Barloworld Limited (BAW) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to our interim results presentation for the financial year 2024. The results will be delivered this morning by our group executive team, led by Mr. Dominic Sewela, our Group CEO. The financial overview will be provided by Ms. Nopasika Lila, our Group FD and thereafter, shall be followed by results from our divisions. First up, under the Industrial Equipment and Services pillar is Ms. Andronicca Masemola who will deliver results for Equipment Southern Africa; Mr. Emmy Leeka will provide results for Equipment Eurasia. Mr. Chris Wierenga will take us through results for Ingrain, which is the business within our consumer industries pillar. Thereafter, Dominic will wrap it up by providing strategy updates and the outlook and we'll take time to address whatever questions which you're welcome to post on the Q&A line. Again, a warm welcome, and thank you for joining us. Over to you, Dominic.

Good morning, ladies and gentlemen. As you all know, Barloworld is a purpose driven and people centric organization. We appreciate that for us to perform, we need sustainable growth and performance has underpinned by addressing certain elements around social, environmental and governance issues. It gives me pleasure to report our outcomes of our material ESG aspiration. I'll start with environmental stewardship. As we journey towards the consumption of lower carbon energy sources in the last 6 months would increase our Solar PV capacity by 38%. We continue to progress against our efficiency improvement targets set year-on-year. On the social stewardship, we continue to advance economic inclusion and delivering positive social impact through our various programs such as Mbewu and Siyakhula. Our efforts have been recognized by being awarded social entrepreneurship and economic development that we receive for Mbewu under CSI from a Legacy Best Corporate in 2024. On the ethical stewardship, our governance structures are strong led by an independent board, which continuously engage with stakeholders. [Technical Difficulty] Our results, I think, there is a testament to the resilience of our business and the benefit of geographic diversification to our overall portfolio. In South Africa, our operations have had to contend with constrained local macroeconomic environment with inflationary cost pressures as well as with relatively higher borrowing costs affecting both businesses and household. This slowdown was, however, mitigated by our fast growing business in Mongolia at the back of the economy of the country. We've exercised discipline in managing our costs in light of high interest rates and we focus on free cash generation and as I promised when I last saw you in March that we're going to address gross debt and we've achieved gross debt reduction. Having regard to the group's capital allocation strategy and in line with the dividend policy, I'm pleased to announce that the Board has declared an interim dividend of about ZAR 2.10. The ZAR 2.10 is higher -- is 5% higher than the prior year period and it results in a dividend cover of about 2.5x of our normalized headline earnings of about ZAR 5.32. When you look at our net working capital, we are down 48%. Gross debt as I said 31%. What's pleasing also is to see that our focus in terms of our strategy has delivered a hurdle rate, ROIC above our hurdle rate. Notwithstanding the challenges at Ingrain,, we are actively resolving them. And when Chris comes up later on, he'll provide further details in terms of the work that he is doing. But I'm pleased to say the company remains robust and I'm going to get Ms. Nopasika to give us more details on the numbers side. Thanks, Nopasika.

