Libstar Holdings Limited (LBR) Earnings Call Transcript & Summary

Right. Good morning, everyone, to the results presentation of Libstar Holdings Limited for the year ended 31st of December 2023. A special welcome to those of you joining us here in person at the Century City Convention Center as well as those joining us via the webcast. This morning's presentation format will follow a similar structure to that of the prior year where I'll be taking us through the executive summary and a comprehensive update on our strategic direction before handing over to Terri to take us through the financial review and category performance. Finally, I'll conclude the presentation with some comments on the outlook for the new financial year. Starting then with the executive summary. The group achieved a significant improvement in trading performance and cash flow generation during the second half of the year. This was driven by an increase in capacity utilization, production efficiencies, cost and price management, as well as focused capital allocation in addition to being aided by the start of the implementation of our strategic direction following a comprehensive review by the Board and the management team at the start of the year. Looking at the graphs in the middle of the slide. Revenue growth in the second half accelerated to 6.2% from 4% in the first half to end the year 5.2% up on the prior year. That was driven by the second half outperformance and accelerated revenue growth from the retail export as well as the contract manufacturing channels. Gross profit margin in the second half was recorded at 21.4%, not only reflecting an improvement on the first half result of 20% but also above the prior corresponding period. The group margin then ended at 20.8%, which is 10 basis points above the prior year. This accelerated revenue growth as well as the improvement in gross profit margins assisted us in achieving a growth in normalized EBITDA of 10.6% in the second half of the year following a decline of 18% in the first half to end the year 3.3% down. The group's borrowing costs increased by 50% as a function of the higher interest rate environment. But notwithstanding this, it's pleasing to have reported an increase in normalized headline earnings per share growth. That excludes insurance proceeds of 29% in the second half relative to the decline in the first half. The year-end result in HEPS being down by 11.2%. The group concerted efforts around focused capital allocation contributed to an increase in our cash conversion during the second half of the year, up to 70.1% to end the year at 65.2%, which is above our internal targets. The gearing ratio peaked at 2.1x normalized EBITDA at the midyear point but reduced significantly to the year-end, ending at 1.6x normalized EBITDA, which is in line with the prior year. The interest cover ratio, although impacted by the increased borrowing costs was above the lender covenant significantly. In terms of our existing dividend policy, the Board has declared a dividend of ZAR 0.15 per share. Looking at the highlights included in the set of results, the HPC segment delivered a sustainable improvement, delivering ZAR 20 million in operating profit following a loss in the prior year. In terms of our category performance, the wet condiments category and baked goods performed very well in the retail channel. And the food service channel was assisted by an increase in out-of-home consumption. After a period of significant capital investment by the business over a number of years, which has assisted us in being able to sustain our service levels to our key customers, the group has now refocused its capital allocation towards maintenance, quality and food safety projects. As such, we ended the year at the low end at 2% of revenue on CapEx. Finally, controllable cost inflation was mitigated to a 2% increase, which included a significant reduction in the central office cost structures. Moving on to the challenges. Those in attendance would be very well aware of the macroeconomic challenges facing the sector. And as such, I won't be spending too much time on that. Safe to note that elevated manufacturing input cost inflation persisted for most of the year. In terms of our critical inputs, milk inflation peaked at 16%, that's a 12-month rolling figure at midyear and moderated to 12% at the end of the year, albeit still significantly above the published CPI rate. The group contended with and continue to contend with the direct as well as the indirect impacts of not only load shedding but port congestion, which impacted our year-end stock holdings which we'll cover later on in the presentation. In the first half, we experienced significantly weak demand for contract manufactured wet condiments. And we saw the annualized or the full period effect of the supply