Release Date: August 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Five of the six divisions delivered improved results, with PG Bison achieving a significant milestone by reaching ZAR1 billion in operating profit.
- The restructuring initiatives at Unitrans have shown positive results, with a 32% increase in operating profit.
- Successful completion of major capital projects, including the ZAR2 billion MDF project, which was completed ahead of schedule and within budget.
- Raised ZAR3 billion RCF, allowing for the refinancing of maturing debt, demonstrating strong support from banks and funding partners.
- Positive momentum and energy within the group, with clear strategic initiatives aimed at creating shareholder value.
Negative Points
- Overall group revenue decreased by 2% year-on-year, primarily due to underperformance in the Safripol division.
- Operating profit declined by 11%, from ZAR2.5 billion to ZAR2.3 billion, largely impacted by Safripol's weak performance.
- Safripol's revenue dropped by 10%, and its operating profit plummeted by 62%, significantly dragging down the group's overall results.
- The trading environment remains challenging, with continued infrastructure disruptions and elevated inflation and interest rates affecting consumer spending.
- Net debt increased slightly, and the company anticipates further debt increase in the first half of FY25 due to working capital investments.
Q & A Highlights
Q: What exactly is the value add ratio in respect to PG Bison?
A: It's 67% relative to 62% in the prior year. Our products are raw materials used in downstream applications like built-in cupboards and kitchens. We add a primary surface to these raw products, facilitating downstream manufacturing and consumer products.
Q: In PG Bison, is MDF largely used in kitchens? If so, what is driving the demand given that the residential renovation or upgrade market remains weak?
A: MDF globally is sold more than particleboard. In South Africa, the MDF market has been undersupplied, leading to imports. As quality aspirations rise, demand for MDF increases. Typically, kitchen cupboard structures use particleboard, while the fronts use MDF.
Q: Can you please give an idea of how much of the MDF expansion can be absorbed by current demand as you mentioned in the presentation that demand exceeds supply?
A: There is demand in both our domestic market and rest of Africa territories. We aim to displace imports and grow market share against local competitors. We have given ourselves four years to ramp up to full capacity.
Q: Given the cost benefits of the new MDF plant, surely it makes sense to run this plant hard and reduce production from your older operations?
A: In theory, yes. We aim to run all our plants at capacity, balancing other production dynamics on those sites. This is taken into account in our strategy.
Q: Overall, is a stronger rand a headwind or a tailwind to earnings going forward?
A: Generally, our business benefits from a weaker rand. However, rand volatility is most damaging. We can adapt to a weaker or stronger rand if changes occur in a structured manner.
Q: Were there any divisions in Safripol (PET/PPO/HDPE) that were loss-making?
A: PET was marginally loss-making this year. However, considering the five-year maintenance shut, it was close to breakeven. The other two polymers were profitable.
Q: How much of Unitrans' business involves African countries, given that Malawi hurt your results?
A: Unitrans has a significant presence in African territories, covering agriculture, mining, petrochemical, and general freight sectors. This exposure is material to our revenue.
Q: Can you provide more color on Unitrans' business development activities? Is existing capacity sufficient or will this require some investment? What does the margin outlook become then?
A: We are focused on growth within existing clients and sectors. There are opportunities for holistic solutions using scale. Our longer-term margin guidance remains unchanged.
Q: Is the ZAR700 million Unitrans EBIT level achievable in FY25? What is your guided CapEx for FY25?
A: Our base case for Unitrans is achievable, targeting ZAR700 million EBIT. Whether this is fully realized in FY25 or split between '25 and '26 remains to be seen. CapEx for FY25 will be materially lower than the prior year.
Q: Why is there such an increase in the value of your biological products? Does the revaluation go through the income statement? Do you capitalize projects or expense them as they come?
A: The increase in biological assets is due to replanting in the Southern Cape. We expense maintenance and capitalize capital projects, including interest for multiyear projects.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
