Metair Investments Limited (MTA) Earnings Call Transcript & Summary

Thank you, everybody, for attending the results presentation. Apologies that it's few weeks delayed. It's my fault. But glad to say that I'm full back in full health recovery, et cetera, and glad to say more energy than ever. So the forced rest made a big difference to me and the team and now we've lost the screen. So hopefully, you can follow on the -- on your presentations. So apologies for that i don't know if it's going to return or not. I think just by way of introduction, obviously, you will, you know me for a number of years, now Interim CEO. I'd like to introduce Anesh, taking over or assuming the role of interim CFO. And typically, I'd ask you to take it easy on the new interim CFO, but he's been a senior executive head in finance within Metair for close on 10 years. So you don't have to take it easy on him at all. So you can throw anything that you want that to Anesh. No pressure. No pressure. But anyway, so it's good to have you. And again, apologies for this being late. I think you've had enough time to digest some of the results already, we'd like to share some of the detail with you. We'll go through that as we go through the presentation today. So welcome to everybody here also online to join us, and I'm sure we'll have lots of questions. I'm just checking if we are actually on -- okay, we're good. By way of agenda, Thanks. I've already done the welcome. I'm going to cover opening observations. I'll give you an overview of 2022 results, some salient features. Anesh will cover the financial and operational review and outlook. I'll get back to you on outlook and prospects for the business. And leave Q&A, obviously, and then some Appendices, which is a bit of detailed information just pre-owned consumption. So we're not going to go through those in detail unless you want to page ahead and queue up some questions, which I don't encourage you to do, but anyway, it might happen. So opening observations in terms of 2022, I just want to confirm, online, they can follow the slides Okay, perfectly. '22 was another, I would say, extraordinary year. So 2020, '21, '22, it's like a continuum of unusual events. And hopefully, we get through those as soon as possible. So we can see getting through those within the first half of this year. But certainly, given 2022 and apologies for the headline on the slide for those with the presentations and follow, I should say, 2022, not '23, some of these will continue into '23, which we're mitigating as much as we can at this point in time. But I just want to cover some of the -- most of this we did already discuss during the interim results presentation already. Oh we're back. Cool. Once-off events, obviously, conflict in Ukraine, Russia, Ukraine, et cetera, it's had a big impact within our Romanian business, but obviously spilling over into Europe, energy pricing, lead cost, et cetera, in the energy storage business, although the businesses are quite resilient. Those are things we need to manage across all of the channels that we sell into. So who knows when it ends, I can't predict, but obviously, we're doing the best we can to navigate through the short term, hopefully, short-term issues. And then number three, Obviously, we had our main customer in South Africa, automotive components, Toyota, [ TSAM ], down for about 4.5 months due to flooding, which was a massive impact. And I remember the day that it happened calling the team together, and I said guys, unfortunately, -- what happened in 2020, which was covered in 2021, which had all the unrest and the strikes and et cetera, that just prepared us for what we're going to face in '22 right? So we've been well versed in dealing with these kind of issues, but obviously, we had to deal with it cover some of the details in terms of business interruption and insurance, et cetera, we did protect the business, but obviously not fully in terms of earnings. But we through -- through that cycle, and we always said, coming through this, we expect our customer, which they've done to come back much stronger et cetera, and certainly, the outlook is very good. We've been faced with hyperinflation. We covered that in June results already. Anesh will cover that and your eyes will go probably crossed during the session, but it's non-cash. And I think the important message is the business is extremely resilient at this point in time. Some of those non-cash impacts. We are normalizing and I'll show you the normalized results in the presentation. So core underlying earnings outlook for the business is obviously what we're focusing on at this point in time, just kind of navigating short-term impacts on the business. And then number five, we did bring it in, and I think it's something that will go in '23 as well. We did have an unusual issue in terms of strike and wage expectations within Turkey, which did bring some disruption to our Turkish business Mutlu. We're going into wage negotiations again this year. And I think it's about managing the expectation and any disruption that may cause within the business. So it's not -- and that was once-off, we do see it continuing a little bit into this year. But all of these are, I think, as a management team, we are Metair, but also within all of our subsidiaries, well understood. We're monitoring all of these activities and mitigating as far as possible as we prepare for significant growth into the future, which we'll cover in the outlook and prospects going forward. So just a bit of detail on the priorities, which continues into 2023 operational -- the main categories being operational excellence, project delivery, financial performance and value creation. So under operational excellence, we've secured major new business, especially through Ford and it's about delivering on those projects in line with our expectation from an efficiency point of view, return point of view, cash generation, et cetera. So we're in that phase at the moment. We'll cover some more detail on that. But fundamentally, nothing has changed -- within that project. It actually looks significantly stronger than we initially anticipated. I think number 3 is breathe with our customers, and it's kind of an internal method terminology. It's -- how do we breathe kind of when volumes are up and down and how do you flex our cost, our capacity, et cetera, going forward. So that's a big theme for us -- to manage what is a complex environment as it is, but certainly putting the right actions behind it so that we have that flexibility to cope with that. Fundamentally, it's obviously supporting our customers to what their needs are, regardless of what the target markets are, whatever their volumes are, whatever their mix changes and derivative changes, et cetera. So that remains fundamental in terms of our operational excellence. And then the outlook, which I'll cover later on, is still really strong volumes despite the operating environment and challenges. And we see that continuing despite all of the complexity that we're faced with. Project delivery will be, I think, absolutely front of mind for everybody at this point in time. We've secured and Anesh will show you, especially in Ford, it's the continuum of our previous strategy to diversify our customer base. It's now delivering on that project. It's ZAR 60 billion in terms of turnover over 10 years. So it's huge in terms of step-up in turnover in terms of potential cash generation, profitability, et cetera. And don't [indiscernible] I'm going to talk too much. You need to check my time. In terms of ramp up and when we get to those normalized and run rate volumes that we expect et cetera. The project has been slightly delayed. But as I mentioned, fundamentally, nothing changes within the project and our scope of participation within the project and our market share within that. Supply chain, we spoke about in June. Supply chain, I think, has stabilized to a great extent in most of our businesses. We do have some spillover or carryover in terms of air freight, specifically within the Hesto environment because Hesto being forward orientated and significant increase in requirements, complexity, et cetera, has put some additional pressure on supply chain. Which we expect to normalize in the first half of this year. So Anesh will cover that in kind of how we see the core earnings or normalized earnings going forward. Financial performance Yes, it's not the -- it's not the, I suppose, the best result from a headline perspective, but it is a phase of significant preparation for the future. We've got once-off events in our numbers. If you look at the core underlying performance of the business and all of our subsidiaries, it's still really strong. So the fundamentals of all of our companies have not changed. Yes, we're navigating through the short-term complexity and short-term issues, but we see most of that normalizing. Like I said, in the first half of this year going into the second half, et cetera. You'll see from a cost and working capital perspective, which again, Anesh will go through. There's been an increase in upfront cost for Ford project. It doesn't -- it's not a bad thing, right? When we started the Forward project, we were projecting about ZAR 30 billion over the project life, ZAR 32 billion over project life. We're now up to about ZAR 60 billion over the 10-year life span of project. So of