Barloworld Limited (BAW) Earnings Call Transcript & Summary

Good morning. A warm welcome to Barloworld's interim results for the 6 months ended 31 March 2023. Today, we will present, starting with our group CEO, Mr. Dominic Sewela, with the financial -- with the group highlights and overview. We'll then move to Ms. Lila, FD, for the financial overview. After that, she will be followed by the business unit heads, starting with Mr. Emmy Leeka from Equipment Southern Africa; Mr. Quinton McGeer, Equipment Eurasia followed by Chris for our Consumer Industries vertical presenting Ingrain's results. Thereafter, we'll have our CEO take you through our strategy update and outlook and thereafter we'll take questions from you online, over the telephone, on LinkedIn for those watching on LinkedIn. And yes, we'll close off after that. I'll now hand you over to our CEO, Mr. Dominic Sewela.

Good morning, ladies and gentlemen. As Nwabisa said, you're welcome to Barloworld's interim results. As per usual, it's always important that we start with ESG. We at Barloworld have been in the habit of ensuring that we can integrate ESG as part of our business. And some of our key focus areas in ESG is financial inclusion because we operate in emerging markets. And in these markets, there are societies that are impacted negatively. So one of our main tasks is to make sure that our communities are included. And we have Mbewu and Siyakhula that is -- uses a vehicle to do so. I mean it is known that we're leading in the areas of diversity and inclusion. And to that extent, we've also issued bonds that speaks to inclusion and gender as well as sustainability. But of importance as well is that our Board focuses on governance. And it is important that we continue to have a balanced Board that has got a keen interest and attention to what shareholders require. But also importantly is that from a people point of view, we look at people and the planet that we live in. Because in many ways, our behavior as human beings do impact the planet, therefore, from a Barloworld point of view, we ensure that our employees are aligned, ensuring that we can reduce our footprint onto the planet. And when you look at what we do as a business, we try and focus and say, whatever we focus on, it's going to be part of the business. When you look at the gender bond, when you look at the targets that we've set, it is already what we are doing, but trying to entrench that and saying, let's set targets that are in line with what we're doing. Therefore, diversity and inclusion is what we do well. And there are many other instances where I can show you. But I think what's notable is that we've been recognized and given an award on that ESG gender-linked bond. And we -- prior to that, we had issued a sustainability-linked bond and key focus area in that so reduce our footprint on the environment, and we're using it to roll out solar PVs to reduce our reliance on coal-fired power stations or drawing electricity, but more importantly, is actually making sure that our employees are able to go home safely to their families as they come to work. So that is the focus. And I think come the year-end, we'll be able to give you even more numbers in terms of our targets and how we're progressing there. I think another highlight for us, I mean notwithstanding the challenges we have in our various jurisdictions. It doesn't matter where we are. We've got, even here in South Africa, a lot of challenges, but notwithstanding that, our strategies that we embarked on 5 years ago, which was focused on saying we need to fix, optimize our business and then get into growth has really been a strategy in action. It has delivered the results that you're seeing here. I mean we've been able to exit businesses that were dragging us down in terms of returns, in terms of earnings. And now that we've simplified the portfolio and in the meantime, also make acquisitions that are very accretive, whether you look at Mongolia and Ingrain, those businesses are very accretive to our business at all levels. You can see that we've basically generated revenue about 12.9% increase on a continuing operations, notwithstanding the challenges we have in a jurisdiction like Russia. If you were to exclude it, just for demonstration purposes, the revenue is still strong at 34.5%, very strong, right up to operating profit. I think you can see ZAR 2.1 billion compared to ZAR 1.8 billion of operating profit. Similarly, when you look at the HEPS, 29% HEPS growth for continuing operations is very strong in this environment that we operate in. Operating margins, I'm very pleased that we are now in the double-digit operating margin at the group. And as you'll see from the divisions, they will be able to demonstrate where it's all coming from. And I'm also pleased that from a capital allocation framework that the Board uses -- the Board has declared a dividend of ZAR 2.0, which is about 20.2% -- 21.2% up on last year. And so we are actually living up to and making sure that we remain very accretive to our stakeholders and this for me is a major step towards that. And I think we continue to focus on cash conversion. I think when you look at our EBITDA in the first half, it's significantly up to ZAR 2.7 billion compared to ZAR 2.4 billion, even having taken Avis off, which is very good. Let me hand you over to Ms. Lila to take us through the numbers in detail. Thanks, Ms. Lila.

