Metair Investments Limited (MTA) Earnings Call Transcript & Summary

Welcome to the 2022 Interim Results Presentation. Today is the 15th of September 2022. Good morning to all of you here today, and good morning to all of you on the webcast. I really appreciate you joining us for our interim results presentation. Thank you for the people who have joined us in person at the Metair Exhibition held in Smiths Manufacturing. I really appreciate that, a good chance for all of you to see the kind of products we make and what the company is all about and a good chance for you to engage with many of our leaders as well. Also a very good morning to all of our stakeholders on the call today. Great to have seen many of you already on Tuesday at the launch of our Hesto facility with the President, and I'm sure you'll testify to the fact that it was a great event and a very worthy reason to get the President out to KwaDukuza for that launch. I will start the presentation with a safety slide. And as many of you have seen in this room, the safety mindset is a very important aspect of anything we do in the manufacturing organization and so safety is a presence of mind. It may sound like a simple phrase to say, but in actual fact, it forms the basis of many of the disciplines within which we work in from a manufacturing perspective, not just about safety, but around process and around delivery to our customers, so very much believe in getting the foundation principles of a business around safety. So we are going to go through an agenda, basic agenda of welcoming and opening observations; salient features of this interim period, the first half of the year in 2022; financial and operational review; and then outlook and prospects. some Q&A and in the results presentation itself some additional information as necessary so welcoming an observations its been an interesting six months for the group. And dare I say, for much of the industry as well, from an operational excellence perspective, my top of mind issues are certainly around the delivery of key projects in the automotive components space. We've talked about this for a number of years now. And I'm very happy to say that it's on track. We're reaching a point of key delivery milestones and a lot of that investment has happened. And we are now in a very critical phase of supporting our customer for that project supply chain normalization is been on mind since we had the disruption post COVID and certainly we have been quite much more coordinated now than I we have been in the past, certainly around the disruptions that we've had, and we've been able to navigate this disruption much better this year than we did last year. And at the same time, supply chain coordination has improved overall globally. So we see that getting better over time. And certainly, we see costs now starting to come down, although not nearly as where they were pre-covered. -- still 3x, 4x higher than they were before, but not 7 or 8x as high as they were before, which was last year for a lot of the time. And certainly, availability of containers and predictability of containers is getting better. The third one around operational excellence post-flooding recovery and production readiness. This speaks to our biggest customer in KZN after the flooding in -- on the 12th of April and having stopped for almost 4 months and then the ramp-up again of production like a long shutdown period and then filling that chain again, that supply chain again with components, products and reordering from overseas for components were certainly a trying period. We're now well on track to recover with -- on back to our pace again. In manufacturing, we see our customers doing the same. The volumes are good, and we're getting back to what we think is a good normalized normal volumes and good growth in the future. So -- that's certainly been a tough task for us in the last couple of months, one that we've done exceptionally well at, I believe. From a financial performance perspective, it's monitoring and mitigating the events in Eastern Europe, including high energy costs. We saw that spike last year towards the end of the year when we came closer to winter. And for whatever post-COVID reasons, they were that energy costs were increasing in that part of the world, in many parts of the world. In fact, it certainly got worse after the Russia-Ukraine conflict, -- and we've seen many governments in that part of will subsidize energy costs. We're now seeing some of that either reverse or intensify. And so we're keeping a very close eye on what energy costs in Eastern Europe would do in addition we are also keeping a close eye on many of our customers in that part of the world and have already started to mitigate where some of that volume needs to be placed in the future. From a South African economic recovery prospect, most of us live in South Africa. It's been a difficult period, having that many disruptions in a short space of time. But as we do, we take a long-term view around many of the things that we put in place, certainly, the projects that we have, our 10-year projects that takes 3 or 4 years prior to put in place. So I reckon what we see in the future from a volume perspective and a recovery perspective, we still have. good confidence in the future. Resolving the wage negotiations in the South African automotive industry as -- the third point, it is in the middle of this period now. we haven't had yet any final outcome. Remember, this period is the OEMs, it's ourself and it's the tire industry as well. So wage negotiations will be quite critical for us to get right. We have a good 3 -- solid 3 months ahead of us where we will finish the year with great volume if we don't have any disruption. And we think that the waste negotiations here offers a very good opportunity to take us onto that path. So resolving that will be important for us and the whole industry. But we also know it has to be a fair resolution, and it has to be something that the industry can afford for the years ahead. It's a very competitive industry, and it will remain so. So we're looking for the best outcome for all. Managing hyperinflation in Turkey. We'll talk about that a bit more when we get to the results presentation. But certainly, in my mind, is what do we need to do in the future to manage hyperinflation in the economy in our biggest subsidiary? How do we manage that moving forward? When we were faced with the issue of hyperinflation in Turkey, the first thing we wanted to do is grasp the technical realities of what we were dealing with. What does it mean for us to account using hyperinflation accounting systems? And we understood that with our partners, with our with our consultants, we through it in detail. We understood then what it meant for us, not only in terms of Mutlu and Turkey, but in terms of consolidating it back into our own MTA results. And once we understood that, we then applied it, and we understood what that result looked like, and that's what sherd will take you through later on. And we will then go into now looking at what we need do for the future. Balance sheet robustness and liquidity was a key issue for us, especially during the flood period, and we kept a very tight view of what that meant for us overall, cash-wise, the availability of cash. And it was, I must say, the great credit to the finance team to short and his team around all of the work that was done in balance sheet protection. Value creation. I think we're positioning ourselves on carbon reduction initiatives, and we'll continue to do so for the future, And we started that in earnings from a sustainability reengineering perspective, and we intend to take a stronger, more deeper view of that in the future. future diversification initiatives in automotive components are also quite important for us. And here, we're talking about different customers, different products. across the South African automotive landscape. And finally, potential value creation opportunity in energy storage, as I mentioned this before, we have been working on this process for the last 18 months-or-so, and we do hope to have an outcome by the end of this year. So we feel we're on track with that as well. So there are a number of things to think about in a top-of-mind matters. So what did we start with in H1 this year. Well, it was -- we navigated a number of challenges in the operating environment in which we worked. Conflict in Ukraine caused us to look harder at where we get our raw materials from, where we send our batteries to and the general economic influence in the region. And I've mentioned some of that already. And that led to then -- led in energy prices in Romania and Europe being affected and will still be affected for the future. I mean who ever thought the conflict was a month or 2 or 3 has now turned into 6 to 7 months. And I don't think anyone can say or predict when this conflict will end. We've got to look at it from a regional perspective and understand how do we make the most and protect our businesses as well as -- we can. And so far, it's -- whatever we've put into place has been effective and each 1 of these problems, we've taken a step-by-step approach. We've looked at them. We've dealt with them. We've put in place either changes or mitigated the impacts as much as possible. And certainly, the floods and the stoppage of our major customer in Toyota was a great test of that. We had to go through a significant turmoil in stopping many of our subsidiaries, protecting our employees, protecting our other customers and certainly managing our finances in the best way possible, and we did that and navigated the insurance claim that are still ongoing. -- and sherd will talk about that later on as well. And then the onset of hyperinflation that came towards the end of June, July -- and what that meant for us quite a big accounting impact to what we do in the company, plus at the end of July, a 10-day strike, which was the end of a 2-year negotiation period for Mutlu, which had an impact in our June results, certainly, and it impacted the first half year results for us. And now I've mentioned Toyota start-up and readiness preparations that we are busy going through as well. So all 6 of those topics were really quite challenging to deal with. And we've successfully managed them in the best way, how and I must say a great credit goes to our team, all our leaders, managing directors, who have done a great job in mitigating many of the impacts of this. I'm going to hand -- oh, sorry, I beg your pardon, not yet Let me go to the salient features at a group level. The big numbers for what we did in H1 '22 revenue decreased by 2% to ZAR 5.8 billion, a slight decrease from last year. EBITDA decreased by 57% to ZAR 300 million. That's based on the hyperinflation impact of EBITDA. And if we normalize that figure to 700, it comes to ZAR 743 million, comparable period was ZAR 701 million. And let me just say at that point, Metair has not done normalized figures before. We were generally quite clear with the numbers that we reported. But we felt that we needed to put a normalized result up for EBITDA, EBIT debt hedge. It's important for us because there are many one-off items now, plus the effect of hyperinflation, which makes it even more difficult to see actually what this number should be. So from an EBITDA perspective, a reasonable result given that we knew that first half of the year, project delivery would be higher. There would be a high amount of CapEx and therefore, a high amount of project costs that would affect us and hence but decreased 73% to ZAR 144 million. The normalized number is about ZAR 557 million, pretty similar to last year's same period and net debt increased to ZAR 2.4 billion, about ZAR 2 billion normalized and up just over ZAR 1 billion. So a portion of that is not just the CapEx. -- we spent but also some of the flood recovery we went through. We'll talk about that. Free cash flow utilized ZAR 567 million ZAR 444 million utilized pretty hyperinflation. And headline earnings as a result of all of that decreased to $0.45 per share, which is $1.52 in a normalized way. Debt financing, we've got strong ongoing support from our funders. We still maintain a BBB level 1 -- and all our other subsidiaries are at least a level 4, many of them are 2 and 3. Tonnage cycled very good numbers at 29,000 tonnes in H1 '22. -- lost time injury, great numbers come down significantly from previous years to 0.21 rather in the first half of the year. We believe our supply chain response has been effective. We've got a lot more coordination in our supply chain amongst our companies, amongst our customers. And we believe our supply chain response is good. successfully progressed all new projects in automotive components, and I think that's a major feather in our cap in the first half of this year. Given everything that's gone on, we've been able to do a really great launch preparation thus far and are in quite an intense period now towards the back end of this [ ford ] project, and a return to production from our major customer, as I've mentioned before. So all in all, really some numbers that require more in-depth probing and I'm sure that the next round of slides, we'll give you a bit more comfort in what those numbers mean, specifically around hyperinflation. So at this point, let me hand over and welcome Sjoerd.

