work. And I think you're seeing it starting to come through there. Chemical, obviously, a huge issue for us. And those margins, we need to get back to the 9%, 10% level. Logistics, although we see declining margin there, I'm really confident in terms of the work that's being done that we will see a recovery of that, which I'll talk about a little bit more on the outlook. But that's an area that I'm actually quite bullish on. So overall, the group down to 9.3%. And really, the primary impact being the Polymers division. So I'll now hand over to Frans who will go through the financials and then I'll be back for the outlook. Thank you.

Thank you, Gary. Good morning, everyone, and thanks for taking the time out to come and listen to us today. So we've been, in the last couple of years, I would say 2 years, really focused on continued improvement on our disclosures. And you will see again in this set of results that we've actually disclosed the net operating assets and you can calculate the returns per division. So we believe that -- and will continue to improve, but we believe the way we disclose our numbers now is sufficient for investors and analysts to actually make an informed decision in investing in our business. The period under review is -- or was mainly affected by the Polymer division's results or performance. However, on a consolidated basis, revenue was down 4% to ZAR 12.6 billion. EBITDA down 4% to ZAR 1,8 billion. Operating profit before capital items down 12% to ZAR 1,2 billion. Headline earnings per share for the 6 months, down 6% to ZAR 0.22. Our cash generated from operations, down 35% to ZAR 571 million. And our gearing net debt-to-equity, excluding the effects of IFRS 16 leases, which I'll explain later, is stable at 54%. And our net asset value per share, that increased 3% to ZAR 4.74. The income statement is presented from continued operations. So that excludes the Autovest operations that we have disposed off during December 2019, as well as Glodina that we disposed of in the prior period. Also, the results that we present includes the adoption of the new IFRS Statement 16 on leases. And I've got the separate slides explaining the effect on income, on our income statement as well as on our balance sheet. To highlight certain items on the income statement. EBITDA before the B-BBEE costs in the prior year is down 13%. Depreciation increased 14%, partly affected by IFRS 16. The B-BBEE cost in the prior period of ZAR 194 million, which was nonrecurring. So it's not in the current period. So the result of that was operating profit down 12% to ZAR 1,2 billion. Net finance costs, down 6%, also partly affected by IFRS 16 leases. Our tax rate reduced, and I've got a separate slide explaining that, resulting in headline earnings down 6% and headline earnings per share down 6% to ZAR 0.22 per share. We further always show you, and we analyze our revenue per geography and per currency. And firstly, the revenue analysis illustrates, number one, the diversity in our markets where we sell, where 14% of our revenue is coming from countries or regions outside of the South African borders. And secondly, it illustrates the diversity in the current -- in the underlying currencies that support our revenue where we have 36% of our revenue that's U.S. dollar based, and that's mainly our Safripol or Polymer division. The effect of IFRS 16 leases on our income statement for the period is that the profit before tax reduced by ZAR 10 million from ZAR 832 million to ZAR 822 million. So the reported number is the ZAR 822 million. And that's after taking into effect the derecognition of operating lease expenses, the additional depreciation on the right-of-use assets that's capitalized on the balance sheet, as well as additional finance costs on the finance leases that's on the balance sheet. So in summary, it's not a material effect for KAP's income statement. And I'll show you the balance sheet later. Tax rate decreased from 32,8% to 26,5% during the period, and that's mainly because of the B-BBEE cost in the prior period of ZAR 194 million that is a nontax-deductible expense. On the balance sheet, to add on to what Gary has referred to, our focus for the period was to invest in our own operations, to strengthen our balance sheet while we maintain our gearing levels. So we are pleased with the balance sheet at the end of 31st December 2019 with ZAR 23 billion of quality assets. Worth pointing out is total equity, that's stable compared to December '18. And that's mainly a function of ZAR 1 billion that we returned to shareholders in the form of dividend and share buyback. Net asset value per share increased 3% to ZAR 474 million. The effect of the implementation of IFRS 16 leases on our balance sheet is shown on this slide. We elected the modified retrospective approach that's allowed in terms of the statement, resulting in right-of-use assets that was capitalized on the 1st of July of ZAR 395 million and finance lease liabilities of ZAR 406 million. The cumulative effect of this initial application of the recognition is all in retained earnings, and I'll illustrate it on the next slide. And in line with IFRS, no restatement was done to our comparative information. The effect of this IFRS 16 leases on our equity is that there was no movement in our equity. So it's ZAR 13 billion to ZAR 13 billion from 30 June to 1 July. And the detail is on the slide, taking into account the right-of-use asset that was recognized as well as the finance leases that was recognized on our balance sheet. Our asset-based copies a diversified industrial. Adding on to what Gary is saying, we continuously invest in new technology assets to remain competitive and specifically to grow market share. And as illustrated on the left-hand side there, it's what we've invested in the last 5 years. And I draw your attention to the 6 months under review that, in line with our strategy and in