localization strategies that were implemented by some of our key customers in the U.S. region. Fortunately, we've been able to, on both of those accounts, deliver an improved result in the second half of the year with a normalization in contract manufactured wet condiments demand as well as a normalization in our export orders. This slide shows the direct impact of load shedding on the business with the table on the left-hand side, reflecting that, the regularity and the severity of load shedding moderated slightly in the second half of the year relative to the start of the year and the prior year. Notwithstanding this, the group has continued to invest in generation capacity to sustain electricity supply. So that number up at the bottom of the slide to ZAR 19.3 million in the year, up from ZAR 13.1 million. The operational cost of these generators increased in the year from ZAR 39.2 million in the prior year to ZAR 76.5 million. That is just in context, about 70 basis points on the margin. Moving on then to the channel performance and looking at our 4 channels in the group. Three of those 4 delivered an acceleration in revenue growth in the second half, namely retail, export and industrial and contract manufacturing. Looking at the full year picture, retail and wholesale revenue increased by 7.7% with a volume decline of 2.8% and a price/mix contribution of 10.5%. As I mentioned, the food service channel outperforming with a total full year performance of 8.7% in revenue, volumes up 2.4% and a price/mix contribution of 6.3%, slightly moderating in terms of revenue growth during the second half of the year. Exports grew by 6.6% in terms of revenue with full year volumes down 7.5% and a price/mix contribution of 14.1%, which was largely driven by the depreciation of the rand against major world currencies. I do note, however, that the export volumes increased by 1 percentage point in the second half of the year supporting my earlier statement regarding the normalization of export orders. Looking at the right-hand side of the slide, the retail and wholesale channel now contributes 58.9% of group revenue with the outperformance by food service, increasing its contribution to 20.2% from 19.6% in the prior year. Strategically, it remains important for the group to continue to increase its export-facing contribution and I'll allude to some of the initiatives later on in the presentation. Starting with what we, as a management team, believe is the most important message that we want to share with you this morning and just to remind everyone that at the midyear point, we communicated that the Board, with the management team had taken time to understand the opportunities around the portfolio composition, the operating model, our channel and category growth opportunities as well as ways in which to improve our operational efficiencies and cash flows. Under the banner of simplification, growth and sustainability, the strategy will deliver a cost competitive business with an improvement in earnings quality and return on invested capital. Looking at the detail behind this and starting with the simplification theme, the group has made progress to exit the HPC segment, notwithstanding the fact that we saw the outperformance of that segment in the 2023 year, that is as the group refocuses its strategy towards value-added food categories. The process is underway and we are working towards and targeting completion this year. That will add 50 basis points to the group's return on invested capital. The group is also implementing various integrations of business units and product lines. This optimization of the operating model will change the operating structures from a divisional base structure to a category-based structure comprising 2 super categories namely perishable products and ambient products. In alignment with this category approach going forward, the baking and baking aids as well as the snacks and confectionery segments will be reported under the ambient product banner from 2024. Going further into the detail of these respective categories, the Millennium Foods division has been opting successfully under the leadership structure of Lancewood since the start of 2022. Now in addition, the sales, marketing, HR and administrative teams of Finlar Fine Foods will be integrated with Lancewood by the close of 2024. This integration not only mitigates competitor risk but also serves to improve margins through cost efficiency and shared resourcing. Additionally, we will accelerate our initiatives to develop the key channels of exports, our informal and wholesale market development as well as our service -- food service basket offering. Just to comment on the mitigation of competitor risk. Finlar is now a fully accredited manufacturing facility to supply value-added meat products to the Saudi region, that