Thank you, Mr. Sewela, and welcome all to Barloworld's 2023 interim results. My task is pleasant today as I present exceptional strong results for the group, and thank you to team Barloworld. As Mr. Sewela has mentioned, we have successfully exited our automotive pillar. Avis was unbundled on the 13th of December 2022. Logistics disposed of on the 31st of March 2023. So what remains within the group now is our 2 core businesses being the pillar consumer industries as well as service -- industrial equipment and services. I'm delighted to present the financial highlights. Stellar performance coming through our revenue, EBITDA, operating profit and core trading activities as well as our headline earnings per share. Our gearing has remained within our targets. And as expected, with the net asset value per share, the number would have decreased because we did unbundle Zeda during this period. I move on to the income statement. And there you can see the strong performance coming through in the revenue, where we've delivered ZAR 20.8 billion in revenue, which is a significant 12.9% up compared to the prior financial period. Also on the operating profit side, reporting at ZAR 2.1 billion is 16.5% ahead of the previous year. The finance costs have increased. And we all know and have experienced the increase in interest rates. So it is also -- we were also impacted by that as well as increasing our investment in working capital. When we look at discontinued operations, as I've indicated, we've seen great delivery coming through from discontinued operation, which gave us a ZAR 243 million in terms of performance. On this slide, we show the performance of Barloworld excluding the Russian operation. And what is outstanding for me to note is a remarkable resilience of the group, displaying the power of geographic diversification. I move on to segment numbers and I start with Equipment Southern Africa, which performed exceptionally well with a 38.4% increase compared to the previous financial year. And this increase was as a result of the increase in machine sales as well as the increase in the sale of parts. The mining also saw increase in activities, which the business did certainly benefit from. The opening of the Chinese borders have certainly contributed favorably to the performance of Mongolia. And it's clear with the increase in performance of 73.2%. And also contributing to that good performance was the prime product sales in the business. Also with Ingrain at 15.3% was an improvement compared to the previous year. And this one was as a result of the commodity price increase as well as the increase in volumes from export sales. A lot of the unpacking of these numbers, the CEOs will talk to them as they deliver their part of the -- during their presentations. Mongolia has delivered exceptional operating profit at 164.3%. And this improvement is also driven by the margins, margin improvement. This year, they delivered a 16.1% margin compared to the 10.6% in the previous year. Equipment Southern Africa has delivered a 31.5% operating profit. And this is really as a result of the change in product mix. And they have increased on the sales -- machine sales side and the machine sales side would generally attract a lower margin than other categories. But the positive of this is we expect an improvement in the after sales in the future years. Ingrain is behind marginally there. And this is as a result of the increase in maintenance costs as well as the overhead costs. Taxation as a percentage of operating profit before tax is impacted by the devaluation of the ruble as well as the Zambian kwacha against the U.S. dollar functional currency. In the prior period, you will note that we did report an impairment, and that was as a result of the impairment of our Russian business at that point in time. Great performance coming through from our joint ventures and associates. Bartrac delivering a very dignified 48.5% performance. On the NMI side, its profit was impacted by the increase in interest rates, which has also equally impacted their margins. But what is important to note when one looks at the numbers delivered by NMI is that the revenue top line has improved by 14.1% compared to the previous financial period. We delivered sustainable earnings from our core business reflected there through the increase in our HEPS at ZAR 5.78 from ZAR 4.47 per share in the previous financial period. Our income statement shows a reduction in total assets as well as equity. And this is expected considering the fact that we have unbundled Zeda during the period. You will also observe the reduction in cash, and this is as a result of the dividend that we did pay last year, and you may recall that as well as increase in working capital. Also on the trade and other receivables, there we reflect also the loan that we had given to Zeda. It was initially ZAR 1.5 billion when we unbundled in December, but they have paid off a substantial amount of the debt. And what remains now in our accounts is ZAR 825 million. The free cash flow outflow of ZAR 3.3 billion demonstrates the increasing working capital, which I had spoken about earlier. But what is comforting with this number is that it is expected to unwind in the second half of the financial year. Our net debt has reduced. It's currently at ZAR 1.2 billion -- ZAR 1.1 billion from ZAR 1.3 billion in the previous financial year. And this number includes the ZAR 825 million that I spoke about earlier to Zeda. And if one excludes that ZAR 825 million being the amount owed by Zeda, the true debt of Barloworld at this point in time is ZAR 6.3 billion. When one looks forward into the next few months, as I've indicated, we expect the unwinding of the working capital coming through in the second half. Therefore, one would expect a lower net debt at the end of the financial year-end. The group remains well below its covenants affirming the strong financial health of Barloworld as a group. Impressive performance of the group resulted in both ROE as well as ROIC being ahead of prior year and also ahead of our targets. In conclusion, as our Chief, Mr. Dominic Malentsha Sewela had mentioned, the Board has declared a dividend of ZAR 2.0 per share. And this is achieving a 2.9x cover, which is very much in line with our policy and also capital allocation framework. I must also indicate and mention that this ZAR 2.0 per share is 21.2% higher than what we declared in the previous year. It's quite an outstanding amount, quite an outstanding from a growth from year-to-year. You may recall we had declared ZAR 1.65 prior year. So for me, this demonstrates the commitment that we have in delivering value for our shareholders, and we'll continue to do our best in ensuring that we declare dividends. With that, I'd like to hand over to Mr. Emmy Leeka.