line with our focus, we've invested ZAR 1.2 billion in the last 6 months. Our diverse asset base illustrated on the right-hand side there is in line with our strategy. And to highlight there is that right-of-use assets in terms of IFRS only makes up 2% of our asset base. On our plantation revaluations. On the balance sheet number from 30 June to 31 December, during the 6 months period, the net movement between the normal operations and the fire-related impact is only a movement of ZAR 15 million. And I think important to note here is that we've completed the harvesting for the June 2017 and November 2018 fires. And in this period, the only effect of the recovery estimate was a loss of ZAR 8 million. So to the extent of the fires, it's really an insignificant number. And I think management has done an excellent job in minimizing the losses to the company. So it's a job well done. To focus on working capital, it's a continued focus for the group and the company is to lower our working capital position. And there was a specific focus from the last time that we were presenting to now on the Polymer division. And they've done an excellent job in their procure-to-sales cycle during the period. So working capital from December 2018 a year ago to now December '19 decreased by ZAR 202 million to ZAR 2.4 billion. And the inventory reduction is mainly due to Polymer division's lower volumes, basically less stock as well as the lower cost of raw materials. Both the receivables and the payables movement is mainly due to lower polymer and related raw material prices. On the cash flow. To highlight certain items, cash generated before working capital changes down 16% to ZAR 1,8 billion. We've invested in the 6 months, which is different to the net working capital slide that I showed you previously. That's a 12-month period. But in the 6 months, the period on the review, we've invested ZAR 1,2 billion in working capital, and that's in line with our working capital cycle where we invest in the first 6 months of our financial year. And then in the second 6 months, we released working capital. That resulted in cash generated from operations at ZAR 571 million, which is 35% down on the prior year. Worth highlighting is the net cash finance costs, which excludes the effect of IFRS 16 leases. And that is down 12% to ZAR 324 million. The cash conversion ratio at 50%. To continue with the cash flow statement, we've invested ZAR 1.2 billion, and that's net of acquisitions and disposals that Gary referred to in his presentation. Dividends that we've paid during the period is ZAR 647 million and that includes dividends paid to minorities as well as shares that we repurchased to the value of ZAR 373 million. During this period, we started the process whereby we've bought back shares firstly. We've bought back ZAR 36 million worth of our shares and its held in treasury. And that's for the possible future obligations under our share rights scheme, as well as we've purchased back or bought back 46 million shares and we canceled those to really enhance shareholder value. The total of those 2 programs is ZAR 373 million. Our ordinary shares in issue is down 3% at the end of December compared to June last year. The net effect of all these investments and share buybacks, you can see on our interest-bearing debt, where December '18, our interest-bearing debt was ZAR 6,7 billion. And gross debt during that -- during these 12 months reduced by ZAR 1 billion, which is the net effect of debt that we settled, debt that we raised in refinancing, as well as increase in vehicle and asset finance. Also -- so that's ZAR 1 billion down. Also on the right-hand side there, our cash that decreased by ZAR 1 billion, and that's mainly due to the dividends and the share buyback that we've returned to shareholders. And the only real increase on our net debt is the effect of IFRS 16 that you can see in the middle, where we now have ZAR 463 million of finance leases on our balance sheet. We highlight here certain significant debt funding activities during the period. For us, the ZAR 1 billion revolving credit facility that we've amended and extended through October 2021 is important to highlight. That facility is at the moment unutilized. Also, Global Credit Rating, GCR confirmed KAP's rating again in November as A+ with a stable outlook. On our debt structure. Net interest-bearing debt increased with ZAR 474 million, as explained previously. Our equity remained stable, and the effect of that on our gearing is that it went up from 54% to 58%. If you exclude the IFRS 16 lease liability, our gearing net debt-to-equity remained flat at 54%. Our debt serviceability ratio is in line with our targets with a net debt-to-EBITDA at 2x and EBITDA interest cover remaining at 5.3x. On the left there, you can see the makeup of our funding structure. Two things to highlight is the unutilized revolving credit facility there, which is 12%. And then our finance lease liabilities in terms of IFRS 16 only makes up 6% of that structure. As part of our conservative approach, we continue to maintain a portion of our funding as fixed. And at the end of December, that was 18% at fixed interest rates. I would like to take this opportunity to thank all our funders, that includes debt capital markets, banks, also the vehicle manufacturers as well as our shareholders for your support. Because without you guys, we would not be standing here giving you a presentation. And lastly, on our maturity profile, on the left-hand side there, we -- at the end of December, we still had ZAR 293 million in cash. You can see the unutilized available facilities, of which the revolving credit facility of ZAR 1 billion is the biggest. And then quite even spread of repayments. And all those repayments are well within our capacity to settle them as and when they become due. So with that, I hand over to Gary to take us through the outlook. Thank you.