Thank you, Mr. Sewela and good morning, ladies and gentlemen, and welcome to the Barloworld's interim results for the period ending March 2024. In a market that saw commodity slowdown, some commodities held steady. As a result, our geographic and economic diversity has yielded resilient results. Overall, our revenue is down 8% due to the reduction in mining activities and consumer demand in South Africa. Eurasia revenue remains flat year-on-year. In line with our increase in capital expenditure over the past 2 years, depreciation and amortization is up 9% in this reporting period. Effective tax at 23.9% is below the statutory 27%, largely due to the positive impact of exchange rate movement on our tax line. Here we depict revenue per segment. We demonstrate how revenue decrease in some of our divisions has been well balanced by the magnificent performance of Mongolia at an increase of 43% in terms of their revenue. Mongolia's impressive performance was boosted by the increase in demand in both prime product and aftersales market. As expected, VT's revenue decreased due to the reduction in machine sales. However, that was offset by the aftersales market. Ingrain's revenue is marginally down at 3% due to the reduction in export sales and domestic consumer demand. EBITDA margin remained resilient at 12.9% year-on-year. VT and Mongolia continues to achieve exceptional results because of the margin conversion and disciplined cost control measures. EBITDA for Equipment, Southern Africa is lower than the previous year. This is in line with the decrease in revenue we saw, although the margins have improved slightly due to the change in sales mix. Ingrain reported a reduced EBITDA due to the lower trading activities and higher overhead fixed costs. So when we look at segmental operating profit from core trading activities, similarly here, we see a resilient operating margin at 9.7% compared to the 10% in the prior year. And this slight reduction is attributable to the 9% increase in depreciation and amortization as I had previously indicated and this is in line with our CapEx project. The increase in finance costs is due to the increase in interest rates at an average of 2% to 2.5% compared to the previous year. Having said that, our net -- our gross debt is down 31%. And our working capital 48%. This is now from September 2023. Therefore, we expect that the finance costs in the second half of the year will be less and will reduce. On the tax side, the main contributor to the lower effective tax is a currency movements against the U.S. Dollar and this is mainly in Angola as well as in Russia. We continue to see very good results from our JVs and associates. And overall, the increase in this reporting period is 23% compared to the previous year. Bartrac is up 18% in line with the projections and business activities. NMI showing a 30% increase, and they are benefiting from the prudent cost management that they have put in place. Our balance sheet remains solid. It is strong with assets exceeding liabilities by ZAR 17.2 billion. The total assets have reduced by ZAR 6 billion from September 2023, mainly due to utilized to pay down debt as well as payables. So as a result, our gross debt has reduced by ZAR 3.3 billion and trade and other payables reduced by ZAR 3 billion. Our business activities usually lead to a cash outflow in the first half of the year. So the first half of the year, our free cash flow reduced by ZAR 1.9 billion. This is well below our previous experience in the past year of ZAR 3.3 billion outflow in the same period. As mentioned earlier, we have successfully decreased our gross debt by 30% as we embarked on decreasing our finance costs and investment in working capital. We continue to comply with our debt covenants and this is all our covenants we complied with as it has been in the past. Moving on to the metrics. The March and September 2023 numbers have been adjusted to exclude discontinued operations. ROIC at 14.3% is higher than our target hurdle rate of 14%. ROE at 13.9% is below the threshold of 15%. As Dominic had indicated earlier, I'm pleased to announce that our Board has declared a dividend of ZAR 2.10 per share. And this is in line with our dividend policy of 2.5x to 3x. And this is a 5% increase in dividend that we have declared in the similar period last year. So with that, I'd like to thank you and hand over to Andronicca Masemola, who will take us through Barloworld Equipment Southern Africa.

Thank you, Nopasika. Good morning, ladies and gentlemen. Now moving on to Barloworld Equipment Southern Africa. The results for the interim period ending March 2024 reflect the cyclical nature of our business. The decline in commodity prices, ailing Logistics Infrastructure, had a negative impact on mining activity. Revenue was down 10% at ZAR 11.8 billion versus ZAR 13 billion reported in the previous year. Total machine sales were down 25%, partially offset by an increase of 7% in part sales. The increase in part sales was driven by our operations outside South Africa, which recorded an 18% increase year-on-year while South Africa was down 3%, largely as a result of a slowdown in the mining regions. We have seen customers in South Africa, packing machines as they curtail production, mainly in the coal and iron ore segments. EBITDA was down 8.5% at ZAR 1.4 billion, while EBITDA margin improved by 20 basis points to 11.6%. Bartrac JV delivered strong results which I will unpack