Thank you, Nopasika. Good morning, ladies and gentlemen. The division delivered strong results with revenue up 38.4%, headlined by a 60% growth in the prime product and a 28.4% growth in our part sales, also with 11.3% growth in our rental business. Operating profit was up 31.5%. But also pleasing, as indicated by Nopasika is the positive results that we are getting from our joint venture in the Democratic Republic of Congo, and I will unpack that later. Overall returns at 19.7%. Turning to the new equipment sales by segment. Significant growth in new equipment sales across all customer segments up at about 65%, mainly driven by our mining houses. If you look at the bottom of the left graph, the mining contribution in terms of new equipment sales were up 203%. If you combine both contract mining as well as mining, the overall contribution to the new equipment sales, we saw an improvement of about 67%. And that contribution overall, despite the fact that we've seen a significant growth compared to prior year remained at 70% overall contribution. Now turning to commodity mix. Just to mention prior year as we delivered machines to the greenfield project in Botswana, we've seen significant contribution then, but it's pleasing to see that, that continued in terms of the mining sector in terms of the machine replacement, mostly brownfields contribution for iron ore, copper and as well as the PGMs and coal maintaining their contribution. Nopasika did highlight the impact of the sales mix. If you look at the first half, given the fact that we had a very strong aftermarket and as well as equipment sales, the product support or the aftermarket contribution compared to prior year moved from 56% to 51%. Given that growth as well, with the sales mix changes as well as the dilution in terms of our parts margin, but continuous focus in terms of delivering on our digital transformation, resulted in our op margin moving from 10.3% to that 9%. Positive results indeed from the joint venture in the DRC, where the share of profits moved from ZAR 52 million to ZAR 77 million, which is a 49% uplift on the back of improved trading activity, as we've mentioned, the turnaround plans that we are focusing on as well in terms of the cost base restructuring and the diversification strategy. For the second half, we have a positive outlook with activity levels expected to be sustained. We have achieved great strides in executing our divisional strategy. with a laser focus in making sure that we focus on the growth agenda, services growth, double-digit growth, population growth in seeding machines but also making sure that we improve our turnaround time as well as, as you have seen that we've increased our inventory so that we can improve our customer experience. On the digital transformation front, we have increased e-commerce penetration of our retail customers and also focusing on digitizing our processes. We continue to embed the execution culture through BBS. That will help us to drive operational excellence. In conclusion, we remain cautiously optimistic for the remainder of the year. A strong order book at ZAR 5.7 billion, but also with the growth trajectory expected on the aftermarket for the second half. We will continue to focus on unwinding the prime product inventory to continue to optimize our profit margins as we generate positive cash. With that, I would like to thank you and hand over to Mr. McGeer, who will share the Equipment Eurasia.