course, given the increase in complexity, content, et cetera, that drives increased upfront cost, increased working capital investment, et cetera, but that's kind of just getting us to the point where we can actually deliver on the ZAR 60 billion turnover for the project. So as much as the short term, negative long term, it's actually really good for us as a group. So that's fantastic. And then I think -- from a gearing perspective, we've got a lot of our bankers here just to satisfy and give you some additional comfort gearing levels are kind of peaking at the moment. In preparation for project launch, which we've launched, but there's obviously all of the investment and cost in upfront which you'll see reflected in the financials. But so de-gearing 2 aspects to it is normalization of supply chain, logistics, investment and working capital. But on top of that is earnings growing into where we see overall turnover levels being sustained. So there's 2 aspects to it. So it's not necessarily bad. We're going to grow into that. And I think it's obviously going to deliver the right outcome in terms of -- from a funding perspective. From a value creation perspective, which is always top of mind from the Board, et cetera. That's why we here, right? is -- we need to finalize our lithium-ion strategy and approach. I think we've gone a long way in terms of defining where we play, how we play, which markets we operate in within lithium-ion? It's not going to be a capital-intensive approach to lithium ion at all. It's going to follow a more traded kind of similar to what FNB is done or busy doing within the South African environment. But we're not anticipating investing huge capital behind production in lithium iron activities. It's more about sourcing the right technical partners, the right solutions and then establishing the sales channels accordingly. Number 2 will be the solar energy and other carbon reduction initiatives. We've got a big solar project to lessen our dependence on Eskom. And I'm sure you'll have a lot of questions on Eskom and power supply and stability of power supply. In light of the outlook for the business. And Phase I would be solar. So solar will reach a level of kind of self-sufficiency, but they are -- there's obviously a longer-term plan to become completely self-sufficient alongside our OEMs in terms of reducing not just sustaining production but also reducing carbon footprint in line with the fact that 70% of our vehicles produced in South Africa is actually exported to the U.K. and Europe. So it's an absolute necessity. We've got a window of opportunity to execute on that. May attract some additional capital, et cetera. That's a process that we're going through at the moment, especially with Eskom going kind of oscillating between Level 4, 5, 6 potential Level 8, how do we address that, et cetera. So that's something that's front of mind for all of the management teams to ensure that we, along with our other suppliers within the supply chain able to meet the objectives that our OEM customers have in terms of volume outlook for the -- because that's obviously fundamental to the value creation. Activities. Along with that is enhancement of profitability, it goes without saying, but obviously, business design, we've got a very principled approach to business design. In 2020, '21, '22 has created a lot of disruption in terms of what is the design profitability within each of the businesses within the portfolio. And we're at a position now where we're comfortable to return to those fundamental design principles, each business predictability, eliminating all unpredictable activities, et cetera. So that's going to be a big exercise going forward. Fourth bullet is organic growth and localization projects. So organic growth actually is step change growth as well, especially with Ford coming in. If you look at our revenue historically and then going forward, it's a huge step up. in terms of revenue, but it's obviously the execution behind that which is front of mind at this point in time. And then lastly, which I'll cover again in the outlook. As a Board, we remain committed to value creation, long-term and short-term opportunities that come our way. or our potential value creation opportunities. And as we mentioned previously, the potential sale of the energy storage business was compromised to an extent by geopolitical issues, et cetera, but that doesn't mean that we don't have that doesn't remain front of mind, and we'll continue to monitor that going forward in terms of value creation, et cetera. So salient features for the results before I hand over to Anesh, obviously, revenue despite our biggest customer being down for 4.5 months, revenue increased to ZAR 14 billion, EBITDA about ZAR 600 million. Normalized, I'm not going to talk to all of that. I need to leave something for Anesh to go through, normalized by ZAR 1.5 billion in EBITDA, operating profit, which is obviously the main measure that we use about ZAR 450 million, but normalized, taking out all of the abnormal nonrecurring issues within the business, about ZAR 1.2 billion. Net debt from a group perspective, increased to ZAR 2.6 billion as expected, given the project investment for Ford, et cetera, and we expect that to unwind through to December, but I'll obviously leave that up to you, Anesh to cover. -- normalization in our perspective is obviously excluding. And we're pretty conservative when it comes to normalization of earnings. It just excludes the non-cash impact of hyperinflation as well as kind of once-off project as we've showed before. Free cash flow utilized of about ZAR 600 million as expected working capital, significant investment in capital ahead of Ford project launch, et cetera, so not unexpected. Headline earnings per share given the once-off items as well as hyperinflation impact, which does have a big drag on earnings since Mutlu is the biggest single company in the business -- was a loss of ZAR 0.17 per share if we normalize that ZAR 2.43 per share profit on a normalized basis. In 2021, we had ZAR 3.54, so the difference between the ZAR 2.43 and the ZAR 3.54 is really what we've seen in energy storage and some of the geopolitical issues that we were facing rising energy cost and volumes, et cetera. So also pretty much expected. From a debt perspective, we've received and continue to receive significant support from all of our funders, so all of you that are in the room today. Thank you very much for your continued support. On that, we will come to you this year for a significant refinance activity in line with the growing business, an increased kind of working capital, et cetera, because you can't grow revenue by 100% without additional facilities being required. So -- but that's a Aneshs' job going forward now, et cetera. So we're very proud as well from a group perspective, we are B-BBEE Level 1, achieved Level 1 again. And from a subsidiary perspective, we're at Level 4 or better, especially in the South African environment that makes a big difference to our support to OEMs and obviously from the future projects that we are involved with. And then we're also -- it's got a point there actually I didn't realize. From a long-term injury frequency rate, just looking at ESG initiatives apart from decarbonizing the business, we're at 0.2 long-term injury frequency rate, which we are truly proud of. I think as a Board and through our social and ethics committee, which is chaired by Manfred, who is in the audience today, it's been a major focus area. When we started, we were probably above 1. And to get down at the moment to below 0.2, it's really top of the class, at the moment. So we're really proud of some of those ESG Initiatives. Even last year was good at 0.29, but safety becomes -- and is a better amount to our success as well. Supply chain, I've mentioned already, our response to the disruption and COVID and post-COVID impact on the business has been really effective. We see some of that spilling over still into the first half of '23, but we expect to be fully out of it by the second half of '23, which is really good. And then successfully launched all new projects and that some of the detail we'll cover, as I mentioned, our readiness for project launches have been a really good. We haven't let the customer down. The focus is now on achieving the earnings, the efficiencies and outcomes that we have for those projects, which will settle in the next month or 3 to a level that we can sustain. And then obviously, the last one, given the biggest disruption that we had in the business for 2022 is toyota, they returned very strongly to production, although the initial return was delayed, so 4.5 months out. And during the ramp-up, we were not as efficient as we should have been, or could have been, but that's normal in terms of volume ramp-up, it's not nobody's fault. It's just a natural way of project relaunching, et cetera. But we're very happy that their volumes are looking very strong. The outlook is very strong for the business. And obviously, in line with that, we've concluded the business interruption claim that we had for loss of earnings. It didn't I suppose, completely cover us for loss of profit in totality, as you'll see from the automotive component result. But certainly, ZAR 500 million we've received from insurance and have concluded that. So big support to the business. And with that Anesh.