accreditation in February of this year. And it's making progress to increase its local production for its key QSR as well as retail customers. Moving on then to the ambient products category. The integration of the sales, marketing and administrative functions of Cape Herb & Spice and Khoisan was completed in the fourth quarter of 2023. Khoisan's manufacturing facility, the single manufacturing facility will be exited when the lease terminates in 2027. The dry condiment private label production lines of retailer brands have now been shifted into and moved into Cape, as recently as last week. These 2 integrations not only leverage our existing sales and marketing expertise within our largest export-facing division but also serves to improve our margins through existing procurement as well as manufacturing capabilities residing within our Cape Foods business. Moving on then from dry condiments to wet condiments. The Montagu Foods as well as the Cecil Vinegar divisions outperformed in retail wet condiments during the year, as I mentioned earlier, whilst the Dickon Hall Foods division contributed to earnings volatility in this category via the weak demand for those same wet condiments for contract manufactured customers. As such, a full-scale functional and operational consolidation of these units will be undertaken during the year in order to improve the cost competitiveness and the earnings stability of the wet condiments category as a whole. Our Retailer Brands business, which is currently the single largest wholesale market-facing division will be integrated into components of these businesses as well as the dry condiments category, as I mentioned earlier, ensuring that we chip away at the further growth opportunities available in the wholesale market with that basket already exceeding market growth in 2023. Staying with the ambient products category. The ambient products food service basket offering is currently largely concentrated in the Rialto and Amaro Foods businesses. As such we under dedicated leadership, we are planning to extend our ranges beyond these divisions in existing as well as new customer bases in the year ahead. Looking at the endgame, the end structure and starting with the leadership structures, Cornel Lodewyks, has been appointed to lead the Ambient Products category going forward. And in the coming months, we will make an appoint of the ambient products managing executive. By the end of 2024, the group will have significantly simplified its operating structure with significantly fewer individually managed businesses, individually managed sales and marketing, HR and administrative teams. Moving on to our sustainability theme. The group has earmarked at least 7 sites for solar installations, targeting 10-year savings of ZAR 40 million in terms of its existing power purchase agreements. Two of those installations to commence in the first half of the year. From a capitalization perspective, the group will continue to focus on quality and frugal innovation projects in order to drive the execution of the strategy. But CapEx will remain this year at the lower end of the guidance following a number of years of above-average investment. At this point in time, our net working capital levels remain elevated. That's a function of the port congestion. We've had some difficulty in securing imported raw materials as well as the increase at year-end of our goods in transit inventory holding due to the lack of stacking dates. That contributed ZAR 75 million to our end-of-year net working capital number. In terms of our sustainability practices, we are continuing to target a reduction in our carbon footprint as well as water and electricity savings that have been planned for this year. In addition, we'll continue to execute on our BEE strategy, which is to sustainably increase our BEE scorecard. Before I hand over to Terri, just in terms of the road map for implementation, we share with you the targets that were shared at the interim results presentation, with 3 of the 4 of those having been achieved, namely the reduction of the capital expenditure through focused capital allocation, the formalization of the divestment mandates and the progress there on, as well as the scoping of these significant operating model changes. In this year, we will be focusing on continuing to strengthen the balance sheet as well as to consider share repurchases, which we said we would start to consider once gearing dips below 1.5x, finalizing our execution of our divestment and our simplification strategy. From the start of 2025, we will have a business which is ready to deliver on our 2027 ambition, which is to return our -- return on invested capital to the 15.5% mark. We will be targeting an improvement in 2024 of at least 50 basis points. Thanks for listening and over to you, Terri.