Thank you, Emmy, and good morning, ladies and gentlemen. I'm very pleased to announce the Eurasia division's results for the half year 2023 on the back of a strong trading result that has been supported by a good turnaround in Mongolia. Mongolia contributed 34% of the revenue of the Eurasia division, up from 14% prior year. Margin realization was good in both countries, in both segments, both in aftermarket as well as in prime product. This supported the operating profit growth of 2.3% in rand terms, and it was down in -- 10.5% in USD. The division continues to generate excellent ROIC. And from a division perspective, a ROIC of 30.4% was generated. And if were -- one were to -- in dollar terms, and if one were to reverse the impairment that was booked last year, the ROIC would still have been 22.6%, well above the group threshold of 14%. If we analyze the new equipment sales, it's still dominated by mining with 52% of prime products sold to this segment, significantly down from a 70% compared to the prior year. Aftermarket remains the backbone from the profitability perspective and 57% of the revenue were generated from this segment. When we look at the commodity exposure from the division, one can see the impact of the Chinese borders opening in Mongolia was 60% of sales to this -- to the coal segment. 92% of this coal that was exported was coking coal, the good coal that was exported to China. From a Russian perspective, a very similar picture compared to prior year with a well-diversified mining mix, albeit in a lot smaller numbers from a real-term perspective. In terms of the outlook, I think the firm order book is self-explanatory in terms of what's happened in Russia. But what is very pleasing to see is the recovery of Mongolia. And we do expect this strong recovery to continue in the second half. Also pleasing is that the results that we've delivered in the first half already exceeds -- is ahead of expectations against the business case that was tabled to the Board in 2020. From a Russian perspective, the environment remains fluid, and we will continue to align our business on a constant basis based on the opportunities that is in front of us. I think our focus areas remains our employees, first and foremost, the safety as well as the well-being of all our employees. Compliance is an important factor in our division, and that gets a very high priority. And then we will continue to focus on what we can control. Our cost containment, looking after our customers, cost preservation, working capital management and focusing on continuing the Mongolia recovery. And with that, I would like to say thank you and hand over to Chris Wierenga from Ingrain.

