AECI Ltd (AFE) Earnings Call Transcript & Summary

Good morning, everyone, and thank you so much for joining us this morning for the presentation of our Financial Results for the Year Ended 31 December, 2023. You're all welcome. And this is our usual cautionary statement. In terms of our presentation, we will start with Holger Riemensperger, who is our Group Chief Executive Officer, who will take us through the Group performance overview. Our new Group Chief Financial Officer, Rochelle Gabriels, will take us through the Group financial performance. And then Dean Murray, who is our EVP for Chemicals, together with Holger, they'll take us through the segment review. We will then go through the strategy update and outlook. We will take Q&A at the end. And if any of you need a copy of the presentation, please you can download it from the website. So to kick start the presentation, I almost said performance, we're excited to present our results to you. Holger, please come forward.

Yes. Welcome, everybody. Welcome to 100-year listed South African institution, not just the company. 128 years legacy. First explosives company in South Africa on the continent. Still #1 in the country. Still #1 on the continent. And we are very, very proud about this. Not many companies turn 100 years old. And that shows the resilience of the business and the quality of our people. Going into the numbers, I assume you can all read. So I will not read it to you, just highlight a few things. The unfortunate thing first, and you know that we reported it already during '23. We had 2 fatalities last year; 1 in Ghana, 1 in South Africa. And that, of course, our thoughts are still with the families and believe this doesn't go away. We continue talking about this. This was a deep impact after many years of not having to go through something like this. The other highlight I want to mention here, on the ESG slide particularly, is our gender diversity. I am really, really proud. So we have a board with a gender diversity of 50% male-female, which makes us proud. And the Chairman walked away and then the CEO should try to walk after him, and we are getting with our executive committee very close to it. Meanwhile, as well, I think that is relatively outstanding, specifically in the industry we operate in. Very quick on, let's say, the landscape where we operate in, in the moment and a little bit how we look in -- also into '24. So we think that growth is slightly coming back, but will be depressed also in the year to come. We do expect that inflation stays elevated, while it gradually eases, similar for interest rates. And also the China fragility we expect to continue. So in that type of an environment, we continue to be very cautious on capital allocation. We continue on debt reduction, coming back to that, and on our working capital management. We have put our capital management, capital allocation into the center of how we manage this business, and I will get back to it. The -- read this side as the financial piece and the right side as how we look to the business. Ukraine conflict continues. We do not know how long that will continue to impact volatility of commodities, all types of. Gaza and Red Sea conflicts carry a potential to disrupt supply chains. We are not affected yet because actually we are not on that route, but if that continues, there might be effects coming. Russia, Middle East energy prices up, South African elections. We do not expect big changes in the economic environment for the year to come. And the Europe, EU elections are particularly important for us with regards to energy prices on the Schirm business. So we prepare ourselves for a slightly higher cost. We prepare ourselves for a continued volatility in commodities. And we also will have a clear eye on supply chain and potential disruptions. So that was already a little bit in looking forward, but then I want now to talk about '23. So '23 was an exceptional year for AECI. It was the year of change, of drastic change. If you go back in late '22, almost the entire top management has changed. And that type of things also come of course with some disruption. And I have to say that we as a management together with our fantastic team have been able to maneuver the ship through the storms. Let me start with looking to our headline earnings per share, which are a bit down. And they are down on the back of higher financing costs. That is the legacy. You will remember that we have discussed or talked to it in the half year results last year. And we announced that we will focus on debt reduction. We will focus on working capital reduction. So we have managed and really proud in the half year ZAR 1 billion debt returned. And we have managed our working capital from 19%, which we consider elevated, down to a 15% average, down to 13% in our core business, Mining, which then is even below our guidance, the Mining one, of 14% to 16%. So very, very proud about that. The return of debt brought our gearing level down from 45% to 35%, which is within our guidance, but not on our target. So we continue to focus on that. Like I said, we're putting the capital allocation into the center. And we will continue to reduce debt as you see from the impact the finance costs have on our HEPS. The other element then, you really see that the focus is a lot on that capital allocation. We have corrected, and Rochelle will speak through the details in a few minutes. We have corrected historically under spend on maintenance. And remember, we said actually our #1 priority is financial health of the company. I think we can say we delivered that. We would never make promises not deliver. The second one was asset health. We are on that. The third one, which I'm not mentioning here is innovation. We are an innovations-driven organization. We are a leader in the industry if it comes to innovations and new products. We not only want to continue that. In a moment, our spend on innovation is about 2%. And going forward, we want to significantly increase that to ensure that also in the next years and even in the next 100, we continue to be a leader in our business. So before I give it to our new Group CFO, Rochelle, which I welcome. And I think Rochelle really strengthened our team. I'm very happy to have you here. But I also want to thank Rafael, Acting CFO in '23, which closely worked with me and of course the team to get to where we are today and what we present. And I'm even more happy and really proud that Rafael accepted to become our Chief Transformation Officer running the transformation of the company. Rochelle, your floor.