Thanks, Sjoerd. It was -- yes. You've summarized it quite effectively, I think. So I'll just get into some of the details. In terms of the financial and operational overview for the year. Financially, I mean, we've covered most of the headlines, but there has been -- it has been operationally and trading-wise, has been a difficult environment to operate in, but our outlook still remains very, very positive. And if I unpack in terms of how Metair set up and in each business vertical, energy storage during the FY '22 year, really underpinned by the hyperinflation impact in Turkey. It really, the impact was a ZAR 208 million additional loss in the business, resulting in Mutlu arriving at a breakeven point. I'll unpack that later. And the proximity of Rombat to the Ukraine, Russian war did impact our volumes but especially in a lucrative export market that impacted margins as well as a lag in energy class. If we all know in Europe at the moment, inflation is running away. It's quite high. We are trying to combat that and there is a lag in terms of how we recover costs from our OEM customers in that sector. Those were the large, or the 2 key items in terms of energy. In the auto business, as we've explained, we did have a bit of inefficient, I won't say, inefficient [ but a bit of a ] slow start-up in the OEM business. Locally, and it was taken shape until we were hit with the floods in KZN and especially at our major customer, Toyota, which was out for production for about 4 months. And I think it's critical during that time to understand how Metair as a group had to combat those challenges, especially containing cash, managing the business with lower profit and cash generation, taking care of employees and employee well-being. And at the same time, managing one of the most largest product launches that we have for a major customer and get that going according to time. So that was a critical period for us, and I'm happy we sustained that, we grew through that. And the result was we were successful in our business interruption claim, although it was capped, we were limited to ZAR 500 million at a gross group level. And then obviously, towards the latter end of the year, Q4, we built up both our ramp-up for Ford. The project was kind of delayed for about 2 to 3 months. So we had a bit of lost turnover. Our operations were prepared, we're geared up. However, we did incur a lot of supply chain challenges and complexities in the run-up to that project. and we did incur cumulative ZAR 420 million project costs or upfront costs to launch that project, mainly at Hesto. Includes a bit of premium airfreight as well because of the complexities and the requirements to build over the Christmas period into December. And we'll highlight again that we are required to spend this cost upfront and invest in it upfront and the recovery is built over the project, over the project life, and that's built into the ZAR 60 billion that we project into the future. And that [ arises ] at the group level, new investments, large investments, additional working capital, larger debt does result in a bit of interest cost. So the interest cost went up by ZAR 160 million to support these projects -- I mean, sorry, 160% to support this project -- project launches. And as Hesto being the biggest operation in terms of the Ford project launch, our equity earnings, we had a loss of about ZAR 240 million that we brought into book in terms of the Metair result. Therefore, we haven't declared or haven't proposed to declare the dividend for the year given the project costs and given the investments that we've run in the current year. In terms of highlights, on a normalized basis, EBIT margins closer to 8.6% rather than the reported 3.3% from an EBITDA perspective. We did slightly better once we normalize so this reemphasize the normalization is mainly based on project costs, the once-off costs that we incurred for the Ford project launch as well as the hyperinflation impact at Mutlu, we try to normalize or try and exclude that out of our profit and results. From a free cash flow perspective, largely driven by asset investments and larger working capital, ZAR 660 million outflow compared to ZAR 230 million from the previous year. ROIC, if we normalize it more or less at our cost of capital at around 14%. Some highlights on granular detail on the income statement. For other operating income, ZAR 377 million is the group effective portion because we don't consolidate Hesto. Obviously, that's the business interruption. From our top line, top line has been quite strong, ZAR 14 billion for the year, driven by higher OEM productions. I mean overall market volumes were strong. But we have delivered high content or high-value products as well as stronger export sales out of Mutlu. EBIT margins, 8.6% normalized. Net interest expense driven by the higher debt level and capital investments at ZAR 377 million. We did make a net monetary gain of ZAR 398 million on the hyperinflation accounting. That's really an income statement, reorganization, if I can lack of a better word in terms of operating profit, but ultimately, a ZAR 208 million loss on the bottom line or loss impact on the bottom line. Our tax rates a bit disjointed to accounting income and about 100% in this yearly because we do pay cash taxes in Mutlu based on local TL statutory profits. From a balance sheet perspective, I mean, the gearing level, as we said, we will look and it will unwind towards FY '23 year-end. But from just a structure perspective, the high net asset base at Mutlu really protects us from the impact of hyperinflation. That resulted in quite a significant increase in asset value on hyperinflation and indexing. It's about ZAR 1.8 billion as well as the investments that we needed to do on the Ford business resulted in an increase in the assets overall. From a working capital perspective, it is higher at the moment because of the model launch, and we're sitting on 83 days. We will look to unwind that to a normalized basis of around 65 to 70 days. On a normalized basis once we get through the ramp-up process on Ford. Majority of our debt classified as current at the moment because of the technical covenant breach. However, we did obtained waivers from our bankers and support from our bankers. So we will look to correct that into the future. That brings me into capital and debt structure. So we will look to change our covenant positions going forward to give us a bit of headroom going into the future by maybe a notch or two. And if I just take a normalized basis on the financial covenant on the bottom left side, it looks a bit better, more closer to our covenant levels. So that gives us a bit of comfort going into the future. From a net debt to EBITDA basis, reported [ 4.4x ] but on a normalized basis, [ 1.6x ]. We're also looking to extend some of our financing. It was due this year. We've obtained a short-term extension for about 1 year into 2024. And then we will look into a longer-term refinancing into the future for most of our asset debt. It has been initiated and we will look to increase facilities for the growth in the business as well as try to incorporate some great initiatives of green financing, so to speak. In terms of normalizing the result, from a business vertical perspective on the auto