Thank you, Quinton. Good morning, ladies and gentlemen. It gives me great pleasure to announce the results for Ingrain for the 6 months. I think despite some of the operating challenges we've had, the business remains really well positioned and performing well ahead of our investment thesis into the business. If we unpack those results a little bit, our top line has grown nicely, 15% in the period that has been supported by strong commodity prices last year and those contracts running through into this year. We expect that to continue for the remainder of this particular year and into next. We've improved cash generation in the business during the 6 months and are very pleased with the 65% increase in cash flow 6 months on 6 months in the division. As I indicated, we did have some operating challenges and our efficiency losses and some lower volumes delivered out of our Germiston mill have impacted both EBITDA and operating profit slightly. But we're seeing some recovery in that post the half year results. If we quickly look through the revenue for the business, our domestic sales have been supported by stable volumes across most of the sectors. We've seen good growth in the export market where the weaker rand has certainly supported demand for the product, and that's also in line with our overall strategy to utilize some of that excess capacity to take advantage of a favored position that we're in, in the business at the moment. On the agri side, our products remained in high demand with more demand than what we've got capacity in the plant at the moment, which is -- which bodes well. But we have seen the lower grind rates coming through impacting the revenue potential in that particular segment. If we turn our attention then to the sales, which are the biggest driver for this business, the domestic market was relatively flat 6 months on 6 months. We've done well in the confectionery sector where we've actively gone out to try and displace imports coming into this particular segment. And we have seen some strong growth in the alcoholic beverages sector in real terms. Coffee creamers continued to come off slightly and we're continuing to see that decline post-COVID come through and requiring us to divert that capacity into some of the other -- into the other channels available to us. But I think overall, the business is well positioned with a diverse customer base and also a diverse offtake into various segments. If we look overall, we're very pleased about the export sales growth that I spoke about earlier. 7.9% growth in that segment in the 6 months is certainly very welcome across the business. If we look at the operations, I think very, very pleasing is we've continued to unlock plant capacity through BBS. You can see Kliprivier, Meyerton and Bellville have all seen volume growth in the sector that has been supported by the capital replacement that we've put into the business and the ongoing commitment that we've got as a business to reinvest into these facilities. Germiston was plagued by some outages and some end-of-life plant, which was replaced just after the half year, and we're seeing that improve with Germiston back on stream now in the month of May and performing at its historic levels. So we're quite pleased with the progress that we've made across the operations generally. If we look at the focus for the division, I mean, we need to do a lot more work on safety, and we're implementing some safety initiatives and some technology to support our safety journey in the business. We're seeing BBS really deliver efficiencies in our operations and also driving the culture change that is much needed in the business. And then overall, our product portfolio, we're looking at how we optimize that, looking at products that make sense for us to make and the streamlining of our operations to meet demand and also yield the capacity that we've got for better margin realization and then using our supply chain efficiencies through our new central DC to better serve customers and also import certain products, which we think would be more attractive for us to import than to manufacture in low volumes locally. So a range of issues underway to try and strengthen the division and then also support our overall capital investment program in the business. If we look at the outlook for the business, I think things remain quite positive despite the challenging macros that we sit within South Africa. I think the weaker rand will continue to support our export drive, and we see good volume growth coming through in that sector. In the domestic market, we should see a recovery now that we're back up to the right level of production across the business. And our investment in capital projects will continue to accelerate over the remaining months in line with our stated capital allocation approach for the business. On the growth side, I've spoken about the opportunities to leverage our DC and our supply chain capabilities to find new growth markets for us, and see what we can do to expand our presence in the food and ingredient market. And we think that, that growth will certainly offset some of the higher commodity price -- or let's call it, the higher utility costs that we're going to be seeing coming through in the business. And then with softening maize prices coming through, I think we'll be able to hold prices and that will bode well for domestic demand as well. So I think all in all, we're looking forward to a better 6 months than the first 6 months this year. Thank you very much. I'd like to hand back to Dominic, please.