Thank you, Holger, for the intro, and welcome everybody in the room and online with us. It's a real privilege for me to join AECI in a very momentous year. AECI turns 100 years this year, but also a year where we start a new one, AECI strategy. So very excited to be part of the team to drive the execution of the strategy that we have set for ourselves. But I'll be sharing the financial performance of the company for the past 12 months. So we've had a strong performance fully here considering the challenging trading environment we found ourselves operating within. We saw revenue growth of 5% to a level of ZAR 37.5 billion. That was strongly underpinned by our Mining segment, which saw growth of 8% year-on-year, driven by good volume growth within the business as well as some good contract gains in the Mining segment. If you look at EBITDA, EBITDA has grown 3% to a ZAR 3.6 billion for the year. There were some one-offs. We do recognize the revenue enhancement contributing to the 3%, but there were some one-offs that we experienced during the year. If we were to normalize for the one-offs, our EBITDA would have been a 5.4% increase year-on-year. From an EBIT perspective, we grew by 26%, but also recognizing that we did have a large impairment in the prior year in our Schirm Germany business of ZAR 471 million that came through last year. I think Holger has mentioned the all-time record within our Mining segment. They've achieved a ZAR 2 billion EBIT for the year, which represented an 18% increase year-on-year. And also to note that our Mining segment contributes about 80% to our overall Group EBIT. On the EPS side, we saw EPS strengthened to 27% on a year-on-year basis. Also recognizing once again the impairment impacting our EPS in the prior year. Our HEPS, disappointing outcome from a HEPS perspective, it has reduced by 12%. The financing costs -- the elevated financing costs having an impact on our HEPS due to the high interest rate environment that we find ourselves within, but also elevated short-term borrowings during the year to accommodate working capital to support revenue growth. I think lastly, just to note specifically, if you look at our HEPS achievement for the year versus our EPS achievement for the year, they're very closely aligned. So a cleaner set of earnings with very little abnormal items coming through the year. All right. If we look at our balance sheet, I think we've certainly strengthened our balance sheet year-on-year. Working capital has reduced from 19% to 14%. I think it was a good achievement overall for the business with the Mining achievement of a 13% working capital percentage for the year. And that is within the target guidelines that we've given the market specifically around working capital of 14% to 16%. From a gearing percentage, we achieved 35%, and that was mainly driven by the reduction in net debt due to the turnaround specifically on working capital. Free cash flow, positive ZAR 2.4 million, very strong free cash flows generated throughout the year if you compare to free cash -- negative free cash flows in the prior year. On the dividend side, slightly a decline dividend that we're proposing for which will be declared -- which has been declared for the year. We have managed expectations around our dividend yield on the lower end of our dividend guidance, which is 2% to 5%. And we do expect to be at the lower end of that yield percentage over the next 2 years as we balance the returns to shareholders, but also taking into account the growth required related to our strategic ambitions. If we then zoom into working capital, we have mentioned obviously the reduction in our working capital percentage. We had a very focused last quarter, specifically around managing our working capital, stringent volume management, specifically around inventory and then good collections of our debtors in the last quarter as well. I think to note that the -- from an accounts payable perspective, it is a challenge and it remains a focus for management. I think from a sustainability perspective, and I think that's our focus as management and remains a challenge for us is, how do we sustain our working capital percentage at the levels that we currently have. So in terms of -- as part of the strategic execution program, we have a balance sheet optimization work stream with dedicated people at the Group level as well as within the business units. We've identified focused initiatives to drive down our working capital days. We've also deployed a net working capital analytics tool, which is really giving us insight in terms of trends and we can make some informed decisions around working capital levels going forward. We've also recognized the need to refine our cash flow forecasting process within the business, which will help this process as well. All right. On the net debt, Holger has mentioned, we've reduced our net debt by ZAR 1 billion. And that's really been supported by the working capital turnaround within the business, specifically around inventory and accounts receivable collections. Again, here, we've achieved a 35% gearing ratio, and that is within our guidance that we've given the market as well, which we -- the range of 20% to 40%. So we've achieved a 35% within the current target range. And I think here, again, the focus is really about sustaining that free cash flow enhancement as we go through the year. Holger has mentioned the capital allocation framework. So we need to firmly operationalize that within the business and use that as our guide in terms of decisions that we make within the business in terms of how we allocate capital within our business. All right. On the CapEx side, we've spent ZAR 1.3 billion of CapEx during the year. 67% of that was related to maintenance CapEx. We do recognize, if you look at the trend in terms of the ratio below the graph is that we have under-spent specifically on maintenance CapEx. And we see in this year, there's a correction to that. So we've spent in terms of a ratio of 1.1x. And we will continue to spend from a maintenance perspective in terms of the guidelines that we've given, which is between 0.8x to 1.2x of depreciation. I think also to note, we have spent investment on some sustainability initiatives. I think the one notable one is the investment in the solar projects in both our Sasolburg as well as our Modderfontein operation. All right. We also refinanced our debt last year. It was a successful outcome. We've refinanced both on the debt capital market as well as on the loan syndication. Both processes were over-subscribed. And overall, we have achieved favorable pricing outcomes through that process. Also worthy to note that those -- the financing that we put in place is also linked to our AECI Sustainability Financing Framework. To note as well is that there's sufficient headroom in terms of our covenants in terms of where we ended the year. We ended the year 1.2x net debt to EBITDA. I think from an undrawn bank facilities, we're sitting at ZAR 3.7 billion at the end of the year, so that's available for growth within the business. In addition to that, cash on hand of ZAR 1.9 billion. You'll also notice from a debt profile perspective, our debt matures over a period of 3 to 5 years that we've put in place with our lenders. So just to highlight some of our finance priorities for the upcoming year. Finance is a key strategic pillar in terms of delivering on our strategy. The first is to ensure that we put a best-in-class operating model in place to support the strategy and also a structure in place that supports that operating model. So that's a key focus area for finance. Important is technology. Technology is a key enabler within the finance environment. We will continue with our One World program. We've still got a few businesses that will go live on to SAP during the year. Important, the middle block is our balance sheet optimization. I've spoken about the work stream that we put in place and the specific initiatives we're going to drive around the balance sheet optimization during the year. Procurement excellence is also a stream within the strategy execution program. And here, specifically, we're looking at centralizing procurement within the Group to enhance efficiencies, but also enhance governance specifically around procurement. And then lastly, we're looking at enhancing our governance risk and compliance structures within and processes within the business. This is the cornerstone of how the business operates. And I think it's important that we look at enhancing those current processes within the business. All right. That's all I had to share with you today. I'm looking forward to the engagements post the results. I'll now hand over back to Holger.