components basis, we have excluded project cost as the once-off costs, including premium airfreight, and we result in a normalized operating profit of ZAR 465 million from an AC perspective. And if we do that for the ES perspective, our energy business. We reported ZAR 195 million. But once we exclude items such as transaction plus costs and the hyperinflation impact of ZAR 550 million, we will arrive at a more normalized operating profit of ZAR 760 million. And really, the differential, if you look at it to FY '21 is based on the Turkish lira devaluation. The Turkish lira declined by 41% from previous years. The decline in Rombat profit and higher interest costs in the group. From a group perspective, PBIT normalized nearly ZAR 1.2 billion, so quite comparative to previous year. And on a group normalized PAT basis, translating into HEPS after adding back all the one-off costs it's ZAR 2.43 per share compared to ZAR 3.54 from the previous period. I've just broken down a granular basis of that ZAR 2.43 normalization. But I think the perspective is that on a normalized basis, our gearing will improve on a normalized basis is 1.6x, and we will look to reduce that going into the end of 2023. This is something that we introduced on the hyperinflation impact in Turkey, and I won't get into the details. I think they don't even test this type of stuff in [indiscernible] anymore. So yes, it was quite a journey in any case, yes. From a hyperinflation impact, really, and what the accounting standard requires you to do to be not to technically express whatever we've earned historically in current terms, that means the use of indexing and hence, your assets go up and so forth. We can see in the -- towards the end of 2022, quite steep in the inflation rate up to 64% by year-end. And you're required to apply hyperinflation accounting when your cumulative inflation rate exceeds 100% over a 3-year period. The inflation rate in Turkey has reduced currently, it's about 53%, 54% currently. So in terms of the 4 steps that we've done in adopting hyperinflation, we had to restate the balance sheet, we had to restate the income statement, and we arrived at a profit or loss in the P&L. One of the biggest things to understand in hyperinflation accounting, especially in Turkey, is that we are a manufacturing entity and in a manufacturing entity, sometimes your sales doesn't follow your cost of sales because when you restate your cost of sales, you've got to restate it for the longer period when you actually incur the cost, hence the disconnect in our P&L. But largely, a ZAR 208 million net loss impact to Mutlu's income statement had we not applied hyperinflation accounting. We would have been reporting ZAR 1 billion operating profit and a ZAR 200 million profit for the year. From an operational perspective, I mean we've reported it. It doesn't look great for the project costs and the [ happy ] inflation impact. But on a normalized basis, if you look at energy storage vertical, operating profit of ZAR 760 million just down by 14% from previous year and then operating margin of 9%. In the auto business, also doing much more better, a margin of 7% and an operating profit of [ ZAR 465 million ]. On a group basis, group operating profit at 8.6%. Just a bit of operating granular in terms of our auto components business. I mean overall market volumes were up by 7%. Metair key customers, sorry, more or less flat, down by minus 0.6% really largely driven by the stoppage at Toyota at volumes for the year, finishing up by about 115,000 units for the year. Project costs did impact reported numbers and project costs of ZAR 337 million at Hesto and ZAR 82 million during at all the other companies in the group. From an Energy storage perspective, and we've always said we've had the U-shape recovery in the business. And we've reported volumes of just shy or just over 8.7 million. That represents about 104% of pre-Covid levels. So in terms of volume, quite strong, strong support, especially from Mutlu, 55% of our volume base and strong exports out of the Turkish economy. In terms of what we put into new cars that are manufactured, that's OEMs. We have been quite strong in all markets, and we [ agree ] on that perspective. From a normalized [ throw away ] after we take away all the noises around hyperinflation, we've ended up with 20% in this business is quite good. In terms of local currency EBIT, Mutlu was 44% stronger at a margin of 12%. But however, after you translate that into ZAR earnings and the currency did decline about 41% from previous year. It results in a ZAR 530 million EBIT on a pre-hyperinflation basis. That's about ZAR 100 million decline from previous year. As I mentioned, the lag in energy costs and lower export volumes did impact Rombat profitability. For us that's short term, and we will look to recover our lost volume and margin in that business. FNB performed quite well, a margin of nearly 9% operating profit of nearly ZAR 180 million. Good aftermarket volumes, and the industrial business case that we transform to a more traded model took slowly took shape. We did have a bit of stock availability issues towards the end of the year because of supply chain disruptions, which has slowly corrected into the new year. But FNB from an industrial perspective remains a very strategic focus area for us in the vertical and in the group. From a more segmentation in terms of energy storage, in terms of PBIT in local currency, Mutlu up 44% on a pre-hyperinflation basis, Rombat was down 53% and FNB was up 14%. In terms of capital expenditure, we did spend ZAR 1.2 billion in the group, planned expenditure for new models. Most of this was spent for the Ford project, spent at Hesto, Lumotech and Unitrade, a bit event at energy storage capacity and efficiency enhancements. Mainly around AGM technology and also on additional charging facilities. Into the new year, we are spending ZAR 750 million allocated to both verticals. Most of it from an energy storage perspective, revolves around energy initiatives at Rombat as well as heavy-duty line automation projects. From an automotive component perspective, a lot of it is around further suspension, wire harness and lighting localization initiatives in that business. And overall, planned maintenance will be more or less around depreciation levels. On a more normalized basis, if we exclude new projects and certain large expansions, our CapEx is normally around depreciation levels for the group, plus minus about ZAR 500 million. From a Ford business perspective, I'll touch on that slowly. Overall, a ZAR 1.8 billion investment, so to speak comprising of capital expenditure, finally landing at just short of ZAR 1 billion within what we planned. Project costs, we ran over -- we overran a little to about ZAR 800 million because of the complexity and late design changes that we had, especially at the Hesto business. This does ultimately result in additional revenue for the group. Over the project life ZAR 60 billion, as we mentioned. And we hope to conclude on the Hesto ramp-up phase during the first half of FY '23, and we will conclude on that. Revenue split in the business as we say, as we see normally concentrated at our lighting and wire harness business. That's a summary of the financial and operational aspects. Thanks.