Thank you, Charl. Looking at the face of the income statement. Revenue is up 5.2%, driven by 4.8% volume decline and a 10% price/mix movement as mentioned by Charl. Our gross profit margin increased by 0.1 percentage points from 20.7% to 20.8%. Other income increased from ZAR 83.2 million to ZAR 146 million in the period, driven by ZAR 120 million of insurance proceeds received compared to ZAR 37 million received in the prior period. Impairment losses of ZAR 143 million against Denny Mushrooms and Khoisan were recognized in the current period. The impairment in Denny Mushrooms was driven by the decision not to reinstate Shongweni after the fire that occurred at the end of 2022. The impairments in Khoisan was driven by the prolonged weak international demand for bulk tea. These impairments compared to the impairment losses of ZAR 296 million recorded in the prior period. Operating expenses have increased by 2% on the prior period, contained well below inflation. The normalized operating profit and normalized EBITDA were slightly down on the prior year by 1.7% and 3.3%, respectively. It is important to note that the normalized operating profit and normalized EBITDA do not include the insurance proceeds as our normalization policy was amended to exclude this. The group's finance costs increased as a result of increased interest rates, with the average repo rates increasing by 2.5 percentage points from 5.4% in 2022 to 7.9% in 2023. The group's effective tax rate of 26.7% compares to 107.7% of the prior year with the prior year more heavily impacted by impairments, which resulted in a significant difference to the statutory rate. From a balance sheet perspective, as Charl mentioned, our net working capital days as a percentage of revenue increased from 16% to 17%. This was driven by an increase in inventory days and a reduction in creditors days. The increase in inventory days was largely driven by ZAR 75 million increase in our goods in transit as well as the impact of rising input costs and the impact of the weak demand for bulk tea. While the group remains committed to the target range of 14% to 16%, the current supply chain disruptions driven largely by the congestion in the South African ports will likely delay the return to this target as the group prioritizes its service delivery to its customers. Moving to the right-hand side of the slide, the group continued to focus on containing capital expenditure, which is down 36.4% to ZAR 244.6 million spent in the period, which was 2% of revenue, again, aligned at the lower end of our target range of between 2% and 3%. Looking at the contribution to the total CapEx, this was split between replacement and maintenance projects, expansion and capacity-enhancing projects and quality and improvement projects. Of our capacity-enhancing projects, the group incurred ZAR 85 million in the period, part of that was ZAR 16 million to finalize the flatbread line at Amaro Foods. In Lancewood, ZAR 23 million was incurred for the yogurt plant capacity, as well as ZAR 17 million for hard cheese packing facility upgrades. And in Finlar Fine Foods, ZAR 17 million was incurred for machinery and line upgrades for the value-added chicken facilities. From a quality and improvement perspective, ZAR 22 million was invested in fire safety at Lancewood and a sprinkler system upgrade in Household and Personal Care while as mentioned, we continue to invest ZAR 19 million in our electricity generation. Looking at our key financial ratios. Our gearing ratio remained flat with the prior year at 1.6x normalized EBITDA, which was down from the 2.1x recorded at H1. Our interest cover ratio reduced from the prior year but is well ahead of our lender covenant of 3.5x. Our return on invested capital decreased from 10.4% in the prior period to 9.8%, which was an improvement from the H1 return on invested capital of 8%. Cash preservation continues to be a key priority of the group, increasing from 58% in H1 to 70% in H2, resulting in a full year 65% for the period, ahead of our -- or in line with our target of 65% or greater as shown in the bottom left graph. Looking at the cash flow analysis on the right-hand side, cash generated from operations increased by ZAR 32 million in the period, with working capital charges increasing from ZAR 277 million to ZAR 285 million, while our net finance costs increased by ZAR 110 million due to the increased interest rates. This resulted in a decrease of cash generated from operating activities from ZAR 528 million in the prior period to ZAR 414 million in the current year. Investment activities reduced from ZAR 388 million to ZAR 80 million due to the reduction in capital expenditure, insurance proceeds received and the acquisition in the prior year of Cape Foods. Our financing activities reduced from ZAR 484 million to ZAR 386 million, driven by reduced lease payments and a reduction in repayment of term debt facilities compared to the prior year. Facilities of ZAR 1.2 billion remain available to the group. Moving on to the category review and starting with the underlying EBITDA margin performance. All categories have shown an improvement in H2 with the exception of snacks and confectionery. The 2 largest categories of perishables and groceries, both improved in H2 by over 2 percentage points with perishables ending on 7.3%, which was below the year 2023 target and groceries ending on 11%, which was in line with the 2023 target due to the significant