Thanks, Chris. I think I'd like to start with this slide because I mean when you think about strategy, strategy is easy to articulate it, but -- you can articulate a great strategy, but if you don't execute on your strategy and ensure that you're able to measure that in quantifiable terms, it's -- you're not going to be able to get anywhere. And I think 6 years ago, when I started with the process of being transparent in terms of where we are, the metrics that we've decided -- I set out continually be able to flag this, for us to be able to reflect the journey that we have traveled thus far in terms of rolling out the strategy. I think -- if you think about what's fixing, I said in the beginning, we basically exited those businesses that we said we couldn't fix, starting with Iberia and lastly, with logistics that we've just sold out. But when you look at optimize, I think the deployment of Barloworld business system in the equipment division has definitely yielded the results that we intended. You can actually see albeit interim, albeit rolling 12, but to achieve a 19.7% after having had 18.1% return on invested capital, that's sustainable. And I think like Quinton just demonstrated that even if you took out impairment of this business, remember, we impaired in 2020, this business still it will achieve returns above a hurdle rate of 14%, which is adjusted from about 13% to 14%. I think Quinton spoke largely to Eurasia. And you can actually see that our Russian business has delivered. We have been in Russia for 25 years. And under Quinton's leadership, there's been a clear focus on making sure that the things that you can control, you are able to continue to focus on them. But what's pleasing is that when we bought Mongolia, we deployed BBS, we've used the leverage of contiguous territory. And if you look at on rand terms because I think Quinton spoke about dollar terms, Mongolia achieved about 16% return on invested capital. That's a credible result for a business that we bought, which is ahead of what we estimated at acquisition. Similarly, when you look at Ingrain, which is one of those businesses that we bought in 2020, which we said it's going to be defensive and relatively asset-light and cash-generative. And as you saw with Chris' results, at 9.8%, which is better than last year this time, I think when you look at 11.3% of the previous year of 2020 was because of once-off from tax benefits. But I think I'm very comfortable that we're still ahead in terms of our estimates when we acquired this business. From a group point of view, you should be seeing the group number being closer to about the equipment business. But I guess when you look at some of nonproductive debt that still sits on our books because we have basically capitalized Avis pre unbundling, we've also funded the losses of Logistics. But relatively speaking, as we allocate capital, you'll see that return come through from an invested capital point of view. So if you then look at return on equity, a similar trend line. And this is where you see the benefit of allocating capital in a disciplined way. When the market gives you a gift of mispricing the valuation of the business, it is always best to deploy that capital in buying back your shares. And we've been consistently buying back the shares. You can actually see that benefit does come through in terms of returns as well as our HEPS. But a 19.3% return on equity is a very convincing, credible results. And similarly, if you look at it on a yearly basis, I gave you the numbers in 2022, this is a historic achievement for Barloworld. And that has also showed that our strategy didn't focus on bigger but really saying you can have a small business that gives you quality earnings and return. And this is what the Barloworld business is having pivoted out of those businesses. We are now having a very simple business, but it's easy to evaluate and see how accretive it is and this number speaks for themselves. And just to put that history in perspective, as you look at our review over -- from 2017, when we exited Iberia, we took the capital, allocated it to acquire Mongolia. We also took some of the capital to derisk the pension fund because where we are currently sitting, it would have been a very volatile environment, but I'm pleased to say we've now since derisked the capital fund. We've also acquired a business, like I said, being consumer industries and basically the pivoting out of the business has been punctuated by the unbundling and separate listing of Zeda and the disposal of our logistics business. But what lies ahead, obviously, we operate in very tough jurisdictions. And not withstanding we operate within the context of inflationary pressures that are driving higher interest rates. And as we see various feds or ECB and even our own Reserve Bank trying to wrestle the scourge of inflation, from a business point of view, we see that persist over a couple of years. In South Africa, I think we'll see the MPC meet this week and one is expecting that there will be a move upward given the events over the last 2 weeks. In South Africa, we saw that the rand depreciates very steeply against other currencies. And therefore, from a capital allocation because we, as leaders in business, we say we need to control what we can control. We can't really determine what politicians do or what Reserve Bank governors do. So from a capital allocation point of view, we'll be prioritizing, making sure that we keep our debt in check. We will make sure that from an efficiency point of view that our costs continue to give us flexibility to be able to move fast if we need to move faster should things change quickly. But we also had a growth agenda and the growth agenda is around organic growth, first and foremost. And as you can see in Equipment Southern Africa, that organic growth has been very strong, but it requires working capital to be able to finance that working growth. So as Ms. Lila said, the second half, you'll see the unwind of that capital utilization in the first half as per usual. But also given these 2 platforms of business in Industrial Services as well as equipment distribution, where opportunities present themselves, we'll look at programmatic action in allocating capital that way because we are mindful of the fact that we've got this discipline going of ensuring that we allocate capital where it is accretive. And we shy away from just doing things by pure instinct if it's going to detract us from our objective of delivering value to all our key stakeholders. On that note, I'd like to pause here. But before I take questions, this is the right time to acknowledge the good work that Quinton has been doing over the last 31 years. And Quinton, I salute you. I mean you're retiring 31 years later. Quinton started in our business in automotive, did about a decade in that automotive business and then he saw the light, and he came into equipment. And so his blood is infused in yellow. And Quinton, you could really be proud of your track record. Your track record speaks for itself. And you were in a tough environment in Russia and then I deployed you in Spain, you had to deal with the Spanish. At no point you complained. You just kept on it. And we acquired Mongolia at a very difficult time. Literally, I say, we bought a business during COVID. I mean, it took me 2 years to go and see what I bought. But I was very pleasantly surprised when I got to Mongolia to look at the quality of the business. I really wish you well. And I hope you have more time to play golf. But don't be surprised when I call you and ask you a question on what did you do in some of those territories. But thanks, Quinton, for that, really appreciate it. And I also would like to acknowledge Emmy who's got -- he was wearing similar shoes, but I don't know whether -- was it a Timberland or CAT, but I think it's more CAT boots that you're wearing. And I don't know what size Quinton was wearing, but I wish you well, Emmy, as you take over Eurasia in this interesting time. But I think you've shown the mettle of running Southern Africa over the years. So I wish you all the best as you do so. But I'd also like to acknowledge and congratulate Andronicca Masemola who was the FD of Equipment Southern Africa, who's earned the stripes to be able to now lead this division Equipment Southern Africa. And Emmy has passed on the baton in a business that's solid. So I don't want to forecast what type of returns you need to achieve, but I wish you the best of luck. And this, ladies and gentlemen, speaks to the strength of our intellectual capital review that we focus on in making sure that from a succession point of view, it's seamless, and I'm pleased that we're able to also replace people internally. So I'm going to pause here and start taking questions online.