So I think from an outlook and prospect perspective, we've seen a lot of short-term impact as expected, which we've tried to normalize, et cetera. So I think short-term focus for us is project ramped up -- ramp up and delivery. We've scaled the project and that's all we ensuring that we get to the efficiency levels that we have. And as Anesh mentioned, although it's come with additional cost upfront and additional complexity that translates into significant longer-term revenue for the group, which is good. So we expect still some margin pressure within the first half of this year. As the ramp-up nears conclusion. And obviously, in the short term, as you're well aware of by now, Riaz has resigned as CEO of the business of the conclusion, conclusion of the succession and appointment of permanent CEO and CFO will be concluded, I think, in due course by the Board -- and I think we've covered that with a majority of our shareholders to date. So in auto components is continued to deliver on the launches of new projects, which is substantial -- we see a strong operational performance and growth across OEM volumes. And the fundamentals within these projects have not changed, although there's some increased complexity and when we say complexity, it's not internal complexity, it's a complexity of the parts that we supply. So the complexity drives additional material, drives additional labor content, drives additional -- all of that is translated finally commercially back to the customer, which results in higher turnover. So none of our project objectives in terms of earnings operating profit, return on invested capital, return on assets, et cetera, have been compromised in the process. It's just that upfront cost, which ultimately is purely short term but translates into long-term value creation or additional long-term value creation, which we -- we don't mind, honestly. And then within energy storage is the volume outlook is still positive, especially aftermarket. We are monitoring geopolitical impacts or stability on the business. So there's a big focus going on within all of our teams in addressing and identifying energy political exposure or potential volume impact within the business, as you're all aware, especially within the Turkish environment, there was a huge earthquake and earthquake damage the business in the short term. We've evaluated that and certainly see some short-term volume impact, but certainly in the mid- to long term, second half into next year, we do expect the volumes to be fairly strong and get back to where we expect and in line with our expectations. But so there's some short-term impact in the first half of this year, as you can expect. We'll continue to focus on hard currency export markets, especially given the hyperinflation, hard currency earnings does protect the business substantially. So we'll continue our focus on that, and there's some more dedication in terms of export function within not just Mutlu specifically, but across the group in coordination of that much more specifically et cetera, industrial model. I suppose this also covers lithium-ion to an extent is expansion of that like FNB has done in terms of [ exiting ] production of industrial business. I think lithium-ion, as most of you probably by now have experienced lithium-ion is the best solution for load shedding, especially in South Africa, would be going through, et cetera. So there's a lot of focus on expanding FNB's position in terms of the opportunity within South Africa, but also certainly within the other markets and in which we operate. I think inflation apart from Turkey, which we've understood and we've dealt with successfully in the past, we're obviously across the geography and most companies exposed to European business for the first time are experiencing real inflation within their cost base. So it's how we combat that, how we work to limit the internal inflation finally for the businesses, how we translate that to our customers, et cetera, like Anesh mentioned, some of the energy costs, et cetera, it does take a bit of time to translate that commercially into our relationship with customers, but I think we're on the right path in terms of succeeding on that part. And I think overall, certainly from an energy cost, which is significant for the energy storage vertical, we see some improvement in those cost drivers, certainly, which is quite pleasing and certain. And to give you an example, specifically within our Romanian business, we've managed to secure green energy into that business. So hydroelectric energy supply into our production plant, which is quite significant, given, obviously, our focus on ESG and decarbonizing the business and certainly at a cost which is much more palatable for us. So very well done to our Romanian team to secure that business or that source of energy. Our Turkish business, given the biggest entity that we have right now, we're spending a lot of time and effort. And I don't want to say energy because its energy. But effort, I mean monitoring the business and ensuring the business design and that we're in line with expectation, especially geopolitical things, relationships that can change quite quickly. So we -- that's front and foremost to navigate through any short-term impact that, that can have on the business. And then finally, value creation opportunities. I think front of mind, over the last year was specific value creation or unlock opportunity in energy storage. And that was obviously compromised to some extent because of geopolitical instability, Russia and Ukraine, et cetera. It's got an impact in Romania, it's got an impact in energy cost, et cetera. And from a potentially sanctioned perspective, European players, et cetera. So we did pause or call off the process as such. For the time being, I think significantly is obviously we've secured huge turnover projects within South Africa automotive components around delivering on that right now. So it's getting to the efficiency levels and reaching kind of steady state within all of these projects, which will drive significant value going forward. And then obviously, we're actively working towards additional value creation opportunities within both verticals as well as optimizing our portfolio of companies, obviously, to meet our targeted return, an investment criteria across the group. And if we're successful with these 3 high level, I suppose, topics, it will drive sustainable long-term value for all of our stakeholders, including shareholders, et cetera. So I think we managed to finish with a minute to spare. So with that, I'll open the floor to any questions online or on to the floor. And Metair Board members are not allowed to ask questions at this point.