recoveries in the retail and export channels. Snacks and confectionery and baking and baking aids, both ended below their targets on 14.1% and 8.9%, respectively while the turnaround in the household and personal care division resulted in an above target final result of 6.5%. These margins will be unpacked further in the following slides. Starting with perishables, our largest category, contributing 50% to the group, which showed a 4.5% revenue increase during the period. Retail and wholesale increased by 4.2%, which was muted due to the decreased volumes in Denny as well as decreased promotional activity in the dairy category. Food service increased by 7.2%, driven by dairy products. Volumes were down 5.3%, driven by reduced retail volumes. And despite the raw material increase and significant load shedding costs, the gross profit margin remained flat on the prior year at 18.7%. Normalized EBITDA reduced by 9.2% to end the year at ZAR 452.7 million at an EBITDA margin of 7.3%, which was down 1.1 percentage points on the prior period. The return on net asset value reduced by 2.8 percentage points to end at 10.6%. Groceries, our second largest category, contributing 31% of the group, increased by 7% during the year. This was driven by a strong performance in the retail and wholesale channel of 17.8%. This was impacted by the Cape Foods acquisition, which had a full year effect in the current year as well as increased volumes in the wet condiments divisions. Exports were up by 7.5%, again, impacted by the full year impact of Cape Foods acquisition and driven by the devaluation of the rand, despite the decreased volumes in Cape Herb & Spice due to the annualized impact of the customer localization strategies. There was a significant decline in industrial and contract manufacturing driven by volume decline in wet condiments out of Dickon Hall Foods. And lastly, a strong performance in food service of 12.9% driven by Rialto across both foods and packaging. Overall, volumes were down 3.9%, driven by Cape Herb & Spice and Dickon Hall Foods, which outweighed the volume gains in the other divisions. Notwithstanding the under recovery of the manufacturing overheads out of Dickon Hall Foods, the gross profit margin increased by 0.3 percentage points to 23.7%. Normalized EBITDA reduced by 4.2% to ZAR 423.2 million for the period at a margin of 11%, which was down 1.2 percentage points on the prior year. The return on net assets reduced by 1.7 percentage points to 16.3%. Baking and baking aids, which contributes 9% to the group saw revenue increase by 13.9% with a strong performance in retail and wholesale and food service, the largest channels in the category. This growth was driven by Amaro Foods and Cani Rusks with volume growth of 2.4% attributable to the recovery in volumes in H2 where volumes were down in H1 at 1.9%. The gross profit margin improvement in both Amaro Foods and Cani Rusks compensated for the margin pressure found in retailer brands and contributed to an increase in GP margin of 0.4 percentage points to 25.6%. The normalized EBITDA was up 13.9% in the year at ZAR 94.1 million, at a flat margin of 8.9%. Return on net assets increased by 4.1 percentage points to end the year at 11.9% as the Amaro Foods rusk facility started yielding returns in the latter half of the year. Snacks and confectionery, which contributes 4% to the group saw a decline in revenue of 9.7%, which was impacted by the Kellogg's Pringle manufacturing contract that was terminated in the prior year. Excluding this and looking only at the performance of Ambassador Foods, revenue declined by 2.1%. Volumes were impacted by a decrease in promotional activity and consumers moving to more affordable snacking alternatives. This change in sales mix could not offset the reduction in volumes. The gross profit margin declined by 11 percentage points to 19.5%. However, if we only look at the Ambassador Foods margin, there was a decline of 2.5 percentage points. Normalized EBITDA reduced by 31% to end the year at ZAR 72.1 million at a EBITDA margin of 14.1%. And the return on net assets decreased by 5.2 percentage points to end the year at 16.1%. Lastly, looking at household and personal care, which contributes 6% to group revenue with a increase of 2.5% in the period. As previously discussed, volumes decreased due to the discontinuation of unprofitable lines. However, grouped with the procurement savings and production efficiencies, there was a 5.1 percentage point increase in the gross profit margin to end the year at 16.4%. Normalized EBITDA increased by over 200% from ZAR 12.4 million in the prior period to ZAR 47.8 million at a EBITDA margin of 6.5%. Return on net assets increased by 13.4 percentage points to end the year at 7.2%. On this slide, we give a view of the performance based on the new category structure. Perishable products, which comprises the existing perishable category, achieved 7.3% normalized EBITDA margin and the 2024 target is to achieve between 9% and 11%. Ambient products, which comprises the existing groceries, snacks and confectionery and baking and baking aids category achieved 10.9% with a target to achieve between 11% and 13% for 2024. Below this, we have provided the category performance in detail, which will set the base for the 2024 comparatives. We note that these categories exclude household and personal care and the corporate costs. I will now hand back to Charl to take us through the outlook.