Thanks, Rochelle. Yes, I will take you through 2 segments, the first Mining and then our Agri segment. Let me start answer trying to answer a question that always comes up when we have our engagement. And that was like, what is your dependency on the volatile ammonia? And we always explain that we have a put-through mechanism in our prices and rise and fall with our customers. So actually I always said that our margins are not really affected. Now it's better probably to show numbers than just throw words. So what we have done here is actually to show gross margin, not for the overall business, to be very precise. We want to make that as clean as possible. So that are margin ranges of our bulk emulsions per ton and also then in percent to give you an idea how ammonia volatility impacts our business, and it does not, not on the margin level. On the revenue, of course, on the revenue. And that also then drives the percentage, clear? That's math. But what is also important to see here is that we have been able independent from the ammonia price to continue to improve our gross margin over the years. And reason for that is very simple. It shows you that our internationalization brings us into markets that are more profitable than the very competitive South African market. And we always said that this is our strategy. We want to continue to grow international. And we have been very successful, as you know, in Australia, in Indonesia, not to forget the African continent, specifically Central Africa, West Africa as well. And that comes to fruition here. And I think that's a testament to that is the right direction. You remember, we made an acquisition last year, announced an acquisition in Brazil. We continued to say we want to also penetrate other countries in South America. We are looking into how we get our foot on the North American continent. Those 2 specifically besides continue growing our Asia Pacific business and specifically Australia. So that's our next steps and we're looking into that. And talking about the Asia Pacific business. Because the question came a little bit like why did you win the [indiscernible] project, and that always comes up. And I said, we did win it because of a better technical concept and not because we come in at price because you see that we are not price sellers. And the simple explanation is we have a lot of experience also in -- from South Africa with burning coal and all that. So we know how to deal with these type of things. So -- and I think that should prove when other questions come and say, are you competitive globally? Look, yes, because otherwise, we would not grow and we wouldn't grow international because our growth doesn't come from South Africa. 70% of this business is now outside of South Africa. We have no plans to necessarily increase our market share in South Africa. #1, we have a big share. #2, this is not the most profitable market and we are eyeing more profitable markets, continue growing. So like Rochelle said and I can only repeat that all-time record EBIT, all-time record free cash flow, all-time record in pace of increasing international footprint in Mining, and that's what we want. And we are very, very proud about this and that will form the core of our strategy going forward. So Mining the highlight, we have mixed back in Agri. Let me separate the Agri business in 2 pieces, the Schirm business, which is still consolidated in these numbers. You know we said we will change reporting only going forward, of course. And our other mainly South African local Agri business. So in general, the Agri market globally had a difficult '23. You see that from all players in that market segment. So the market was pretty slow, is still slow, should improve because there is only a period of time when you cannot apply fertilizers, when you cannot apply plant health products. So sooner or later, that's biting back. So we had a difficult second half in our local Agri Health business, but not a bad one, but a difficult one. And Schirm, we saw an impact in second half in the U.S. business with a slow Agri market. And Schirm Germany, as you know, it's actually not really too much Agri-dependent, but generally chemicals dependent. Chemicals industry in Europe, and particularly in Germany, has gone sour in the second half, really significantly down 10%, 15%. And then, of course, as a contract manufacturer, the producers first pull back to utilize their own capacity. So the Schirm business was heavily impacted. So our top-line went down 30%, 40%. Lucky as we have been in the restructuring process already for Schirm Germany. So we have closed the Wolfenbuttel factory and we have been able to relocate volumes. We have cut costs and we were on a very successful track there and then the market bit it back. So bottom line, we are basically, if you look to pure the numbers, we are basically back to start. It means back to early '22 if I look to the business as such, but it's not true. It's just the numbers. So in reality, we have made all the improvements. And once the market recover, that should come back. And I do not, at this stage, talk to the M&A piece of it. Yes. So actually, the local business is a bit impacted by the South African economics as well. But we always said, we run this for cash. Mr. Murray?