James Twyman from Prescient. A few things. Firstly, in terms of the forward contract, could you give us an idea of you're saying [ ZAR 6 billion ] over -- per annum,[ ZAR 6 billion ] per annum. Could you talk about what you expect for 2023 and what it was last year? Secondly, the cash from the insurance ZAR 500 million, is that coming in the year? Or is that in the coming year? And the third one is just the Turkey wage negotiations. You said it was a 2-year thing. And what's the...

Okay. I'll give you the first 2 to Anesh. And then I'll cover the wages.

Regarding the Ford ramp-up, in FY '22, we remember, we came online from mid-November onwards. So volumes were low compared to what we forecasted for. And ramp-up has had a few hiccups in terms of well I mean, in a major project when you ramp up in the new year. We will look to firm up in terms of what we forecasted in terms of those volumes in the FY '23 years. So when you hit the ramp-up period, it's your volume, your full volume and then normally stays the same for the next 8 to 9 years. So however, the -- along the project life is. On the insurance, but we received all the cash, it was just, I think, about ZAR 38 million that was open at year-end, but all cash was received.

So I think in terms of the wage question, in the past, I mean, we unionized company within Turkey. So we typically have a 2-year wage agreements -- and we highlight that just because of, obviously, the heightened inflationary environment within Turkey. I think we did a successful wage negotiation in the prior year, concluded that discussions around the new wage agreement for the next 2 years will commence in September, October, November this year. We do anticipate it's going to be a fairly tough negotiation. So whether we -- so we've got some tactics around how to deal with that. We're preparing for it, but we're just [ heightening ] I think the point or highlighting the point that in the past, I can't -- I wouldn't say it's been easy. It's always been tough in terms of concluding. And that's why when we talk about normalization, it's the first time in about 30 years last year that we had a proper strike in the business, 10 days out of production, although ultimately didn't affect the earnings. It's just an indication of that environment, and the expectation from labor and unions, et cetera, obviously, being aligned with inflation. And that's in the context of remaining cost competitive. Not just locally but in our export markets, et cetera, will remain a massive focus area for us to contain that cost. Although it's not substantial in the overall cost of the battery. Any disruption that, that can cause or may cause within the business is obviously something that we know -- I mean, we're in April now, we're now preparing for kind of August, September, November because we already anticipate those are going to be quite [ hard ]. I want to discuss the tactics at this point in time. It's a bit of on the public domain, but certainly, we're prepping for that to be at least in line with inflation, et cetera.

[indiscernible] capital. Sir can you please touch on load shedding, the impact that you see in your own operations and also downstream at your customer level possibly quantify numbers as well.