Thank you, Terri. To conclude our presentation of this morning before we take some questions, a few comments on our outlook for the new financial year. In terms of macroeconomic factors, we continue to expect the challenges of 2023 to persist into 2024, although we have noted the moderation in certain key inputs, noting also that they remain elevated in the context of CPI. Looking at the trading in the first 8 weeks of the year, post year-end, revenue growth has moderated following a reduction in food service channel revenue based on not only the base effects of the prior year but also intensified competitor activity. Although we do note the improvement in contract manufacturing demand relative to the prior year. Most importantly and directly aligned to our ambition for this year, our margin improvements that were delivered in the second half of the year have been sustained into that 8-week period, so relative terms continuing to see the trend in margin improvement. Looking at the key opportunities of this financial year. Now that the integration of our export-facing businesses is complete and export orders have stabilized to their new base, we will be targeting significant opportunities in meat, dry and wet condiments, noting again, that we are now accredited to supply the Saudi region. We will also continue to see some benefit from the weakening rand against other major currencies. In terms of other channel development opportunities, I mentioned earlier that our food basket offering will be expanded within particularly the ambient products category but also as a function of the integrations currently underway within the perishables category, whilst we will continue to build on the positive momentum around wholesale market development in the prior year. Our key priorities for the year are to sustain our GP margin improvements through the changes in product mix, production efficiencies, effective cost and price management as well as the execution of our divestment and portfolio simplification strategy. Our capital allocation will remain focused towards the lower end of the guidance, whilst we continue to strengthen the balance sheet and consider and earn the right to consider those share repurchases at attractive valuations. The simplified structure will assist us in improving our cost competitiveness, earnings quality and return on invested capital. We have the teams in place and the plans are in execution phase. So we are ready to build on the momentum that was created in the second half of last year. Thank you for listening. And please stay with us for a few questions. [Presentation]