Thank you very much, Holger. All right. Good morning to everybody and to those online as well. Let me tell you a little bit about the Chemicals' performance for last year. I think, first of all, again, a mixed performance, but most importantly, very good strong cash generation in this business, which is obviously there to support the growth in the Group. So revenue down by 4% to ZAR 8.1 billion. And unfortunately, the EBIT down 8% to ZAR 515 million. And really, the revenue we saw coming off, and that was really on the back of a slow demand in South Africa, particularly in our sulfur/sulfuric acid business and also quite a bit of pricing pressure. I think not only us, but a lot of our competitors have been reducing inventories in the market. And of course, we've had to really compete on pricing to make sure that we get our stocks down. And of course, the SA macroeconomic environment is quite tough at the moment. If we have a look at particularly our sulfuric acid business, the demand is really low. Our tanks are often full. So we've had to really manage this business very carefully to continue supplying our customers in the market. Also, our SANS business in the U.S. had a tough year as well with the apparel market being down. But fortunately, again there, we went through some major restructuring. We've put some more equipment in to automate the processes. And we expect to see that improve as we go through 2024. On the positive side, I mean, our Specialty Chemicals business, they've always done a very good job in terms of managing margins and also some of our new business that we've got in the international market as well. So they had a very good performance year-on-year. And of course, also our beverage business as well. There was a lot of strong focus. You will recall, we put in some investment into the beverage business in 2022, 2023, and we've seen the benefits of that clarifying unit as well. And then, of course, Much Asphalt, which has been a nice surprise for us as well. I think with the Much Asphalt business, we've seen the volumes start to improve. We've seen a lot more of the jobs being allocated to the market as well. But Much is really focused on their costs over the years as well as the contribution per ton as well, and we've seen a good benefit of that. If you'll have a look and you can see the cash flow generation, I'm very proud to say, it's ZAR 469 million worth of cash generated, really up on the year before. And I have to say well done to the team. The team is really focused on working capital. That's -- by the half year, we were still way up and the pressure came from Rafael as we were managing that down. And I have to say, well done to the team. They took it seriously and we delivered I think in line with what we expected to do. All right. On the Water business, the Water business, a tough year for Water, but the performance was really dragged down by the Public Water business. And if we have a look at the Public Water business, really impacted by very low export sales on to the African continent as well. And of course, we had some one-off costs in Water. What we did is we had some bad debt provisions that we put in place. Fortunately, we've started to recover that bad debt through January and February quite successfully. And we'll have a strong focus on making sure we pull that debt in as well. And then of course also our inventories, we brought in some stock because there was a shortage in the back end of 2022. And again, we're sitting with high inventories there, which we need to really work down through the course of this year. However, if you look at the business, I mean, from a working capital point of view, the team has done well. I mean, we were sitting with ZAR 815-odd million worth of working capital at the end of 2022, down to, as you can see over there, down to ZAR 572 million at the end of '23. So they have already worked very hard on net working capital. Good cash generation in the business of ZAR 351 million. And again, a lot of focus now to make sure that we make sure we manage our margins effectively and we work down net working capital again for this year. On a positive note, in the Water business, we're still a very strong player in the Mining and Industrial sector, and those businesses performed well last year. We've got some very exciting projects that we work with our technology partner, Veolia, and we will continue to do that in the year coming ahead. Thank you. Holger?

Thanks, Dean. Yes. And going a little bit to our strategy where we are at. We have announced, some would say, a bold strategy. I think it is, but also, I really believe that we can get there, otherwise we would not call it out. And maybe just a little back. And one thing we said is that we want to double profitability of our core business by '26. And the question also came back this morning from some interviews with journalists, how sure are you? We are sure. And just to give that a bit context, again, numbers are better than words. If you go back to our presentation, Capital Markets Day in November last year, we presented the core business going forward separate from the managed businesses. And if you recall, when the average ROIC of the Group was 12%, that was '22 numbers, so we are a little better off now. And the core business alone was at 17. So going through what we have planned with focusing on the core business, that alone without any operational improvement would bring a substantial improvement. And Rafael later will talk to how we're going to improve. So we are very firm standing and say, yes, we will get there. And I know it looks like a big carry, but we'll get there. And also on the global #3, that is too early to talk about, but actually, we strongly believe that we can get there. Otherwise, it would be not a wise decision to go out and talk about that. What is important for us, and I'll repeat that. And also, there was a question coming very often about is the organization are the employees behind the change? And I'm very, very happy that that question comes up because I completely agree. So before you go in a strategic change, you make sure that the culture and the people are ready for it because you do not -- you can have the best strategy in the world, if the culture doesn't fit, you're not going nowhere. And I believe that '23 and the way we maneuvered through the storms have proven that this organization is fully in -- has bought into the new strategy, we are really all behind that. And always, you never go and say 100%, but the vast majority, we are on the walk and we'll bring that over the hill. A few words on M&A. So just said, that's an important part for different reasons. One, to continue to bring our debt down, but also to prepare the balance sheet and the company for growth going forward. So we have now established a professional M&A team. So we have not had that skills in the house. So we brought in external talent. We have now structured all the processes for all the businesses that are on the list. We have very good initial first interest for all businesses. We have a road map delivered because we said in November, 18 months to deliver that. We stand firmly behind that 18 months. We do believe we can. And of course, we cannot do it all simultaneously. So that's why we developed a road map to choose what is most important, what is most likely and how can we take that forward in the best way possible. So all the processes are initiated, going in different stages, different shades of gray, but everything is ongoing. And in that vein, we presented last year in the half year results, particularly on also Schirm more detailed numbers. And also, we talk more details on Much, both of those businesses are on the list in the managed businesses. As we are now in the process, we -- not that we shy away from the numbers, and I indicated where we are, and I'm happy to answer all the questions. But we do not want to present at this stage detailed numbers because we do not want to damage our selling processes. So -- but you are welcome to ask any questions later on. Now Rafael will show you how we get to the doubling.