in the next slide. Cash flow improved by ZAR 833 million to an outflow of ZAR 1.9 billion versus ZAR 2.7 billion in the previous year. Return on invested capital at 18.3% is above weighted average cost of capital and has remained at this levels in the last 3 years. Looking at new equipment sales by segment. Sales in the Energy & Transportation segment increased by 40% to ZAR 491 million, mainly driven by increase in retail, industrial and large electric power engines. Construction was up 15% at ZAR 1.4 billion, on the back of private sector-led renewable power projects in South Africa as well as road construction mainly in Angola, Mozambique and South Africa. Total mining machine sales including contract mining at ZAR 2.1 billion were down from ZAR 3.9 billion last year. Looking at revenue contribution. E&T doubled its contribution to new machine sales, ending at 12%, construction increased by 13% to 36% contribution while mining decreased to 52% from 71%. Our diverse geographies and wide exposure to commodities serve as a risk mitigator against business cyclicality. For the period under review, we saw zinc and uranium contributing strongly relative to prior year at 31% and 8% respectively, mainly driven by the [indiscernible] project and sales to uranium mines in Namibia. Coal contribution remained stable at 27%, while platinum and iron ore were down. After sales, if you look at the sales mix, improved to 62% from 51%, resulting in an operating profit margin before fair value adjustments, improving by 20 basis points at 9.2%. The fair value adjustments on financial instruments had a negative impact of 1% on operating margin from core trading activities which ended at 8.2%. As mentioned earlier, Bartrac recorded a strong growth of 18%, resulting in an increase or a share of profit of ZAR 91 million. The increase in profit was driven by sustained demand for copper as well as higher aftersales contribution at 57% compared to 55% in the prior period. Looking forward to the remainder of the year, we expect aftersales contribution to remain strong. Our strategic focus areas remain the same. We will continue to invest in digital capabilities to grow services. Sustaining customer net loyalty score is a key imperative. We will also continue to improve our value proposition on machine segments where we saw a regression in market share, particularly the articulated dump trucks and the off-highway trucks, the [ 777s ], where we had to deal with quality issues, which we are addressing. Safety and wellness of our employees remain a priority. As such, we are continuing to increase wellness interventions at the sites where we operate to ensure that our brand champions do get the support that they need. Outlook for the second half of the year remains cautious. Our focus is on unwinding working capital in line with the slowdown in mining activity. We will continue to drive growth in aftermarket while we manage our variable costs taking. The total order book is down 20% from September 2024 (sic) [ 2023 ] and down from ZAR 5.7 billion reported at the same period last year at the peak of the replacement cycle. However, construction order book is strong at ZAR 839 million. E&T order book is down mainly due to less order intake for the standby market in South Africa on the back of improved grid stability. And over the last 3 years, though, we've seen this order book trending upwards. We are optimistic about the collaboration between government and private sector, and we expect the impact of the interventions underway to be felt in 2025. In the short to medium term, we remain optimistic on mining. And we believe that mining will continue to be a significant contributor to our business. I'll now hand over to Emmy Leeka.

Thank you, Andronicca Masemola. Good morning, ladies and gentlemen. It gives me real pleasure to present the Eurasia results for the interim period March 2024. Eurasia had a strong first half, supported by a robust performance in Barloworld Mongolia. The division generated ZAR 3.9 billion in revenue, which was likely as indicated by Nopasika earlier on lower about 1.2% than the previous year. Our business for Vostochnaya Technica or VT, revenue was down 24% and this was offset by a great performance from Mongolia with revenue up 43%. This driven by strongly by prime product sales and aftermarket sales with a change in product mix and a focus on margin realization, cost discipline, the overall operating profit was up 19.2% to ZAR 815 million. We've seen the opening up of our margins with EBITDA margin improving to 22.8%. The division generated cash of ZAR 357 million compared to an outflow prior year of ZAR 104 million with work at a record of 38.4% compared to prior year at 30.4%. Now turning to the equipment sales by segment. New machine sales to the mining segment contribution increased to 63% compared to the contribution of 62% in prior year. This is mainly driven by a 74% growth in machine sales in Mongolia. Construction & Infrastructure decreased from 23% to 19% contribution. But just to indicate the impact of smaller machines that we've been selling in the VT territory, of that 95% of contribution came from VT. Energy & Transportation, also the contribution about 82% came from VT. The other products that we've sold to other dealers as well as elite products. Turning to the sales mix. I would like to double click in terms of the overall aftermarket, which was up 59% compared to the first half