Currently, I mean, there's a lot to deal with in explaining the results. So I'm going to do my best to unpack it. There's a lot of information in the back. I don't want to go through everything in excruciating amount of detail. We going to go through reported results. I'm going to cover hyperinflation. -- when I try and teach or for those who are not familiar with hyperinflation in 2 minutes, what hyperinflation is I managed to do it to the banks with the bank. So some of them are represented on the call and here so hopefully, that methodology works. Importantly, we go through normalization adjustments in our view of what we think normalized or represents core earnings of the business, which will be important to understand for you. I'll cover the challenges may be in a bit more detail, give you a forward overview and also just the flood impact and if we have to deal with. So firstly, what were the big things that we had to deal with this year. But I'm not going to repeat all the numbers on the left. I think Riaz has covered those already. But in Turkey and certainly within energy storage, the impact on our accounting for Story has certainly been greatly affected by hyperinflation, I've got a separate section, as I mentioned on that. Through that, it's all noncash. I've got my own view on it, which I'll share during that section. We have a Mutlu, it did have an impact of about ZAR 30 million on the profitability. It's unusual in the nature that normally when we have wage negotiations in Turkey is typically resolved. It is a 2-year wage cycle. It's typically resolved in a day, maybe a day or 2. And given the hyperinflationary environment in Turkey, obviously, the wage demands were extraordinary, and we had to really push it to some finality. And thanks for Dennis who you can ask him about it for those who are present and we have to push I suppose longer and have taken longer start to settle at a level that we were -- that was representative of what we felt actual inflation was. And then in specifically Romania, the proximity to Ukraine and what was happening in the region. -- severely impacted the aftermarket. So consumer appetite to spend on anything was completely depleted. Let me put it that way. And so I think it's probably starting to ease, but I think just that initial 1, 2, 3 months of uncertainty around where the potential line would be drawn certainly would make people very nervous. And on the component side, Riaz touched on it, our main customers out for 4 months at this reporting date, it was basically 2.5 months. The return to production in August, which is amazing, and we'll talk that a little bit more. Short-term cash constraints, I mean, major customer goes down, there's no cash coming in. We still need to look after our employees. We still had to continue with preparations for new models, et cetera. So it's quite a unique scenario where you invest in for the future, but you still have side, we have touched on our main customers out for 4 months at this reporting date, it was basically 2.5 months. The return to production in August, which was amazing, and we'll talk about that a little bit more. Short-term cash constraints, I mean, major customer goes down. There's no cash no cash coming in. We still need to look at after our employees -- we still had to continue with preparations for new models, et cetera. So it's quite a unique scenario where you're investing for the future, but you still have that short-term instability in the business that we had to deal with. We have been successful with our business interruption claim. What we've accrued to end of June is ZAR 360 million. That's on a segmental basis. We've received ZAR 150 million in cash. Our cap on the business interruption is ZAR 500 million. And I think we already as we sit here today, probably over the ZAR 500 million. So we certainly expect to exceed the ZAR 500 million business interruption cap. I think on an operational performance, actually, which I'll show you on the next slide, some of the OEMs did have poor start-ups for the year. There were still some supply chain issues within the system. And I think given the current constraints, there wasn't any ability to catch back any of those volumes. That was the reality. So -- and especially with Ford, preparing for a model change, I think the focus was very much on rather preparing for the new model than completing a cash back on the previous model, if any. And then as Riaz said, we had a once-off cost expected on of project costs for the first 6 months, it was ZAR 115 million. I've got a slide to unpack kind of where we are with forward in totality now just before launch, and we don't think that should change dramatically going forward. We'll cover that later. And then debt levels were also impacted by short-term working capital, but I'll cover that as part of the balance sheet, which will also impacted our debt levels as well as cash availability. On the next slide, this is just a bit of detail on income statement, not going to go through all of this, but revenue marginally down. Energy Storage exceeded prior year comparative in terms of their revenue because of higher commodity prices, but closing Toyota results in overall negative position on revenue -- on revenue. On a consolidated basis, the ZAR 360 million, so that's after allocating business interruption out to Hesto because Hesto is not consolidated. There's about ZAR 259 million that's actually in the operating profit. I mentioned the business interruption cap. And the EBIT margin was down 7.4% to 2.5% on a after hyperinflation. Our interest rate did increase quite a bit. I mean, global interest rates have been rising in Turkey. Interest rates are dramatically higher. Business is growing. Commodity prices were higher, so it's certainly picking up a much higher interest charge. And so almost doubled for the first 6 months. Effective tax rate, I mean, that's just the impact of Hesto effectively on the result and some nondeductible expenditure but certainly not representative of the longer-term tax rate. On the balance sheet side, I think I see a dramatic change on asset base through to June. I'll cover a portion of that as part of hyperinflation, but certainly carrying more working capital, investing for Ford. And then finally, inflating a lot of our nonmonetary assets due to hyperinflation added significant value to the asset base, similar to equity. And from a balance sheet perspective, we'll cover that later. All of our debt has been classified as current because of a technical covenant bridge, but I'll cover that separately, and we are comfortable that we'll get through that very successfully. You can see the excess. Working capital that we carried at 30 June. So at 89 days. It's quite significant. And I think there's 2 big contributors to that or 3. First one is Ford. So there's an investment for Ford that's going in. Secondly, when Toyota stop production in April. Unfortunately, the ships that we're bringing all the components that these MDs were talking about didn't turn around. We asked them to, but they couldn't. So the stock is