Thank you, Holger. Welcome, everybody. Nice to see you all again. So as Holger mentioned, we went through a whole strategy process in the back end of last year. We presented it in November. Now our strategy is nothing without execution. So we've put quite a big ambition forward in terms of doubling the organization. So how do we do that? How do we support that? So we put a transformation office in place. So we spent the back end of last year, early Jan, to operationalize the office, getting the resources in place. And I want to say a big thank you to the TMO members who have taken up the challenge to participate and drive the strategy and support the organization. We have quite a few key strategic deliverables. And in terms of that, we start off with the operating model. We've communicated that clearly what our core businesses are and what our managed business is. But we also said the corporate office will play a more closer role to that. And that entailed a review of the structures. So I'm happy to report that the executive and the senior management structures have been finalized. We are now engaging with the staff members and people to populate the structures accordingly. That we will see through and hopefully complete during the course of this week. That will take us to the next level down further into the organization. We will commence that process in March. And we look to complete that by early June. As part of our journey, our One journey, we also want to address our culture. We've mentioned earlier, we want to create an environment of a high performance culture. We want engaged and passionate people. And we've brought on an outside consultancy to help us. We want to do this right. In terms of our ambition, we've split it between organic and functional and operational excellence. In terms of organic growth, it's focused on the core business to see that, and we've put the numbers forward, as previously communicated. And to help us achieve that, which is going to be run by the businesses we've put forth, we have established a corporate development office to help the business in terms of the delivery, and that's under the leadership of [ Riad ]. I've already mentioned the transformation office has already been operationalized and now we're focusing on the functional and operational excellence initiatives. We've given a range of the values that we're looking to pursue. And you can see there on the down at the various work streams we are focusing on in terms of procurement, manufacturing, commercial excellence and supply chain. And to date, bearing in mind, we've just started now in the beginning of January, validated about 62% of that -- of those initiatives that we can now implement and we want to drive that through into the company's results during the later part of this year. So that are our key focus. And that's what the TMO office does is constant engagement with the business on a regular basis weekly to maintain the cadence. Whilst that has been very much an EBITDA focus in terms of functional operational excellence improvement, we're also looking at cash. And as Rochelle has reported, we are in a far better space. We're not there yet, but we're in a better space. And that was quite an urgent intervention we initiated during the course of last year is to address our high debt position in light of our higher financing costs. So the balance sheet optimization did a very good piece of work during the course of the last year, but we're not there yet. I think the focus now is on sustainability. How do we sustainably operate at the lower level and lower going forward? Just to remind everyone, these are the targets we've put forward and communicated at Capital Markets Day. So whilst we are showing our historical performance from 2022 to 2023, the target is for the core business. So we're going to go through this journey, as Holger explained, the managed businesses will be disposed of as part of the M&A process to achieve our 2026 targets in addition to our improvements on functional and operational excellence as well as organic growth. So you can see we've achieved some of those targets, really being helped by the fact that we've put a capital allocation framework in place, giving us clear guidance of how do we manage our debt dependent on where we are in the interest and economic cycle. So we know exactly how our debt should be. So we're in a better space, but there's still room for improvement. I think the only one number that I wanted to tease out, not just create an expectation that it's repeatable is our free cash flow conversion ratio. It is quite significant at 66%. But just to remind, it was an urgent intervention that we needed to take last year. And on a sustainable basis, we're looking at the numbers quoted on screen between 30% and 34%. So good performance. So we're in a far better space. And now it's about executing. And yes, it might be a 2, 3-year journey, but the focus is about delivering this year to the extent possible, and we will provide more clarity of how we're going to achieve that as we go along this journey.