of 57%. This was due to the VT aftermarket revenue mix, which was also up 74%, impacted as indicated earlier on by the shortage of fine products for VT territory. Mongolia aftermarket mix decreased from 56% to 44%. But pleasing though, we've seen the parts growth 15% and also the growth in machine sales. Continued focus on double-digit services growth, cost containment, margin realization resulted in an operating margin for Eurasia at 20.8%. Now looking at our commodity exposure, strong core sales contribution of 43% on the back of the same order that we've received in Mongolia. With the reduction of gold contribution to 19%, there was an increase in the construction asset class, but also copper continuing to remain resilient. Ladies and gentlemen, our strategy remains the same with a focus on customer diversification for both territories, while we ensure compliance, optimizing headcount in line with activity and containing costs. And lastly, to ensure that we capture opportunities for both prime and aftermarket. At the core of our execution model, we're embedding the cadence, culture of continuous improvement in our division. Now looking forward, we expect a very strong growth to continue for Mongolia for prime products and aftermarket, but we remain cautiously optimistic as we continue to capture more opportunities and expanding our customer base. And critical to our delivery agenda is the working capital optimization and cost control. The order book continues to be strong at USD 112 million predominantly from Mongolia and post balance sheet reporting, we've seen the same order book increasing to USD 118 million, of which about 97% of that came from coal. Thank you. And now I would like to hand over to Chris.

Thank you, Emmy. Good morning, ladies and gentlemen. It gives me great pleasure to present the Ingrain results for the 6 months ended March. And I think it's safe to say we've had a challenging 6 months in the business but I think the early actions that we've taken in the business to restructure and address the lower volumes that we're seeing will bear fruit towards the back end of the second half of this year and bode well for our recovery into 2025. During the period, we've seen revenue marginally declined in sympathy with the SA consumer confidence. We've seen EBITDA margins come off from 14.1% to 11.7%. And that has also been affected at both the EBITDA and operating level as a result of restructure costs, which were a one-off in this period of ZAR 37 million, which would impact margins negatively by about 1.15%. We've -- ROIC has regressed but it's all -- the business is still performing well ahead of the acquisitions at the time of acquisition. So I think overall, despite the challenging 6 months we've had, the business remains resilient despite the challenging macros that we've had, and we think remains a good acquisition for the portfolio of Barloworld. So let's unpack the revenue a little bit and look at some of the drivers of that. We've seen revenue off marginally. We've seen stable domestic sales volume or sales despite the constrained demand. In this current environment, we've seen volumes come off a little and I'll unpack that on the next slide. But overall, we've actually seen price increases being able to be pushed through despite the lower maize cost that we've had in the 6-month period. Maize prices are rising and will affect pricing into the second half of the year and into 2025. On the agri products side, we're down slightly as a result of lower production out of the plants. And it's good to see that agri products remain quite resilient and there's high demand for those in the current environment. Pricing has also been affected because it's closer to the near-term price of maize during this particular M segment as well. On the export side, we have seen lower international starch and glucose prices come through and that has affected our ability to export profitably. And we've also had some outbound constraints as a result of challenges in the port of Durban. Just turning our attention to domestic sales. You can see the volume or the lower volumes but I think if you look at our business overall, we remain very well exposed to the overall South African industrial and food sector as a key ingredient manufacturer. So we haven't seen a material shift in mix during this particular period. Beverages remains relatively strong, spray drying relatively stable. Confectioners are lower in the period and we are seeing quite a lot of pressure in the discretionary spend and as consumers tighten up in that particular segment. Paper and Industrial is also off marginally as a result of cheap imports coming in from Brazil during the citrus export or the export season in the food sector. But overall, I think we remain well exposed and are quite happy with the overall mix of customers that we have domestically. If we turn our attention to the operations in the business, we have seen a pleasing improvement in Germiston and that has continued during this period. Kliprivier has seen a reduction in maize grind really as a result of a slowdown in demand over the December-January break where we were export constrained and also, we've seen lower volumes in the brewery sector towards the end of the financial year. And Belville continues to perform well, albeit off a small base and our operations at Meyerton have stabilized. I think as a business over the medium term, we're looking at ensuring