coming in. So eventually, we ended up renting warehousing, et cetera, just to keep all the stock that was coming in. So we have a kind of a glut of inventory and a point in time. We did extend creditors. You also see the creditor payment. -- creditor days go up but there were just some creditors that we couldn't extend to completely offset the working capital impact, hence the overall increase. I think a lot of this will unwind in the second half of the year, certainly from a day's perspective. So overall, I think we're comfortable that we can return to a normalized level. And then I think importantly, covenants, I mentioned covenants, so we did have a decrease in cash, as I covered the reasons why already. So as reported, we actually -- on a debt and interest cover ratio, we are fine. Our total net debt to borrow and due to EBITDA is at 3%. Our covenant is at 2.5x. So that's the technical bridge of the covenant. And then priority debt covenant of almost 1.5% also breaching the 1x requirement. We've had really good interaction with all of our funders around this also presented what is on the right there, the normalized position of the debt of debt as well as earnings. I'll cover that. And if you see the normalized position will well within the covenants. And if you look at the core performance of the business and outlook, I think at this point in time, we have high levels of comfort that we'll be fine 2 of our funders, 2 of our majority funds have already confirmed waiver of governance. We're waiting for the third, but that should be imminent as well. So I think there's a good understanding of the future of the business, and this is all short term and noise basically due to what we've been through. -- hyperinflation accounting, right? So in theory, hyperinflation accounting is supposed to make results more comparable to previous periods. In our case, Mutlu's operating results have been significantly So they were profitable in Turkish lira, then loss-making after applying and hyperinflation. I'll talk you through that. The reality is 80% -- more than 80% of the input cost in this business is hard currency denominated. So there's only a small portion of costs that are actually exposed to inflation within Turkey. It's important to understand that. And then also more than 50%, probably closer to 60% of the sales of this business is hard currency denominated. -- so to apply hyperinflation to a business that is predominantly dollarized, we did argue until we blew in the face, but unfortunately, it is what it is. You have to apply it. If you report in Turkish lira, unless you've got a functional U.S. dollar currency, which we don't because we are a rand-based report that you cannot get away from it. So we have to apply hyperinflation. So this is the slide 2 slides managed to condense hyperinflation into 2 slides. So why is it applied? You can see the extreme increase in inflation rate over the last kind of 6 months and the hyperinflation trigger is basically if you reach 100% cumulative inflation over 3 years, you apply hyperinflation. Normally, that's led by the local accounting body declaring that countries known hyperinflation. You have to apply hyperinflation from a Turkish perspective, they've been 100% quiet. But globally, the big 4 accounting firms have basically published that any reporting period after -- from 30 June onwards must be reported under hyperinflation and hence, what the position that we're in right now. So the slide on the right deals with the balance sheet. From a net debt perspective, so that's on a consolidated basis some of supplies to the local account as Supplies to the local accounts as well, but there's an added complication. So I was just focused on the local the consolidated numbers. So firstly, what one needs to do is restate the balance sheet, the total balance sheet and bring it up to an inflated position as at 31 December 2021. We acquired the business in 2013. That's when the indexing starts using the index, we inflate the whole balance sheet through to 31 December 2021. That's the big increase in asset base that I was referring to previously. But all of that increase goes through equity, foreign currency translation reserves. So there's no impact on prior period reporting and there's no impact on profit and loss. Then from 2022 onwards, we look at the balance sheet again. Now monetary items, those are things like debt as credit is cash on the balance sheet. You don't restate, so they carry the seem to reflect current purchasing power -- but there's 2 items, which then finally from a balance sheet movement perspective, significantly impact the results. nonmonetary items, so fixed assets, inventory, et cetera, even goodwill intangibles, you have to mark up and index from 1 January to 30 June, right? That movement through balance sheet typically is a positive because you're inflating assets inflating intangibles, goodwill, et cetera, that results in a net gain in the balance sheet. The one that you will understand on the following slide, hopefully, all that also goes through profit and loss is historical retained income. So any historical equity that was rebased as part of step 1, basically, you devalue that according to the inflation rate through to 30 June also through profit and loss. So it's a restate not a restatement, but a rebasing of retained income from 1st Jan to 30 June. It's got nothing to do with current year trading. It's just a is. So it basically means if you had ZAR 100 million in retained income on the 1st of January, applying inflation assumes that, that's now only worth [ $80 or 70 or 60 ], and that movement goes through income statement and headline earnings per share. From an income statement point of view, and I'll have a slide where I bring this all together, so it's actually 3 slides, sorry. And from an income statement perspective, it's quite interesting, you have to apply the same rebate every line in the income statement. But what hyperinflation also requires is you need to take into account when you acquired your input cost. So your input cost from a cost of goods sold, if you acquired lead on the 1st of January and you sell it on the 1st of April, you're required to inflate the cost of the inventory for those 3 months. So you and say we sell it at 120 by the time we sell it for 120 in April, having reindexed it, it's worth 130, so you make a loss. But I'm still standing with 2 Turkish Lira in my hand at the end of the day. So noncash, noncash event actually. It is more severe. I mean, given the steepness of the curve, the longer your working capital cycle or conversion cycle is the longer you kind of inflate your cost of goods sold? And I mean, basically, revenue was rebased by 17%. So it uplifts the revenue slightly, but from a cost of goods sold, we had to inflate it by 40%. So a complete mismatch on that. That also goes through profit and loss. And then to summarize it, hopefully, this sorry, it's a bit small, but there's only a couple of numbers that I want you to fold it's much bigger there. It's more for me to is. From a balance sheet perspective, that just reflects