So we didn't anticipate that question at all, just kidding. I mean our MDs are in the room, so they can probably share with you personally as well. But overall, if we within load shedding Level 4, right, anything up to level 4, it's well contained, right? So it may bring some increased cost of production, et cetera. It doesn't affect volumes at all. If we talk about, obviously, what we're preparing for is if we're in a sustained 5, 6, 7, 8 and how that impacts the business. Now at 5, 6, it's real disruption to the business. Some of our businesses use a lot of electricity. And if you have windows of electricity, sometimes these businesses take 4 hours to kind of start up and 4 hours to close down. So if you have to kind of prepare for shutdown. So if you have 8 hours of electricity, the only thing that you can do is start up and going to shut down, you haven't produced anything. So that does bring in new thinking in terms of work patterns, shift patterns, when we produce, how we produce, et cetera. But we're going through an exercise at the moment, certainly, being front of mind internally. -- in terms of becoming self-sufficient. So the self-sufficiency would be across 3 areas, possibly 4 areas. Firstly, it's a solar initiative. Now solar only works from the sunshines and it only probably gets us to 15% or 20% or covers 15% to 20% of our energy requirements, right? But that doesn't mean that we can produce 24 hours a day, which we need to do. The second one is Wheeling. So that would be large-scale solar projects from external third parties, which we then through Eskom distribution, et cetera, we can buy from those large-scale solar producers. So that's Phase 2. And then Phase 3 would be basically preparing for a Stage 6 to 8 scenario where we need to be self-sufficient. Our initial estimate, I'm saying initial estimate at this point in time to become self-sufficient in terms of generation capacity. Now we're talking generate these large-scale generation capacity, et cetera, is probably between ZAR 250 million and ZAR 300 million of capital investment that's required. So we're going through that assessment at the moment. And ultimately, it obviously brings into question, not into question, but that translates into a commercial discussion that we need to have with customers in terms of increased cost of working but also the capital investment that's required for the business. So I think, internally, apart from kind of lead times to acquire certain equipment, et cetera, we -- it's something that we can mitigate. The question then extends into our customers. I think our customers have addressed this largely, whether the electricity rings that they're on and stability of supply combined with internal generation, I think, protects them from their ambitions in terms of volume aspiration. That covers 2 aspects. So I think Metair can follow subject to finalizing kind of capital requirements, potential capital requirements that we need to assess. Customers seem to be fine. But outside of Metair although Metair is the largest kind of group of component supply into the automotive industry in South Africa, there's obviously other suppliers within the supply chain. So it's to ensure -- and that's a conversation between us, OEMs and other suppliers, how we sustain ourselves -- combined them, us and other suppliers because it's no use for Metair to be sufficient in our OEMs to be sufficient and then you've got a critical supplier who has not addressed this. So I think that's a continuous, an escalating conversation that we have with OEMs because a lot of our growth, a lot of our value creation is dependent on being able to produce the volumes that we need to produce. So yes, it's really top of mind for all 3 of those stakeholders at the moment. And I think not to bring kind of government and policy and everything, and obviously, we're lobbying significantly for what is a major GDP sector within the economy as well as from an export perspective, et cetera. So those conversations, not just at an operational level, but certainly from a policy perspective as well are continuing -- I mean everybody is having that conversation. But unfortunately, I mean, manufacturing is manufacturing or the companies have got, I suppose, can combat the loss of energy supply a little bit easier, I think, but as a manufacturer and not just us, but some of the large-scale energy consumers like stamping, costing, et cetera, suppliers. Those are the ones that are more susceptible to disruption and potential mitigation. So from a Metair perspective, I'm fairly comfortable, but it's obviously looking at those companies and OEMs. Obviously, as you are concerned, they are concerned. So that's why everybody is addressing that.

[Indiscernible] from [indiscernible] capital. Just want to find out, there was a power line collapse at the beginning of the month that effected Ford. I just want to understand how that affects you're supplying into Ford.

Yes. So at the moment, so let me start at the end. At the moment, there's no disruption. So there were -- I think it was [ 7 power lines ] that collapsed. We've experienced this before. And effectively, from a scrap metal perspective, people taking metal out of power lines, right? And then you take the final 1 and then everything collapsed. So we did have about 3, 4 days of disruption. But I think across the [ ACZ] which is the supply park outside of Ford and internally to Ford. I think in total, we lost about 3 shifts -- and then we were back. So this happened. So we probably Tuesday when -- about 3 days, I would say, solidly that we lost over a period of probably 6 or 7 but we are all fully back to production. And actually, where we are now forward hit their biggest volume production yesterday in terms of ramp-up. So just to give you a perspective is obviously Ford are targeting 720 vehicles a day. I think that's publicly stated by Ford in terms of their ambition, and we are gradually reaching that level. And Ford achieved the biggest volume yesterday, which is obviously a good outcome from electricity supply. It could have been much worse, but I think the intent from not only the municipality, government, et cetera, is obviously to prioritize this not to get into detail. We actually on looking at the moment, we find.

So I think it was [ temporary but ] the OEMs do manage to catch up. There's weekend shifts to try and push that production line. So you won't see you'll see that hiccup and then the volumes transcend into normal targets.

Yes. So let we catch back.

Yes. We have some questions from the webcast. The first question is from [ Pierre Jacobs private ]. Can you provide more details regarding your solar projects time line, cost and percentage production relief from Eskom?

So I think in general, I mean it's still something that we're evaluating and will be addressed through the Board and our investment committee as such. So I think in time line, we're probably looking at about 6 months. We've identified all of the opportunity, et cetera, the EPCs. Effectively, what we're trying to do is replace a procurement of energy from Eskom through solar. Firstly, it's got a big commercial benefit. So overall, we think about 15% to 20% of our overall electricity requirements can be replaced with solar. So commercially, or from a green perspective, that's very important as we progress through to [ '25, '26, '27 ] and through to 2030. And I think that's taking into account kind of available roof space and everything that we have on site. So that's something that we can have in place over the next 6 months [ it will be site ] specific, I mean there's many companies that we operate, et cetera. Generally speaking, it's probably coming in around on average, about 25% to 30% less expensive than energy cost from Eskom -- so commercially, it also makes sense, and these will typically be 15, 20 year supply agreements as such. So that's something that we actually really excited about in the near term. In terms of total capital outlay, these will be power purchase agreements. So there will be no on-balance sheet capital that we apply to 2 power purchase agreements. So we've assessed this, given the extent of capital that we've invested in the industry to date is obviously to find a way to have a capital-light approach in replacing Eskom with green energy in line with our strategy, and that's obviously -- so there's no specific capital outlay but the reduction in energy costs overall.

Next question on the webcast is from Chris Reddy of Weather Capital. First question is, what guidance can you give us on the expected gearing levels going forward? Second question is what conditions have bank requested in order to waiver their covenants? Were the restructure fees required? The third question is for the SA debt to be refinanced this year, how do you see margins moving from the existing terms?

First one is Anesh, I think.