that we get profitability right and that value creation remains a key focus for this business. In the business, we are looking again at our safety and well-being of people. I think that's a consistent theme across Barloworld. But more importantly, at Ingrain, we had a fatality on the first of March. And it has required us to revisit also safety protocols in the business and ensure that our safety culture remains robust. Our hearts go out to the family of the colleague who was -- whose life was taken as a result of that incident. In the business, we continue to be actively -- acutely aware, shall I say, of cash and working capital management in a commodity business and making sure that we hedge our commodity price exposures correctly in this business. We have had the organizational reorg costs we've taken in the first half that, but will sort of settle in towards -- or during the second half of this year and we need to just settle structures and ensure that our new operating model is well embedded as we deliver on our second half commitments. We have made great strides in improving our supply chain efficiencies in this business. Inventory availability for pack product is increasing every month and that bodes well for supply locally and also addressing some of the deficiencies that this business has historically had. We're seeing much better supply rates to our packed goods customers on the smaller end as a result of the enhancements made and we can only bode on that as we get better and better at running our plants more efficiently and addressing the manufacturing piece in the business. In so far as that we continue to make good investments in infrastructure and are continuing to invest money in preventative maintenance of our plants. Overall, we are mindful of our impact on the environment and have also commissioned some projects to deal with the energy or -- energy reliance on the grid and are looking at solar as an alternative, which will come on stream at one of our factories during the second half of 2024. Just going -- turning to the outlook for the business. I think the challenging macros will remain. We are hopeful of a better environment post elections later this week. But I think our outlook remains -- we're focused on building a business that will be resilient in a low growth environment and that will deal with the current macros. It will afford us the opportunity to take advantage of any upside that may come. On the maize and input cost side, we do expect to see maize prices ease in the medium term as we work through the effects of El Nino this year and get into a more normalized rainfall pattern, which is planned for 2025. Our divisional restructure should improve costs in the business and enhance returns going into the year ahead, and we remain focused on addressing those particular areas in the business. And then lastly, the business has been playing with quite a lot of operational efficiencies over the last 12 to 13 months. These have been well reported on and I did say over the last few periods that we would give feedback on this. We have continued to have poor operating efficiencies in the 6-month period. But post the reporting period, we are seeing good progress made and we are looking forward to an improvement in those operating efficiencies in the second half of this year. So I think on that positive note, I'd like to hand back to Dominic to take us through strategy and the outlook for the rest.

Thank you, Chris. Just as an update, I did for those of you following Barloworld for a while, these analyst and shareholders that have invested in Barloworld for a long time. I remember making the point that we have decided on key metrics that are focusing on value. And if you ask me, are these metrics right? I wouldn't change them because I think they're focused in the right area. I think the one important metric that I put up and I said I'd put it up because for me, it's a mirror, not because it looks good. We started putting up when it looked very bad and I'm just going to take you through some of the key issues as you can see. But I want to just point your eyes to all when you look at Equipment Southern Africa, just about 2018, '19, the trend line and I said this business is to be optimized. I didn't think there was something particularly wrong that we needed to fix but there was clear issues that we needed to optimize in this business and we rolled out a plan to do so and you see the trend line subsequent to that. I'm hesitant to say that these are rolling 12 so that you can be able to understand the picture. When you look at Equipment Eurasia, it's a mixed plan because I think from about the latter part of 2020, we made an acquisition of Barloworld Mongolia. And at about 2022, you all know the geopolitical issues that were faced but notwithstanding, when you look at the endowment of those 2 businesses combined, they've been able to deliver exceptional return on invested capital, largely because notwithstanding that Emmy spoke about the reduction in turnover of our Russian business down to, what, 25% is down year-on-year and understandably so. But we've been able to utilize the cash that was there to say, let's make sure that we bulk up the inventory to be able to sell those parts or some units we could sell, given the governance regime in that environment to make sure that we can realize better our profit margins out of it in terms of -- but notwithstanding incredible delivery