Thank you, Rafael. Yes, short outlook where we are at. And despite maybe expectations that the mining industry is looking into a difficult year, and I'm not talking about our Mining business, I'm talking about some specifically a South African mining industry because that's not exactly how I look to a global industry. Our Mining business is looking into a good year. We do expect, from where we are at and it's still early in the year, and of course, things can happen, we do not have any signs as we speak that there's a change of direction of the business. We besides that, so expecting that that continues. We're expecting that we can continue to outgrow market and gain share international. Again, there's no intent to grow further shares in South Africa. We have good shares. That's good enough where we are. So we will continue to push internationalization. And we mentioned that we are looking to Australia where we are already strong and have a good momentum. We are strong in Indonesia, do not forget that. And I'm also not want to forget about Central Africa, Western Africa where we have a good growth momentum, but we're also entering South America and North America, as I said. And reason for that is that we also look into future metals, specifically ETM, energy transition metals. And where do you find them? Basically, in Australia, in Brazil, Chile, Peru and U.S. and Canada. And that gives you also a sense why we are eyeing those markets. And we continue to drive that this year, trying to get our foot on the ground. And he important also, and again, wrapping up, so we want to drive, as I said earlier, innovations. And if I go back within time, long time actually, then this company was pioneering actually detonators, electronic detonators. We are still among, as you know with the joint venture we have, among the top in the world. And now these type of products become an enabler. So it is -- if you're not in that business, it's going to be difficult, almost impossible to sell explosives. And we do see that the next enabler, and I always said that's an enabler, it's not a business, it's digitalization, we continue to drive that. We have made good progress last year. And we will increase our investments specifically in that field. For the Chemicals business, now the new Chemicals business speaking, we do not expect that the economic situation, and again, this is South Africa, is going to change big time. It's going to be difficult also in '24. So we do not expect that we are turning back and grow the business and all that. So that means we continue what we have started. We always said that the Chemicals business is managed for cash. We never said we are going to grow. We never said we're going to internationalize it. It's managed for cash. We will focus -- continue focusing on cost. We'll drive efficiencies also through the transformation program and make sure that we continue to deliver cash also in '24, and we are very optimistic that that's going to happen. Thank you very much. This is it from my side. Zanele, take it from here.

Yes. Thank you, everyone, for the presentation. So we'll do Q&A now. So we'll start in the room and then we'll take some online as well. [Operator Instructions]

[ John Aaron ] from SBG Securities. So I was recently on the train going from Droxford, O.R. Tambo to Sandton and you go to Modderfontein and there on the hill side is some of your old plants in your Modderfontein complex. And I must say, they don't look wonderful. It looks like if they're a bit run down, but we've been there, we know how operational efficient they are. But you also had something there about reducing your dependence on Sasol, I guess, also on Transnet. So my point is, given the run down nature of some of those assets, does it make sense to develop new assets maybe doing the coast, import nitric acid or ammonia and do away with the dependence on Sasol and on Transnet?

I'm very happy that I have my COO now with me, Denvor, and he could go in all granularity. But there is one answer that I want to give and then Denvor can come in. But we are -- you are asking the right question. So is that the right model still? That's the big question behind, the strategic question behind, right? And you go even and say some years ago it was important to be backwards integrated into ammonia. If you now look to it, you would say, it's a disadvantage being backward integrated in ammonia. And proof, well, if you not consider other players like an Orica or [ Dyner ] that they not understand the market, so they are divesting from that, right? We do not have that, but we have the backwards integration into AN. If you look to our growth markets, if you have looked to the profitability, the gross margins, I do believe we can get over time. We know this is a long process, but we can get over time to a different business model, asset-light and we do not necessarily need that backwards integration into it because we have proven it works. So that's a long-term answer. But I also want to give because that whole still ammonia supply and so on is an important one. Maybe, Denvor?

Good question. And I think just for clarity, we do run aged assets, but aged doesn't necessarily mean unreliable. So we've spent heavily into the complex, especially the nitrates complex into ensuring the reliability of the assets that we have on the ground, and that has worked really, really well. With regard to the security of supply and the dependency on the local supply of ammonia, you would have seen a press release going out earlier today around the security of supply of ammonia and that being 128 new wagons being introduced into the fleet between Sasol and TFR, and that's been a strategic move for the market and trying to get that reliability to the customer base in South Africa and predominantly to AECI in Modderfontein. Whilst that for us might be a short-term solution in a sense and gives us that sense of security, in supply chain, everything is around risk mitigation or most of supply chain is around risk mitigation. And part of the scenario planning that we do have is a life without local supply of ammonia. So part of that risk mitigation is looking outside of South Africa for sources of supply and also getting into that green space. The green space, I wouldn't say, is the silver bullet or the silver lining for us immediately, but it is considerations in the scenario planning, but we have also successfully moved ammonia between Richards Bay and Modderfontein in the last 2 weeks. So that has been successfully done and able to demonstrate to the market our ability to import ammonia through that facility and maximize our usage out of [ REM ] to supply the Modderfontein complex. So whilst there is the short-term strategy, there is also a longer term plan for us. And part of that scenario planning is a life without ammonia supply in South Africa and looking in-house and looking offshore as well.