uplift in assets because of hyperinflation, uplift in equity because of hyperinflation. And then from an income statement, probably you need to focus on the right. So what hyperinflation adjustments that I was just referring to effectively reallocate the loss. So the loss that you make from cost of goods sold is reallocated to a net financial gain. So you reallocated out of operating profit out of EBITDA and effectively similar to an interest or a financial gain. And as you can see, the reallocation on operating profit was ZAR 328 million, reallocation out of EBITDA, ZAR 290 million. But because it's taking it out of, let's call it, gross profit, but adding it into a financial item on a profit after-tax basis, the income statement doesn't change, right? It's just a reallocation of cost out of -- or reallocation of expenses from one area into another area, but on a profit after tax, that's got no impact. And the 2 items I mentioned on the balance sheet, which then does have the impact on headline earnings per share. is the movement in balance sheet from 1st of Jan to 30 June, which was actually a gain of ZAR 185 million, and that's why a lot of companies in hyperinflation tend to report higher earnings because there's a gain a nonmonetary or noncash gain in the balance sheet. And the one that actually then puts us in a negative position because we have quite significant retained income in the Mutlu group is if you rebase or devalue the retained income, it results in an overall net loss position of ZAR 95 million. And that's basically the impact that we've said. Well, that's the impact on headline earnings per share as well. And that's what we're attempting to kind of out not strip out but normalize as part of our view on hyperinflation. -- one pause for questions there. Then from an automotive component perspective, I think it was quite a disruptive 6 months, although we came through it. I wouldn't say unescaped but financially in a relatively good position. It was an extraordinary event actually. And I remember when the flooding happened, we call the meeting together, and I said to everybody, listen, everything that had covered plus the rights plus everything else, supply chain and everything that happened over the last 2 years was just to prepare us that we can actually deal with this. How we look after the employees, how we look after our cost base, how we protect the balance sheet, how we look after liquidity, all of those things. And it really did help unfortunately. So as I mentioned, I'm going to going to touch on a few of these. We looked at how suppliers could support us, and we did get quite a good level of support from suppliers engaged insurers on business interruption. I think that will be a good outcome in the end. It all depends when the business interruption ends and when Toyota can reach their budgeted to normal production levels when we finally out of BI. I suspect 500 is going to be a bit shy. We're probably going to end up winter go back to reach their full production, but at least the ZAR 500 million is, I think, a relatively good outcome. And then also, I mean, engaged with our funders. They may do liquidity available to us in the short term, which we fully appreciate and I've already discussed kind of a technical covenant breach and the way forward on that. And then Toyota support for the supplier base, I can tell you, Toyota still is looking after their suppliers very well. Some suppliers they're paying on a weekly basis, so making sure the cash is flowing, which is really appreciated from there. And then went through a phase, I suppose, of return to production readiness and making sure that once you've been out for 3 months, you need to get everything moving again that we can produce at the right level of quality, et cetera. So that was probably the biggest issue we've had -- we've ever had to deal with in Metair. So as reported, I don't want to look at these numbers, but as reported, Energy Storage reported an operating loss of ZAR 44 million. This is obviously including the impact of hyperinflation automotive components are down to ZAR 183 million operating profit and net their consolidated down to ZAR 144 million and EBITDA similar trends. I think the more interesting one is probably the pre-hyperinflation not normalized, but pre-hyperinflation energy storage were impacted down on last year, but mainly impacted by what we've discussed, high energy costs in Romania, the Ukrainian Russian conflict as well as the strike at Mutlu and then automotive components, mainly project cost related impact from that perspective. Looking at automotive components a little bit more closely, I mean we still were faced with supply chain and -- so if you look at the volume production on the right-hand side, we are predominantly exposed to Toyota and Ford and I think although Toyota shows a significant decline. The majority of that would be due to business interruption and the fact that they couldn't produce, I think that we've normalized through the insurance process and then forward behind condition, we've spoken about, and that was just availability of parts, mainly in the first quarter of the year and inability to get at back, and you can see that on a volume graph as well. And then project loss, we've spoken about, project costs were about ZAR 80 million at Hesto. So that's certainly the biggest area of spend in the business, ZAR 35 million across the other companies and business interruption, we've discussed already -- from an energy storage perspective, I suppose, revenue up 14%. A lot of that's got to do with commodity prices. And this is as reported. So you can see the operating profit EBITDA impacted quite significantly. And the block on the top right is just to show the impact on the strike came during a critical phase of exports, and we couldn't export a sufficient number of batteries during that point in time. As you can see on the right, just below that, from a volume perspective, Mutlu still had a good increase in operating volumes, 14%, good export increase, good OEM volumes, a slight decline in aftermarket. But overall, a really nice -- really good operating performance from Mutlu [indiscernible] down 14%. You'll see a majority of that is aftermarket and export into the region. And certainly aftermarket's the most profitable segment in Rombat that hasn't hurt quite a bit. And then FNB, we're slightly down kind of held their own at this point in time, and we are working quite hard and the team is progressing strategies around improving competitiveness and market share within South Africa and exploiting export opportunities at this point in time, which we think will certainly start improving those volumes quite significantly again. Then capital expenditure and commitments. I think this is more a bit of detail for your consumption, but all projects remain on track. And as per the budget, I think some of the numbers, and I'll show you on the forward slide might have gone up a little bit, that's just as a result of increased projects that we secured and increased complexity adding some, but all of that