Metair Investments Limited (MTA) Earnings Call Transcript & Summary

Okay. Good morning, everybody, everybody in the room and everybody online. My name is Paul O'Flaherty, the CEO of Metair. Welcome to all of you, particular welcome to the Board. I've just got an attendance register here to see your front and center. And very happy to have the MDs and some of their executive teams from all of our subsidiaries, yes, because what we need to talk about is really the strength of Metair. And we also have our executive teams from Romania and Turkey who are dialing in. So, I'm joined today by Anesh, who you know, and we're really going to reflect on this last year. So, we reflect on this last year. But most importantly, we want to reflect on what we're going to do going forward, and what we're doing every day, and what consumes us as an executive team. For those of you online, just don't forget, you can ask your questions as we go along, and then we'll get to you at the end. So, if you can move to the next one. Next slide, please. And then the next one. Thanks. So, let's just start off with the results for the year under review and Anesh will take you through the detail, but revenue increased 14% to ZAR 15.9 billion. Our EBITDA pleasingly increased 86% to ZAR 1.1 billion, and our EBIT margin at ZAR 487 million, an increase of 7%. Headline earnings up to ZAR 135 million a share from a loss last year of ZAR0.17. And we generated free cash flow of ZAR306 million. One of the issues we're going to talk about is our debt situation. Obviously, we spoke about in the first half of the year, the debt challenges we had, particularly in our Hesto business and in our Mutlu business. And so, our debt has increased to ZAR 2.8 billion. But if you take into account, Hesto, it's at ZAR4.6 billion. Net debt to EBITDA at 4.3x and our ROIC has improved nicely to 11.1%. And very importantly, from a safety perspective, our LTIFR is maintained at 0.2. And we've achieved group at BBB level 1, and every single one of our subsidiaries is Level 4 or better which were really important indicators. If we can go to the next slide, please. So, I thought before we go into the challenges which are well written and well known, is really to reflect about Metair and this is important for my colleagues in the room. Metair has a 76-year history, and it's a champion of localization in South Africa. It's a fundamental part of the landscape of the automotive industry, which is absolutely key to South Africa. The automotive industry contributes 5% to the GDP of South Africa, more than 20% of local manufacturing output and 110,000 direct jobs. And if you translate that into indirect jobs, 500,000, that's the importance of the automotive industry in South Africa, and that's the importance of manufacturing in South Africa. So, there's a strong forecast growth. If you talk to the OEMs, obviously, there's challenges, there's new vehicles, et cetera, but the long-term forecast growth is from today's 650,000 vehicles in South Africa to potentially 1.4 million in 2035. There's lots of good government interventions of how they see the master plan going. There's the new electricity vehicle plans. There's the just energy transition plan. So, there's a lot of plans in place to support how this industry faces itself in the future. So, one of the big challenges, which you've all read about is in the leadership of Metair. And so, let me just deal with that right now. So, there may have been leadership challenges at the Metair level. But my colleagues sitting in the room have more than 30 years, individual average experience in this automotive industry and more than 22 years with Metair. This is a highly experienced management team that has been there for a number of years. And so, appointing a CEO to lead and guide is an important piece of the puzzle, but the actual operations are run by highly experienced individuals who are joined here today. What we have made sure of and I've been here 2 months is that we have a clear packed with all of us, clear KPIs, clear deliverables, what are they accountable for, and what am I accountable for. And that is how teamwork works, and that's how you achieve stabilization. We have to work on trust. We have to trust each other to do what each other is meant to do, and we move forward on those clear KPIs and most importantly, with full support from the Board, okay? You cannot work in isolation of a Board, and the Board is very aligned and we are very aligned with the Board requirements. One thing perhaps has not sold well enough about Metair in the 2 months that I've been here is how strong a Metair is on ESG. And you can read that in our integrated report, pay particular attention to the sustainability report. And based on our independent assurance, Metair, in terms of its metrics and how it monitors and keeps itself accountable, is rated in the top 1% of JSE-listed companies. That's really, really important. That talks to you about the values and the ethics of Metair. Contributing to local communities. I've been impressed to visit all the sites. So, I made a commitment to the MDs. I would visit all the sites, and I have bar one, but that is a geographical issue, but I have been to Turkey. And when you see Metair in its environment, whether you go to Stanger, whether you go to Panta, whether you go to East London, you can see the importance of Metair. You can see the importance of the automotive industry. We employ more than 17,000 people and contractors across all the geographies we work in. We've contributed ZAR 18.6 million invested in community upliftment in the areas in which we work. And ZAR 2.9 billion of our procurement spend has been allocated to HDSA suppliers. Metair is proud of this. This is