Given that green ammonia is far more expensive to produce than normal ammonia, is there any suggestion for your clients that they're prepared to pay more for explosives if they're green compared to normal explosives?

I'm going to just defer it to, Holger.

I know Denvor can answer it, but I'll take the easy ones. If there is a customer that requests green ammonia, they are ready to pay for it. And if they are not, then we do not deliver, I mean, it doesn't make sense. There are geographies in the world that are interested in that type of products. That's mainly Australia, that is Europe, that is North America, I would say, mostly. But why I was taking the question is exactly that's the point. If you are backwards integrated in ammonia, then you have to make a choice because you either do green and then you go for those markets or you take a conventional route. And as we are not backwards integrated, actually, we can buy whatever we need and our customer is willing to pay for. So that gives us the flexibility that we would not have being fully backwards integrated.

Good morning. My name is [indiscernible] from SBG Securities. I just wanted to add on to my colleague's question. So with the ammonia tankers, it is -- it sounds like you're saying it is a good thing that Sasol has what seems like an exclusive use agreement. Does that limit at the moment in the short-term your ability to source ammonia internationally from like Richards Bay specifically? And my second question is, like you said, your assets are old, but reliable. And I see you are reinvesting in the assets. I'm curious to know, I would think like my accountant brain is going, okay, reinvesting depreciation to CapEx should be kind of going down at this point. So are you planning like any major turnarounds? And will there be any significant downtime? Like if you could just expand on where this maintenance CapEx will be, if you could?

Okay, perfect. Just on the first one regarding the introduction of wagons into the fleet. As you know, the current situation that we find ourselves in is really related to the infrastructure -- oiling infrastructure in South Africa related to TFR. And the inability at times to maintain some of that fleet, and that fleet has been retired, and that's where the impact. I mean, we've had something like 160 wagons that were in operation reduced down to 50, which impacted the supply of ammonia in South Africa or predominantly to AECI. With the bump up of the 128 coming into the fleet, that significantly improves the supply profile coming out of Secunda into Modderfontein. And yes, whilst it will be a bump up, it doesn't negate the fact that we will have a hybrid strategy of importing ammonia into South Africa. And therefore, we tested the supply chain not too long ago by moving ammonia between Richards Bay into Modderfontein as well. So we're quite confident that that hybrid strategy would work. And whilst we would get in the initial phases, predominantly most of ammonia from local supply, we will be moving it to a hybrid strategy going forward. And that hybrid strategy might go into different sources, whether it be in-house or whether it be import and as well having a local source of supply. Regarding the capital expenditure into our assets predominantly into the nitrates facility. Yes, a lot of the work and a lot of the expenditure that we have is predominantly from a statutory perspective. So really complying to local legislation and having your annual statutory shuts, so to speak, but with that also creating efficiency from those plants. If you look at our overall equipment efficiency for the nitrates complex, you're well over 85%. So they're quite old assets, but they're delivering well over 85% on OEE, which is phenomenal for plants of that nature. And provided you get a steady supply of ammonia in, those plants can run flat out well over 85% OEE. So most of the CapEx that we are looking to deploy into those assets will really be around creating more of efficiency in the system, not necessarily bolting on where we perhaps build more prilling plants or nitric acid plants, we wouldn't do that. But we are looking at optimizing our assets more responsibly in Modderfontein from a CapEx investment perspective.

We'll take 2 from online. One is from Temoso Musi from 36ONE Asset Management. Firstly, congratulations on a strong set of results during a tough period, I know it couldn't have been easy. Given that the gearing, net working capital and free cash flow conversion ratios are all within guided 2026 range, how sustainable are all these in the near-term taking into account mining expansion plans, current trading and outlook?

So thanks for the question. I think I did specifically mention around the sustainability remains a challenge for management. However, we do have a focus on it with specifically around the balance sheet optimization work stream and program that we have in place. I think just from an outlook perspective for the rest of the year, specifically firstly around half year, we do expect our debt levels to be slightly elevated come half year. However, we do expect that the gearing ratio will still be in line with what we've achieved at the end of December. And then going forward, in terms of the year end, we do expect our gearing ratio to be in line again with our target guidelines, but more closer to the lower end of the range.

Another one from an [indiscernible] What is the portion of offshore or high currency debt within your gross debt? What was it before the recent refinance?

Okay. I can maybe ask Rafael for some help here.

So just on the debt. So our significant portion is really euro-denominated debt. You'll still see it up on the debt profile of about ZAR 2 billion euro-denominated. And there's also a dollar-denominated portion to support the Schirm expansion in the U.S. That number did grow during the course of last year as part of the turnaround of the Schirm project, which was about -- I think it was EUR 20 million that we had provided to support the Schirm and there is a small supplement coming through for this year as we continue to support the turnaround offshore. So those are our key dominant pieces. We do have a portion in Australia as well to support the growth there, but not as significant in comparison to the Schirm amounts.

But the breakdown is in the Fs on our website.

So we'll take another 2 questions from the room, if there are any.