leads to higher revenue, but I'll cover that as part of that slide. And as you can see, the majority of the spend has been in automotive components in terms of efficiency and capacity expansion. I'm not going to go through this in detail, but this is just, again, operating profit to break down per company. And also pre and post hyper analysis and then also in local currency terms, would increase performance by 74% Rombat, down 67%. You can see clearly the impact it's had on Rombat and then FNB down just around 8%. So I think important new section, I suppose, in our results presentation is unpacking and understanding what the core earnings and underlying performance of the business actually represented given the complexities that we've reported. So we've done 2 things. The first one is a pre-hyperadjustment. So just adding back what the noncash impact of pre-hyperinflation of hyperinflation, not I inflation and then normalization adjustments, which would typically board project costs, some transaction costs, which relates to potential value unlock opportunity that Riaz spoke about. -- strike-impacted Mutlu and then just a bit of normalization of inventory. So if you look at the EBITDA table on the left, and I've just brought in the hyperinflation table on the right just to link the -- to see the EBITDA connection. So the EBITDA impact of hyperinflation was ZAR 290 million. So adding that back. And then we had project costs for other companies other than Hesto of 35%, as I mentioned. And then Hesto's proportionate project cost, which is about 74.9% of project cost and the strike impact transaction costs and some impairments, which normalizes EBITDA up to ZAR 743 million. From a debt perspective, this is just consolidated debt, ZAR 2.4 billion. And as I mentioned, we did have strike impact and an inability to an inventory impact as a result of the strike, and therefore, that increased, I suppose, the date levels as well. And the business interruption of receivables, although we've claimed ZAR 360 million from the insurers, we're still waiting for the cash in a normal trading environment, we would have received a payment from our customers already. So that's just a timing issue. And then I would say the net excess inventory that we have due to the flooding in KZN and Toyota going stopping production is about ZAR 150 million. You'll see the inventory numbers a lot higher, but also, as I mentioned, the creditors. So we should net those off and that results in the ZAR 150 million kind of net position. So from a covenant perspective, this reflects the covenant calculation. So if we normalize the last 12-month EBITDA normalized, the debt on a covenant measurement basis, which brings in Hesto into the net debt number, that's the resulting table on the right. And as I mentioned, on a normalized basis, we're looking fine on covenants. But as we will report it is a technical reach. So where does that leave us in terms of normalization from automotive components, if we just normalize the project cost for the year performance of close to ZAR 300 million operating profit compared to ZAR 254 million last year. So overall, actually, not a bad outcome. No bad performance, actually a relatively good performance. And then secondly, on energy storage not unusually long strike and the hyperinflation impact, transaction cost, we come out at ZAR 207 million compared to ZAR 328 million. And the reality is that difference is just the Rombat performance, which was impacted by the energy cost and the situation in Ukraine. And just by the way, our factory is located about 100 kilometers south of the Ukranian border. So it is really right on our doorstep there. And then looking at operating profit at a group level doing the same normalization puts us slightly ahead of last year and on a profit after tax slightly behind last year, but the main impact there, as I mentioned, is interest costs that have increased and probably a little bit of Rombat performance in the, I suppose, on a normalized basis, a reasonable outcome for that. And then I thought just to provide you with a summary of where we are with Ford at the moment. I think it's very top of mind for everybody. It's the biggest investment that we've ever made in one go for a single customer. So we've prepared an analysis which shows capital expenditure, what the total project cost would be across -- until we launch or even a little bit post launch, we bought we are also acquiring in terms of technical aid, total investment preworking capital and working capital investment, which puts us at about a total of about ZAR 1.9 billion in investment. A lot of this, especially the Hesto side of the business, but even from a light I suppose a lighting and from a wiring perspective, complexity has gone up quite significantly. So every time that there's a design change or I mean, William can tell you how many design changes there's been. It increases the complexity increases revenue increases I suppose project costs upfront. Just bearing in mind the ZAR 435 million, so I forgot to mention that a big portion of that will be capitalized as an intangible asset. So anything between 35 45% of that ZAR 435 million would be capitalized. The remaining amount is actually mostly related to training 4,400 people upskilling 4,400 people to a level of proficiency where they can actually deliver the quality, the efficiency in harness, 4,000 harness production and 400 across the rest of the group which is quite extraordinary. And that's why we also normalize that cost. We are in an unusually big kind of ramp up. You'll see the afternoon, hopefully, for those who are attending, it will be very clear why we needed to spend this cost. It's all factored into the overall project. There's a portion that's capitalized. Unfortunately, training costs cannot be capitalized categorically. I also argue until I was blew in the face. We all did, but it can't be capitalize and I suppose the big benefit of the increased complexity and the resulting increase in some CapEx, but mostly project cost is that the model life revenue has increased now about ZAR 10 billion over 10 years. So we've moved from, I think, what we reported previously to the market was ZAR 32 billion to ZAR 35 billion turnover. Over 10 years, we're now in the 45, the region of 45%. So it is quite significant. And that's still, I suppose, at the levels that we anticipated or budgeted the project to be. That's about 165,000 to 168,000 units per annum. And we heard Neil, the President of Autumn Monday being quite bullish about going to 200,000 vehicles a year. So that was quite good to hear. -- might necessitate there some extra investment, but not to these levels. And I think given the -- I mean, most of you understand, we target a 7% to 9% operating profit range for automotive business. And regardless of all of these changes, I think the big benefit of the complexity is additional turns national significant additional turnover, but we still maintained all of our return metrics. So no dilution of the return metrics. And I think with that, I can finally hand back to you Riaz.