from Mongolia and that is coming through those numbers. Then when you get to Ingrain and we did say that when we acquired that business, we trade a premium relative to the net asset value [indiscernible] business. We've set the target to say this business should turn around. But we did say even at acquisition and at the time of doing a DD that this is a business that has got a bad lock in terms of maintenance practices and investments. And I'm pleased to say that Chris inputting the right talent in place that is being addressed and being also quick in actually taking actions in terms of Section 189 to address the business. Because I think one of the key things as business people those that are employed to run businesses, it's easy to play in the external environment. But that we can't do much about. But what is more important for us is to say what are those things that we can control and deploy that to run the business in a manner that makes sense. And I'm comfortable that come the second half, I don't think we would have reached up to cost of capital in the business but there will be progression in that business. So I think when you then look at the group, you see that the strategy has to be deployed, particularly over the last 3 years, it shows that it is a right strategy from the focus that we've actually deployed because now when you look at the returns that are above our hurdle rate. And my view that as we continue to focus on that, we should be able to see delivery. So when you look at the return, I am hesitant to say the one on the left, it's a full year. And one on the right, obviously, is a rolling 6. You can actually see a similar trend. But this really -- when you look at an ROE for me, it speaks about capital allocation because it is how you allocate capital in the areas that I've described previously, whether you return money to shareholders. I mean, if you look at 2017, right up to 2020 to be retaining shareholder capital when you have no clever ideas to tender as it's always good to do that. And we have returned capital to shareholders in the period where we sold a business, we paid special dividends. We paid back dividends. We bought back shares because I think those are sensible things to do because you quickly likely to want to buy businesses for growth sake and we've resisted doing that. We wanted to apply price discipline when we make acquisitions. But I'm pleased to say, at 13.9%, given what we have, we'll remain to focus. I think Nopasika spoke about net growing by 9%. And debt, I guess the issue about debt, you pay it, but you see the sort of the unwinding effect of it in the second half. You're not going to look at my balance sheet at the end of the period and say, okay, what was your cost of your interest line, but you'll see it in the second half. And I think we spoke about it for some of you when I met you end of March. And I think that's demonstrated what we're looking at doing. So I think this graph, you'll see it as long as I'm a CEO, up until I retire because it also acts as a measure for me to say, am I spoking something, but of course, numbers never lie. But I think when we look at outlook, I don't want to make light of the challenges of the macroeconomic environment that remains with us. I think, in my own opinion, I'm not a forecaster, but I think 2024 is going to remain challenging. I think from a commodities point of view, if I look across the broad of the economies, we're likely to see some of the commodity prices improve. And largely, there are certain markets like China that we need to watch in terms of the commodities. I think the continuing geopolitical tension, be it in the Middle East, be it Russia and Ukraine, remain concerning. And I think those will present risk for operations. And as I've said, the Board continues to meet and review its positioned on our Russian operation and ongoing -- on an ongoing basis. So -- and therefore, we all wish that we could operate in a world where there's certainty geopolitically but I guess we will have to what we will already have. I think Chris spoke about there sooner, many of us here in South Africa will be going for elections. And hopefully, the outcome is such that, is that which will benefit this country, whether it's a coalition or whichever party wins and really put the interest of South Africa at heart when it comes to things like infrastructure, whether it's infrastructure on building new dams, maintenance of new roads, building new roads because I think the country needs it. And a business like ourselves, benefits a lot from the CDFI in investments, and we are hopeful that post elections, those will be done. But when I look at the group, I think our business is inherently by the virtue of the fact that how we give in the license by Caterpillar is the country and that gives us a moat. And the fact that over the last 97 years, in those areas, we've invested in facilities, in talent that once you've got the population of machines in there, you're able to harvest machines. I think that's going to continue to benefit us. I think Andronicca spoke about. When you see the drop in revenue, it was mainly the machines. But over the last 2 years, we've seen that huge population of machines being out there, yes, I know that some of our customers have parked those machines temporarily but in a cyclical environment, it's never permanent. When they start utilizing those, we'll see the benefit or we'll also see it