Thank you, Charl and Terri for taking us through the presentation. [Operator Instructions] We'll first start with some questions from the floor, then move to our conference call participants and lastly facilitate questions from our webcast guests. Our panelists on this stage include Charl, Terri and Cornel Lodewyks, Executive Director and newly appointed Managing Executive of the Perishables Product category. [Operator Instructions] Right. Let's get started. Are there any questions from the audience attending? Yes.

I've got a two-parter here. On the first question, you say part of the working capital increase was due to the port issues and exporting there. Have you seen any alleviation in that in the last December and Jan, Feb from that December number? And secondly, on a more strategic level, we've seen retailers who have embraced private label more enthusiastically and they're vertically integrating, are they doing much better. Do you see any logic or trend of larger players trying to bring more rands in-house, in a way?

Right. Net working capital. Sure. So to answer your first question, we have not seen any alleviation in the port, specifically in Cape Town. And for the past 2 months, it has continued to affect the business.

Just if you just maybe repeat the question, asking more players into the market on the private label? Sorry.

Sorry. I'm just saying that retailers who are -- retailers are seeing more strength in private label specifically and they're starting to vertically integrate. I was wondering if management has any comment on whether some of the bigger players whether in food producers or retailers are looking to bring more brands in-house?

Well, I suppose there will always be -- if private label is growing and it's growing extremely strong double-digit growth for the last 5 years and I think there will always be an opportunity to participate but it will depend on whether you are geared to do that. I think from a Libstar point of view, we have our brand solutions and we work very closely with our retailers. And we also understand the retail landscape in terms of participating brands within the categories. I'm not sure if that's -- it's a bit of a difficult question to answer outright but the possibility is there exactly.

I can add maybe a bit more to the statement. One of our -- Libstar's DNA is a fact that we have private level and our effort to support -- to be aligned with the strategies of our retail partners. Charl mentioned the fact that we will approach the future in a category where we're looking. Also brands, we look at Libstar brands, even private label and own brands, as basically the same. And we nurture those as if it's our own -- one of our own properties. So we do like -- like I mentioned, we do that to align with our partners and obviously, for our competitors, I suppose, backing private label. It is attractive because it's growing. It's growing.

Right. Any other questions? We don't seem to have any additional questions from the webcast at this point in time.

Sorry, just in terms CapEx guidance, you said towards the lower end of that 2% to 3% range. So if -- just for small modeling purpose, we put a low bit of inflationary growth on revenue, as you said, it's moderated and then, of course, on the lower end, that's a rough -- we can work with that.

So you want more specifics or [indiscernible] confirming? Yes.

I think it's important to understand that, as I said, we've gone through a period of significant capital investment, so we're not underinvesting in the business. In fact, our investment in our hard cheese packing facilities, our investment in convenience meals, our investments in the bread lines and other smaller projects have contributed to us being able to continue to supply. That seems to be a problem elsewhere but we're fortunate to have invested ahead of this and able to supply. And that's why we are able to now focus on more value accretive, smaller projects, efficiency-based projects.

Sorry, maybe a bit more of a tougher one. Now that Actis has been acquired by [ ACEF ], have you guys heard any new information regarding that? Or any comment regarding them?

Yes. No, nothing has changed from our perspective.

Could you please elaborate on efforts to fill in the additional capacity that was brought into Amaro Foods?

I'll maybe that one. So as Terri mentioned, we've been expanding our customer base into new QSR customers, that did happen. And so we've been filling pipelines and increasing our volumes on that front. We still continue to see tremendous growth in demand within the retail channel as well as within our existing QSR customers. And we're starting to consider some export opportunities as well where the first container will actually leave in this first quarter to the Middle Eastern region in terms of frozen product. So definitely starting to see the benefit from that capital expenditure.

Thank you, Charl. I do have a question from the -- an online question. What is the corporate cost for 2023? How should we think about that line going forward?

Can I take that one? Terri, you must keep me honest here but the corporate costs reduced from about ZAR 115 million, ZAR 116 million to about ZAR 100 million on a normalized basis. We've always said that we want to be a lean center. We support the 2 operating categories and that should be fully functional. So we're not looking to implement a centralized operating structure by any means. However, rolling out the strategy may require some investment in terms of systems as well as talent development but we will be quite hesitant to increase the cost extensively beyond the current levels.

Thank you, Charl. Okay. Perhaps another question from the audience. Well, I thought you should maybe keep the mic. All right. No. This, no. There we go.

You spoke about earning the right to get share buybacks at gearing of below 1.5x. Is that -- do you guys see yourself on target for that to reduce that debt? So -- I mean, our net debt, semi or total to semi flat. Do you guys see yourself on target to do that via the reduction of debt?

So we are on target to reduce our gearing to below 1.5x, all things considered by the end of the year or in the second half of the year. So if the share price remains as it is, which we believe is undervalued, we will be considering the share repurchase.

Okay. Thank you, Terri. No more questions from the audience. That seems that, that concludes our Q&A session. Please note that the management team will be available for meetings next week. And should you like to set up time for further discussions or require any additional information, please do not hesitate to reach out. All our contact details are on our website. We thank you once again for your time and attention today. We appreciate your continued support. And please join us for some refreshments outside. Thank you and take care.