Sure. Thanks very much and well done on explaining hyperinflation. Key takeaways and outlook. Just to summarize what we've said here today and I think just looking forward for us, I did say recovery in brackets again because we do have a second year in a row where we're looking at some big challenges that have happened that we've dealt with. We've successfully managed them. And we really do see now a good period of stabilization and growth coming out of the projects that we've put in place and just the volumes that we see. So total recovery post flooding on track closely managed. Hyperinflation management now said to you, we had to firstly figure out what did hyperinflation mean for us, apply it, understand it. And now what does it mean for us in the future in terms of how do we manage that environment day-to-day. And that's something we're actively putting in place and pursuing at the moment. The energy crisis will intensify winter is coming. We're going to have a spike in energy costs again. We've made agreements with our main customers on how to deal with this. So we're now in that process of managing it better and not managing it without necessarily having it to come to us as something extraordinary. We're thinking about it a little bit more medium term. And the projects are on track, should spoke about the biggest project we have. And there are a number of smaller projects involved in all of these with other OEMs. This is not the only thing we're working on. There are a number of other seeds that were planted in the last few years that are coming to fruition, and we do that continuously. And those little projects add a little more incremental revenue to us and our businesses all the time. Energy storage volume outlook remains positive with increased demand for AGM batteries. And we really see this coming through from not just the markets we work in, South Africa, Turkey, Romania, but Europe, rest of the North American region. We see AGM becoming a lot more in demand. Successful execution of projects will result in substantial increase in earnings in '23 onwards. That's part of the project volume project revenue we spoke about. And we think that the supply chain challenges and semiconductor shortages, I think I said this for the last 2 times in a row that it's going to stabilize -- but now I think we're at a point where we've seen it already start to stabilize well and it will now get better continuously. We don't see that getting worse than it is today. So already, we think there's some good progress that's been made and more to come. And my mitigation of challenges created by the conflict in Eastern Europe, we spoke about volume and so forth. First National Battery in value creation opportunities. We started a process there of looking at multiple actions to increase the sustainability and growth in First National Battery. -- happy to say that, that's on the way. And there's good action there on competitiveness as well. We've put some CapEx in there for new equipment. We've relocated some of the processes, and I can say that there's a good direction there Metair will continue to position the company for future growth and diversified customer base in automotive components, and we continue to actively work on value creation opportunities within the energy storage business, and we are confident this will be concluded before the year is out, meaning Q4 Good. Thank you for all of your attention. I wanted to open the floor to questions and answers, [ Louis ]. You will support us with the webcast questions, Q&A, and certainly in the room as well [ Louis ], I'm handing over to you...