coming through. I think I've said many a times that the benefit of running Equipment in Southern Africa in these different countries, Mongolia, Russia is geographic diversification. You've seen when Southern Africa was down, Russia was great. Now you see Russia challenged, some portion of Southern Africa is challenged, but Mongolia has delivered into results. You always wish that all these countries can fly all at the same time to get the benefit but it never happens. And we're seeing that. But more importantly, when you go through cycles, it's important to have a very strong balance sheet because it gives you optionality in that, are you able to deploy the cash, if you can do have enough headroom. And I think where we're standing is a strong balance sheet, and we continue to address to make sure that it remains cash generative and we manage that in line. But more importantly for me, when you run an organization, people will say, what business are you in? I think we are in a people business. And from a cultural transformation or deployment of Barloworld business system, so to show that we have engaged employees that are continuously looking at how they can improve service delivery and reduce waste in the organization, and we do that through BBS, and we've seen it being properly embedded in our organization and I'm proud to say we are now also relying less on partners. We do have people that are qualifying that we continue to train. We've got [ 4 gold ] status for those you who understand how these lean processes work. But more importantly, I think over the 7 years, demonstrably, when it comes to M&A, we have delivered. We've got a track record, whether it is disposing some of the assets as quick as we have realizing the right value, but also making acquisition. And so for me, I'm saying it is not going to be easy over the next 18 months or so. But when it's required for us to take actions, we'll do so. I did give guidance at the beginning of the war that in Russia, we're going to break even. But I'm glad to Emmy, the team has delivered in making sure that not only just we do better than breakeven because I don't know how long the war is going to be. And therefore, when we are in that environment, you've got to make sure that you're going to be able. I think, ladies and gentlemen, that brings me to the close of this, I'm just going to hand over to you to -- for those of you who have questions, and I do have all the right divisional CEOs here, who will help me answer the questions. [ Kezi, ] can you give a question online?

Yes, we've got a couple of questions. Thanks for all the questions. I will start with Ingrain and this question comes from Marc Ter Mors. Question reads, Ingrain profitability appears sustainably weaker in March as EBIT declined somewhat below guided for 5 months. Do you have a comment on -- could you please comment on March trading?

Thanks, Marc. Chris?

Yes. Well, thanks for the question. I think in the 5 months, we'd indicated operating at around ZAR 200 million, and now we're at ZAR 232 million. I did indicate, though, that we had a one-off charge during the month of March of ZAR 37 million on the restructure costs and that did have an impact on margins for the 6 months of about 1.15%. So that cost has come through in this half, which should not repeat into the second half.

The next question comes from Marc again, and this is on Equipment Southern Africa. What does the business see in the pipeline for mining machines and construction?

Thanks, Marc, for that question. During half year or year end September, we did share some projects that we believe will drive the machine sales. In those projects, some of them we're starting to see them kicking off, particularly in Zambia. There are 2 mines there that were on [indiscernible] maintenance, and we've seen investments going into Zambia and activities continuing. Botswana, we did speak about the coal project that is also ongoing. In Namibia, there's a gold project that we expected to kick in the later part of 2024. Unfortunately, that project has been delayed as the Canadian owners have sold the asset to change owners and the regulatory matters that have to be dealt with. So that has been delayed. In South Africa, we are eyeing the expansion that comes back. We were also looking at a coal greenfield projects, the kickoff for that project also has been delayed as the customer is looking to secure an offtake agreement. From a construction point of view, we are taking large construction companies in South Africa, in particular. And the order books for those 2 large construction companies are at an all-time high. The actual execution of the project hasn't kicked in yet in MENA where we are seeing significant improvement in order books or sales but we expect that to come. And we're still waiting really for the big infrastructure rollout program from [indiscernible] where there has been some projects awarded, but it's not to an extent that we are expecting. In Greater Africa from a construction point of view, Mozambique, there is a road construction underway and the LNG project is also about to kick off, but we expect the impact of that to be felt in 2025. Thanks.

The next question relates to the balance sheet. And the question comes from Rowan Goeller and the question says, gross debt has declined substantially. Can you please expand on your strategy for optimum debt levels? How does this impact dividend or acquisition plans?