Thank you, Frans. Just in terms of the forward-looking picture, we don't see the economy recovering in the short term. I think this is where we're going to be for a while. And as I said, take that as being it is what it is, and we need to make our plans around that in order to create growth in the business. In terms of the Integrated Timber division, PG Bison is really well placed in terms of their market position, their products and their capacity and efficiencies to continue with the work that they've done in terms of growing market share. We've got 2 projects on the go. One is complete and commissioned. The other one is actually on progress now. Those are our 2 particleboard lines and will result in improved efficiency and additional capacity. So that will be beneficial to us. However, you may recall from our previous results presentation that we delayed the annual shutdown, maintenance shutdown to coincide with this. So on a like-for-like period, in the prior year, we had no shutdowns. And in this year, we'll have 2 fairly major shutdowns, which will impact on production volumes as well as just the maintenance cost implication of that. Just in terms of the additional volume that we will produce, as I said earlier, we've already redirected some of our lower-margin export sales into the local market. We have already increased our value-add ratio. And both of those will continue to be driven in terms of growing market share and growing the value add. Turning to the Automotive Components. Global sales of new vehicles continue to decline. And this obviously has an impact on manufacturers around the world, and we certainly are not immune to that. So we see a global -- a subdued environment in the automotive space. And during this calendar year, we've also got the reintroduction -- a model renewal taking place, which is fairly big in our lives. So that will bring a degree of disruption to that division. In Integrated Bedding, the business model will continue to support promotional activity. We believe that this is where retail will continue to go, and we believe that it's critical that we put the right infrastructure and processes in place to be able to really grow our business in that environment. Volume demand for our product remains buoyant in spite of the furniture sector being down. We still have strong demand for our products. We will continue to build our brand to grow our market share, and we will also continue to backward integrate. As I said, it's an area that we would like to pursue recycling in a fairly significant way. This Bedding division is already well advanced with recycling. A large part of their products are already largely recycled materials. And that's an area that we will continue to pursue, really from the perspective of sustainability and creating sustainability in the polymers market. If we then move on to Polymers. Where is it going to go? I think we've said for some time, the forward-looking forecasts by the forecasting agencies has been very volatile up to now. Those forecasts are now more stable. They are subdued, but at least more stable. There will be an impact from coronavirus. We don't know what it is yet. So China is one of the biggest producers in the world of PET. So as I said earlier, we've seen more PET imports into Europe, duty-free imports coming into SA. Obviously, with nothing moving in or out, it is going to have an impact on the PET sector. And then China is also one of the biggest consumers of polypropylene and polyethylene. So again, where you've got big capacity coming online, one of the major markets for that is now closed down. So there will be impacts. I think it's too early to predict exactly what it will be. However, we'll obviously stay close to it and try and navigate it as effectively as possible. Just in terms of continuing to manage the factors under our control, we'll continue to run our plants full, sell to best advantage and keep migrating our product range towards higher-margin products. We'll continue to work on our supply chain management to reduce our inventory volumes. And then we will do a last project in, I think, July -- June, July, just in terms of finally completing the Safripol Durban project, and that will really be to improve the efficiencies and the yield of that plant. So as I mentioned, consumer sentiment towards single-use plastics, I mentioned a little bit earlier. It's an area that we have stayed under the radar. We've tried to work through the industry bodies. We've seen legislation changing in certain countries in terms of single-use plastics. I think, in context, plastic spoons, straws and plastic bags are very small in our lives. For the PET operations, which makes the bottles, that's obviously a major element of our business. And there, we've got one of the highest recycling rates in the world. So 63% of PET is recycled. And it's recycled mainly into fiber products, which from our perspective is far more preferable to bottle recycling. So we believe that will continue. On the polyethylene and polypropylene, I think it's about 5% of our product goes into single-use plastics. So that side, it's not a major impact on us. But obviously, we need to be aware of it and we want to participate in the recycling space. So you see the last point on our slide there. In order for us to have a sustainable long-term Polymers business, we need a long-term, vibrant and sustainable recycling sector. That -- there is an enormous amount going on. It's largely fragmented and widespread. And we believe that there's an opportunity there to create a consolidated business within the recycling space across various areas, not just polymers. On the