It's Rowan Goeller from Chronux Research. At your Investor Day recently, you spoke about the chemicals [Technical Difficulty]

So our question is that we talked about consolidating some of the assets, specifically in the chemicals area. So what we referred to is, basically, first and foremost, everything we do is chemicals. So that we should say. So in that case of mining, we are looking to a market segment in the chemicals, as we talk it now, we are looking to a product perspective. So there is Mining, Chemicals part as well which is very successful, very much growing international meanwhile. And in our chemicals, for example, there is also in the Specialty Chemicals there is business that is growing nicely, Oleochemicals business, which is now almost 100% related to mining as well. It's not sitting in mining at this stage. So that is, for instance, a clear synergy where you can put things together. We do have a water mining business, which also there is a clear synergy of putting things together. So that would be kind of sorting out between mining and the remaining chemicals. And then the other element that we discussed about was what other products can we produce in existing assets without big investments, so then we talk brownfield adjustments more in that existing assets to support growth of the core businesses. So what other, for instance, chemicals can we produce that we then can supply also into the mining. So that was the idea. And there was a consolidation piece that I have addressed and that was more coming from a -- some of our assets are still very underutilized. And we need to make a decision soon. We need to make a decision, are we able to fill that capacities with what I should say, can we develop other business that then we can utilize the capacities or not? And if the answer is not, then the consolidation, the world consortium would mean to shut down capacities. So -- and that's 2 elements. I hope that answers the question, right? I couldn't hear it well.

It's okay. Maybe just to add to that, you had some products that you might be looking to discontinue. I think in the chemicals, you spoke about that at your Investor Day that through the portfolio, there are products that kind of nearing the end of their, I suppose, useful life in the market. Detergents I think was the one that was referred to. Any update on that?

But I think what you're referring to is we produce sulfonic acid and slags at our facility in [indiscernible]. The demand for those products continues at the end of the day. And again, it was really looking at our facility, looking how we could debottleneck the facility to create better capacity for the one product over the other because the market was moving towards the slags products, which are used in the liquid detergents rather than the powder products. But currently, still at the moment, Unilever and Procter & Gamble, they're still using both of those products in the manufacture of their detergents.

Another question from the room? Okay, we'll go online. There's one from [indiscernible] from Coronation. Can you tell us what Schirm did in revenue and EBITDA? And can you do the same for Much Asphalt?

Obviously, Holger has mentioned around the sensitivity around the sale process, but I will give you an idea specifically, was it around Germany?

Schirm as a business consolidated both Schirm Germany and U.S. and then Much Asphalt.

All right. So from a Schirm total, revenue is about ZAR 2.5 billion that we achieved on the Schirm revenue. Much was ZAR 2.5 billion for the year compared to ZAR 2.2 billion in the prior year. On the EBIT side, the loss has reduced from a Schirm Germany perspective. Obviously, there was the one-offs impairment in the prior year. So in total, if you look year-on-year, the Schirm total was about ZAR 500 million last year and that's reduced to roughly about ZAR 300 million EBIT this year, loss.

Okay. Another one from Warren Riley from Bateleur Capital. Schirm Germany incurred ZAR 160 million in non-recurring costs in FY '23, do you foresee any further costs to rightsize in FY '24? That's the first question. Are any managed asset disposals far advanced? For example, do you expect to close any disposals in the next 6 months?

Yes. So just around the Schirm Germany turnaround costs, I think there was obviously a large investment in FY '23, which is the ZAR 159 million one-off that was incurred. We don't expect to see large further costs related to the turnaround plan in the upcoming year. However, we do see that we will see the benefit of certain of the investments come through into the year going forward from a cost perspective.

Yes. On timelines for M&A, it would be irresponsible I think to make a statement. It's roulette. It's casino. And what I said, just to restate it and use that question, we always said we will not do fire sale of the assets and we are carefully managing your capital. So we will make sure that we get the right price for the businesses. I'm very confident that, as I said, that we can keep the timeline. We said 18 months and then we mean 18 months. And the interest is there. But calling out dates, I think would not make sense at this stage.

Okay. Paul Carter from ClucasGray. At the Capital Markets Day, you indicated disposal proceeds of in and around ZAR 2.5 billion can be expected. Is it still the case?

Yes.

Okay. [ Peter Kromberg ] from Merger Markets. Can you provide any detail regarding the stage of the sale process for Schirm and the type of interest which has been received?

A little bit. So we have been in a process that was relatively in an advanced stage, but not close to any type of a signing last year. And when the market turned sour that was specifically around September-ish that went a bit more chewy. And at that stage, we also thought it is better to bring in more interested parties, which we have, because when we actually announced it very clear in the Capital Markets Day, there was a lot of interest coming in. So before that, it was particular interest, but then it was a bigger interest. So we are actually now in the process to restart the Schirm sale with more and more competitive process. That's how I would take it. But also, what you should see is that we are in that process very, very prepared because we -- all the work is done basically. So yes, but again, it does make sense to give timelines.

Okay. And are there questions from the room? Okay, no more online. So that's it. Thank you, everybody. Thank you so much. There's some lunch outside. Please help yourselves. Thank you.