Thank you, Dominic. I start with the questions on the webcast. We've got a question from Paul Steegers, and he wants to know -- he wants us to talk to the average cost of debt in the first half and what we think it will be for 2023 financial year.

Ms. Lila?

Thank you. Thanks, Paul, for the question. So yes, we -- our interest financing cost is sitting at about ZAR 583 million. But just to mention the makeup of the finance cost and what has contributed. So over and above what you would have seen as an interest rate, we have the floor plans, interest on -- from the floor plans, which have increased as a result of our increase in working capital, as I had indicated earlier, and this is going to reduce in the second half. And just by way of a number, that number is ZAR 85 million being the full plan contribution towards interest. We also have an amount of ZAR 25 million, which is a pure exchange rate number, which relates then also to the interest. So if you had to compare ongoing and into the long term, I would say the number for interest would have been around ZAR 470 million. But in terms of percentage themselves, we had projected or -- in fact, let me start by saying last year, the interest rate was 5.86%. But with the increase in interest rates, we are sitting at about 7.9% (sic) [ 7.19% ] for the half year. And that would be a good number to use and to measure the Barloworld interest rates for the first half year.

You're talking about basis points, 700 basis points?

Well, 700 basis points or 7.19%. But, yes.

Okay. Thank you.

Thank you very much. Can I stay with you, FD? Assuming an average gross debt position of around ZAR 10 billion for the period, the average interest expense was 14.5% for the 6 months. Please elaborate or explain or could you guide us to second half finance costs?

Yes. So I think it's very much similar to what I said. But to clarify, the difference is the floor plan, which you don't see in the debt, but you will see in our accounts payable because that's where then the actual debt on the floor plan will be.

But I think it's also important to point out that largely because of the order book of equipment, for the first half, if you exclude Avis and all those, you look at the movement in cash flow, about 400 -- ZAR 4 billion of that has been working capital in that. So when you reverse that or you claw back on it, your gross debt is going to be significantly low. So I think that guidance is very important that we highlight, yes.

Thanks, Dominic. Can I just ask one more question from [indiscernible], which is, please, could you elaborate on the impact to group profits from the current rand weakness? Will we see operational leverage in Southern Africa Equipment and Ingrain as in higher margins in the second half?

Yes. I guess Emmy and...

If I look at South Africa in terms of the weakening of the rand to the top line, that contributed about 10% in terms of the uplift.

Okay. Andronicca, you wanted to add something? There's a mic.

Thanks. Yes, top line impact, 10%, but we also have costs that are dollar-denominated, so that will have an impact on our cost base. But to the question around the margin improvement, we have always been open about what is our definition of winning on margins being minimum 10%. And in the second half, we'll continue to work towards achieving that.

Okay. Thanks. Please keep the mic, Andronicca because I've got another question from Vivesh Maharaj at Standard Bank. Congrats on the good performance overall. What is the long-term view of Congo Equipment and the tough operating environment it faces and the impact its cash flow constraints have or will have on Bartrac?