Logistics business. As I said earlier, I'm really pleased with the Contractual Logistics business in terms of what the team has achieved, and I think that they will continue with their current momentum going forward. They've got an enormous focus on the asset utilization, on their cost management, their efficiency levels. And with that, we've seen them become far more competitive in their contract renewals. So I'm quite optimistic about that division going forward. Bearing in mind, the growth will come from market share gains. The economy is not going to grow, we've really got to operate more effectively than our competitors. In the Africa side, as I mentioned earlier, we've renewed our key contracts. We secured additional contracts and that -- those will be implemented in March, April of the second half. And again, we've really assessed our position. We've -- I've stood up here a few times and said Rest of Africa is really an opportunity where we would like to grow, and we haven't. So that's why we've changed management, we've changed the structure, and we're repopulating that structure. We believe there's an opportunity to grow outside of SA, and we want to put the right management and the right capital in place to be able to do that. The Passenger business. Key to us is the renegotiation of those onerous fuel capping clauses. And as I said, we have restructured that -- the routes and the subsidies in such a way that we are now profitable there again. But still, to get back to the profit levels and the returns that we want in that specific contract, we need to renegotiate. And there, we've actually seen increased tender flow. So there's a lot that we're working on. And we've got the skills and expertise and the assets to be able to do it. So that's something that, that team will already be focusing on in the next 6 months. So overall, as I said right at the beginning, over the 2019 calendar year, we've done a lot of work in terms of getting our structures right, getting the right people in the right jobs and refocusing the organization towards growth. So we spent 2 years post the Steinhoff events really consolidating our business, getting our control environment, getting the right structures, protecting our balance sheet. And I think if you look at what Frans presented, we've managed to keep our debt levels flat in spite of returning ZAR 1 billion to shareholders. And we will now focus the businesses on growth opportunities going forward. So with that, I'd just like to thank the staff. It's a really tough environment. And we know how hard you all work and your commitment and the efforts that you put in. It doesn't always show in the results, unfortunately, but it certainly doesn't go unnoticed. So from a staff perspective, well done and please keep up the good work. And then just from a Board perspective, you can imagine this environment isn't easy for a Board. From a compliance and potential exposure perspective, I think our Board is functioning well. We have appointed 2 new Board members, 2 independents, 1 with very strong industrial experience and forestry-related experience and the other really a specialist Audit Committee chair member. And we had our first Audit Committee, first board meeting, and I think that went well with really great contribution from those members. So we will continue to strengthen the Board and we have further appointments lined up that we will hopefully conclude during this calendar year, just to create further depth and succession potential in terms of the KAP Board. So with that, we are open to questions. We have got on the webcast, there's a facility for those participants to ask questions. So Gavin at the back has got an iPad, so he can call out questions. Otherwise, we open to take questions from the floor. Gavin, maybe you go first and then...

It's James Twyman from Prescient. I've got 2 questions. The first one is in your African logistics business, you've obviously done a great job in renegotiating those contracts. Just getting a sense of what sort of margin impact there would be from that? And then secondly, a lot of investments going on this year in timber. Just to get an idea of what sort of CapEx plans you've got for the year after and whether you're going to accelerate your share buybacks?

The first question, our margins have been impaired through the renegotiation. However, the nature of the work that we're doing, I think, provides the opportunity to grow the volume of work that we're doing. So where we are losing margin, I think we will gain volume and activities over time. In terms of the investments and the CapEx, we spent roughly ZAR 1.2 billion in the 6 months. Our budget is around about ZAR 2.2 billion. I'm not sure that, just from a practical perspective, we're going to be able to spend that much. So you're probably looking at around about ZAR 2 billion in terms of CapEx for the year. In terms of the share buybacks, we have got a program running and that program will continue to its conclusion. Once it's finished, we'll reassess the position and decide how we take it forward. I think let's get someone else. [ Ethian ]?

[ Ethian ] from Truffle. Gary, just on -- I mean, thanks for the new disclosure, just on the net operating assets. But it also highlights the weak returns in your logistics SA business, I think about 5%. Now I see you're talking about the new contracts that you're targeting and all the CapEx you're spending for that. I mean, how does that -- I mean doesn't make a lot of sense to try and grow that business even bigger given the low returns. Maybe just why not focus on the current business, current contracts, and get that as optimal as possible?