I remember the questions correctly, in terms of fees, the costs remain the same, and the fess remain the same if that was the extension. Can you just repeat that for me, [indiscernible]

The first question? What guidance can you give us on the expected gearing levels going forward?

Levels will reduce to our target or longer-term target, and we expect to be about 2x.

Then the second was what conditions have banks requested in order to waiver the covenants with the fees in terms of restructuring?

Yes. So on that one, there were no fees, no restructuring and it was actually positive from all over bankers. We will get a relaxation in the current basis. So for example, where we've got a 3x EBITDA threshold, we will look to increasing that to about 4x as we get out of the cycle because we got 2 measurement periods in the year, in June and December. So we [ incurred ] some of the historical costs like the project costs in our P&L that will come out through the cycle. So in terms of undue costs or anything in terms of inhibitive, there's been nothing, it's been positive.

And I think in our discussions with all of our funders, most of you are present today. it's about what is the underlying earnings and what's the underlying debt carrying capacity of our businesses. Because we've got a huge investment upfront, but then we have projects that need to grow into maturity and deliver the EBITDA and earnings as expected according to projects. So we've got a short-term window where we're probably going to technically breach covenants. But if you look at sustainable post ramp-up and our run rate in terms of earnings going into the second half of the year, we don't expect any further issues on covenants, et cetera. We've had huge support. So I think the only other issue is just from a hyperinflation perspective and how that street it's very similar to kind of these once-off cost. It's non-cash. So I think all of those discussions have gone really well, and the banks often as assess it through the cycle rather than just taking an immediate kind of view on the short-term issues.

Okay. Next question is from Mark Narramore, Excelsia Capital. Any potential opportunities from Stellantis opening production in SA?

There's always opportunity. So any localize -- any increase in OEM presence within South Africa in terms of volumes, et cetera. That's a project that we currently -- it's been announced, we need to evaluate it and evaluate certainly kind of what we can participate in as a company, but that's all good, I think, for us. As a component supplier, being the biggest component supplier. And especially if you look at the products that we are in and supply is typically the first ones that you need to localize. And I'm not going to give you the all the products and the differentiators and the protection we have around it, but these are typically -- except for glass, we're in the right product portfolio to be well positioned to participate in either volume up or new participants in the market.

No further questions from the webcast [Operator Instructions]

Thank you. If I could just follow up on some of the questions that have been asked already. The first 1 was I was asking about the sort of sales from Ford in 2023. Maybe to ask it another way. You said from [ Ford ] that they're aiming for 720 vehicles a day. So maybe giving us an idea of where Ford is now would help to, [ sjoerd may ] answer that question. Secondly, you mentioned on solar that it was going to take 6 months. So you're saying that in 6 months' time, 15% to 20% of your energy needs will be.

It could be...

That's pretty quick. That seems very quick. And then the third question was someone asked about your gearing level. And I think you said net debt to EBITDA 2x. Was that right? Is your [indiscernible] is where it should be at the end of the year?

Net debt. Net debt to EBITDA.

But it's already at 1.6% normalized.

Normalized, yes.

It's 1.6 now.

I mean below 2x.

Yes, I would expect that. But anything more than that. So obviously, that would imply debt's going up.

So debt won't be going up, debt will be -- this is a peak funding level. I mean, where we are at the moment, around 2.7%, but we need the earnings to be generated before we actually get it down to a more responsible level without normalizations to about the 1.5, 1.6 level. But where we go to FY '23, we will be very well below the 2x level as our earnings capacity picks up, and we are able to match that gross debt.

Okay. So that was -- those were the questions. So should I repeat the is the first one -- on the...

I was thinking i should answer on behalf of Ford because its very difficult to answer anything on behalf of a customer. Its dangerous territory. I would say they are ramping the start-up was delayed last year. So where we anticipated them to produce about 17,000 vehicles of new Ranger derivatives, I think they ended around 7000 to 8000. So there was about 10,000 loss. The targeted project volumes are around 170,000 to 180,000 a year. And I think if we're looking at ramp-up at this point in time beyond April into some May going forward for the rest of the year, we should be getting really close to the run rate to achieve that 170,000 to 180,000 targeted volumes per year. So we've seen good progression in January, February, March, April, and then hitting kind of project volumes beyond April into May and beyond. So let me leave it there.

So you're saying that -- let's say, May, June, they should be at their normal running rate?

Yes. That's a target.

Okay. And then on [Indiscernible] do you have a CapEx number for this year?

ZAR 750 million.

Does that include Hesto?

Yes.

Includes Hesto?

Hesto is about 70 million of [ that ].

Is there any forward CapEx left in that?

Yes, there is a bit of forward CapEx in our wire business. This more local copper initiatives. There's a little bit in our lighting business in terms of more localizations. So whatever we've put in is spread amongst the lighting and the wire business not that significant compared to the more or less ZAR 1 billion that we spent in the past.

Something a lot of the -- we were expected to complete all of that CapEx last year. But because of supply chain, et cetera, there's been some delay in delivery of machinery equipment, et cetera, and that's spilling over into this year. And I think the one thing that has been delayed, mainly due to customer requirements and customer changes in the [indiscernible] , et cetera, is were expecting to be at a very good localized wire supply into Hesto at this point in time, but that's just given kind of the rate of change, complexity and forward requirements, we've been -- it's been necessitated that we pushed that out into 2023. The full wire supply. So our wire supply into the wire harness business will probably be online. I think yes, in is here, you can actually ask you to answer your question by April, May, June. Okay, June. There you have it, June. So that's just been a customer requirement. So we did expect that to be sooner, but by June will be probably 60%, 70% of local wire supplied in test. Anything else from the Web?

No further questions from the webcast.

Thank you, everybody, for your participation and all of those on the webcast. There are some appendices that's for your own consumption, we're not going to go through that -- it's great to see you in person. Again, apologies that it's been delayed due to me. But it's good to see all of -- so thank you very much to close there.