Thank you, Riaz. Any questions from the floor?

Mark Tamzen from Ford Asset Management. Thank you for the presentation. The big decrease at Rombat was the export aftermarket sales. Can you just elaborate a bit more on where those markets are and why that took such a big knock...

Yes. So the big decrease, it's within the region, right? So they do export a lot into Moldova. It was export into Ukraine themselves. So exactly. So I think that was the biggest decrease. And yes, the second one was local aftermarket. So that's mainly the impact.

Sorry, maybe a follow-up, could that benefit from the rebuild when that eventually happens?

I think your -- that's a long-term question. It all depends. They have -- in Ukraine, they have 2 local battery manufacturers. One is based, I think, in the West, one in the East. So I think there would certainly be a potential opportunity once the rebuild happens, when it happens because I'm not sure if I'm not currently sure with the state of the producer on the eastern side of the country is capable of doing and whether they would actually survive going through a period like this.

Any further questions?

So James Twyman from Prescient. I've got a few questions. The first one is, Riaz, you mentioned diversification in auto components by product and by customer. Could you give us some idea I know it's sort of early days, but sort of examples of that or size, we're talking about forward contracts, and we're talking about things obviously probably quite a bit smaller? Secondly, you said the energy storage is likely to be concluded by year-end, did you mean positively concluded by year-end, is the question? It sounded as though you were implying that? And then my third question is, is Rombat was hit hard in the first half, is the second half going to be similar or is it going to be slightly better?

Yes. Thanks, James. I think the automotive components, I mean, diversity there is a couple of things. The first is having exhibitions like this last year as well, where we gained a lot of good project leads from different OEMs so if there is a new model that comes out that's a big model diversification opportunity like the Ranger that we have now. And once we're in that big model work, the intention is to make that perpetual business as new model changes come about. So once we're in and we've invested, we then stay and we grow with that OEM. The diversity I'm talking about is there are many localization opportunities amongst all OEMs, where they are looking for local suppliers to do things where they currently import either in their current packs or their import and subassemble with other Tier 1 suppliers. So some examples of that would be particularly around auto mold and Bilal is here today. Automob actively seek plastic components that we make for certain OEMs that we know we can make for other OEMs, and so we pursue that business. And so those little projects, they add up into sizable opportunities in the years ahead. So a simple opportunity. There are other opportunities we have in Lumotech on headlights, fog lights, taillights and previously Selvin spoke about an opportunity with VW on compressors for -- as an example. So those items we pursue actively so that we can diversify our base more. James, you'll have to remind me, your second question was around energy vertical, right? So I think we are in a process. We've validated last year value creation opportunity exists. We started that in earnest and formally at the start of this year. We've made significant headway. And there are some challenges that are coming away. You've got to recalibrate some of our thinking based on what's happened in the world, but we are very sure that there is still an outcome by the end of the year. Now a positive outcome or a negative outcome, I can't say. I'd rather say that there will be an outcome at the end of the year. And once we've understood that outcome from our point of view, that certainty will certainly give us a good base from which to work from, and then plan for future activities. So I think that's important to note. James, you'll have to remind me your third question. Rombat.

Okay. Well, I'll sneak another one in as well then. Yes. So Rombat is the second half likely to be better or similar? Then I wanted to ask in the second half, what sort of hyperinflation impact can we expect? Because I think a lot of the hyperinflation impacts in the first half goes back over many years, whereas in the second half, maybe it will be a little bit less dramatic. And then a final little question was just on your exports from -- I think it's mainly from Mutlu, you seem to be having some success in the U.S. And just give us some idea of the size of that and any future prospects on that?

Yes. So I think Rombat a little bit, I would say, uncertain at this point in time, there is talk of this energy crisis, right, how that develops and unfolds et cetera, I think, is going to be and how extreme it is, it might have a short-term impact. I think we've been very successful in non-negotiating mechanisms with our OEMs to actually recover the cost of energy, right? The problem is it's always in arrears. It's always a month later or 2 months later, you're going to recover it over time, but it's always a month or 2. But at least structurally, we've agreed it, and I think the Renault Board signs it or signs it off today or tomorrow, I believe. So will you just waiting for that confirmation. But it's obviously not just a Rombat issue at this point in time. Every European battery producer is facing exactly the same issue. So it's a regional issue and the extent that governments step into support and whether it's a 3-month problem or a 6-month problem, I mean that we would need to see. It is very uncertain at this point in time. I think the #1 aim for us was to get the structural recovery from OEMs, which from Renault OEM and OES, and that was good. It's a similar may not quite similar to the lead recovery, but something similar. So over time, you do recover it. We will have to see how that develops. And it's really -- I mean, Europe is going through an interesting phase right now. I mean if you look at the U.K., predicting -- peaking at 22% inflation first quarter of next year, I mean, it's unprecedented us. I was joking to our company based in the U.K. dynamic. I said, now I'm going to have to do hyperinflation account for you soon. So it's really -- I think it's -- and certain governments have taken different approaches to shielding certainly consumers, but what they do to show a big business against this cut out for cost increases, we're going to have to we're going to have to see. That's all I can say basically at the moment for that. In terms of hyperinflation impact it all depends where the inflation rate goes. I think the last inflation rate Denis had reported 80.6, so we're kind of at that 79% where we were. I think we've got inflation impact on June -- you -- because it's half year, we actually then guide full year and we reindex everything for there. So it actually has the ability to move the first half results as well. It's like a currency average currency versus a spot rate, et cetera. So at this point in time, I think the biggest impact, the way we assess that the biggest impact will be this year. Moving forward, I think there will be much less of an impact. So the first year of upper inflation accounting is basically we pick up a lot of a lot of historical especially on the retained income, as I mentioned, -- and as you can imagine, the retained income as you kind of write that back, you also depleting the retained income and any percentage or for a lower base becomes lower. So the impact will certainly diminish next year, exactly where the second half lands, I can't quite tell you. And then from Mutlu, we've definitely had a lot of success into North America. North America is not the only region which we're exploring. There are other opportunities in South America and in North America, not necessarily just a single customer. There's certainly a North American strategy developing. And certainly, from a supply chain perspective, it looks like a supplier of South Africa works really well, and the lead times not so great. The disruptions are not as extreme and from a cost perspective and also seems to work out well. So I think that's been a success. We want to retain and try and grow that. There is big demand, how we deal with that. I think we're currently assessing…

We have a few questions from the webcast. The first one comes from [indiscernible] As you noticed on the balance sheet that intangible assets went up quite significantly? And she has asked if that's linked to the Ford project?

Easy answer is that hyperinflation.

Thank you. And the next question comes from [indiscernible] company name is [indiscernible] What is your view on the possibilities of globalization, where country suppliers are shifting towards local sources? And whether or how this may or is impacting Metair?

Well, I think - I mean, there certainly has been a lot more interest in localizing components or localizing products as a result of the last 2 years of supply chain disruption. So I think it can work in our favor if this theme persists. And certainly, along with the way government has put in place incentives to incentivize localization for OEMs, it helps us. What we've seen is raw material, localization has become more important for us. How do we find sources of raw materials. And here, I'm talking about polypropylene, copper, the base materials, how do we find those in our country or in our region because those were critical components that we ended up spending a lot more money on trying to get them here when we have that problem. So I think it certainly made us think about localizing a little deeper and localizing for our customers a little wider in terms of the breadth of what they have. So we see it as an opportunity.

Thank you, Riaz. The next question comes from Shai Ramlau from Risk Insights. She said that she's business intelligent analysts from risk insights and that risk insights has rated Metair on ESG for the past 3 years and at the disclosure on the company is maturing. She says currently for 2021 Metair has a rating of 3 from ESG GPS. However, business in today's energy crisis edge is impacted by renewable energy. What is Metair strategy for the move to clean energy? And are we likely to see disclosure on this going forward?

So we've taken a view on ESG elements. I know we've been exceptional at understanding the ESG metrics that we have. In targeting those ESG metrics, measuring those ESG metrics, we've done an exceptional job on that. We've taken a view on ESG as not -- as being quite a broad topic. We've broken down into 3 phases, what we do in the next 3 years, what we do in the 5 years after and what we do in the 5 years after that. And one of the key topics in there, primary focus for us throughout will be what we do with carbon reduction throughout all our businesses. And as a result, one of the first things we are doing is looking at solar power on all our sites in South Africa. We've made quite a lot of headway this year in that project. You can imagine these different sites, different areas, and it depends on solar and a business case for each one of them. So we are at a point where we will be announcing at some point, let's say, in the next -- in the near future, what we're doing on solar power. And that will, at least, we think, support consumption for about 15% to 20% of South African usage, and that will go some way into renewable energy. Certainly, we considered as Phase 1. We think there's more opportunity later on.

Thank you, Riaz. We can go back to the floor for any last questions. [Operator Instructions] There are no further questions from the floor. and no further questions from the webcast.

Thank you, [ Louis ]. Appreciate it. Sjoerd any final words?

Thanks for joining us.

Thanks very much, everyone. We really appreciate you spending the time with us, and thank you to everyone on the webcast. We really appreciate your time with us. We'll see you soon. Thank you.