what drives Metair over and above the profitability and return to shareholders, a really important point that you need to take into account. So, this is our flywheel. This is what Anesh, myself, and the executive team, [ Wolf ] and Johann grapple with every day. As I said to you, the first was about stabilizing the leadership and we've moved into a scenario in the history of Metair where from a group level, we are in more strategic control position. Before it perhaps was a more investment holding type scenario. But given the challenges we have, it's more of a strategic control, closer interactions with the businesses. As I said, clear KPIs about who does what and take everybody's take accountability for what they need to do. So, we are moving to get that stabilization and make sure we understand each other very, very quickly. We don't have time. Very, very quickly about the levers we need to pull. So, this is a classic flywheel. If you've read Jim Collins, Good to Great. This is a flywheel. So, you have to push it a part incrementally to start to get the momentum to make sure you can clear all these hurdles so that this group can really perform. The next is the debt levels. So, as I said to you, those debt levels are significant when it looks at Metair and its history. So, we've delayed noncritical capital expenditure. We've already extended one of our RCFs to April 25. And most importantly, we've appointed external debt advisers. And those external debt advisers are looking at how we have geared our balance sheet, where are the opportunities to change our debt profile, where are the opportunities to look at noncore assets, and we're hoping to bring an executable plan to the Board by the end of May. That is our intent, and that is what we're focused on. Whilst we're doing that, the colleagues sitting here today have to manage their cash. They have to manage their working capital. They got to do what they need to do to make sure there's no more cash creep in the group. We have to solve for the Mutlu debt, and I'll talk about Mutlu separately. And for Hesto, significant progress. I think the company reported to you that in the first 6 months of last year, there was ZAR 711 million operating loss that turned to ZAR 104 million profit in the second half. It's not where we want it to be, but you can see the signs of it turning. So Hesto, when we look at it from a debt perspective is a ring-fenced issue that we deal with the customer, our technical partners to make sure we make it profitable, which leads on to the third part of the flywheel is that test or profitability. So, we've relooked at it as a management team based on 2 major customers and the cash and the profit that can get generated out of Hesto, together with those customers, together with the technical partners, and we have a plan to 2032 for the specific projects. That plan is profitable. That plan is cash flow generative, and we need to deliver on that. Yes, there will be the ongoing operational challenges we face, but that's our commitment as a team. The fourth lever that we're busy looking at is Mutlu. And I think the group has spoken about that a lot. And what does it mean to unlock? Well, the first most important thing, the most important thing is, we have to get Mutlu running full. We used to learn this in my days at ArcelorMittal. Run the mills full because if you run the factory full, the operating costs come down, it's our basics of manufacturing and your cash flows improve. Mutlu suffered in export sales. And so, we need to win export sales back. We need to run the factory to capacity, and we need to sell those extra volumes that we produce. In order to do that, we must make sure we have a stabilized management team. So, in the last few months, we've beefed up the executive team. We've made sure, as I said, from a group perspective, we are exercising strategic control over Mutlu to make sure they do the right things. Whilst we're doing that, we have also appointed external advisers to look at options around Mutlu, and that's currently underway. And in terms of deadlines, we've committed to the Board or I've committed to the Board, Anesh has committed to the Board that we bring options by the end of May of what we need to do with Mutlu, but not forgetting they need to continue to deliver. They need to get their operating costs down. They need to get their volumes up. That's the most important. And then the final issue, which is really a long-term issue and has been going on for some time. And remember, Rombat was acquired by Metair in 2012. And there's a historic potential competition commission issue. We're dating way back before Metair stepped in to buy the company. We received what they call a statement of objection from the EU Commission in December, and we need to reply to that. And we will be replying to that in April of this year. But there's a long tough arduous process that follows. Like with any competition commission issue that gets dealt with, I went through the ArcelorMittal one. It's just a long process. It's very complex, very technical, and there's absolutely no way at this point, you can even determine if you have a fan and if you do have a fan, what is the quantum of that fan? And so, we're dealing with it. So, what we've done as well since we received this statement, we've beefed up, we have had a legal team from the EU. We're looking at this for many, many years. We've now beefed that up. We have a legal team specifically in Romania to deal with it from a Romanian perspective. And we have a legal team that we've appointed in South Africa to look at it from a South African perspective so that we make sure that we cover all of our bases as we address this complicated issue. And finally, as we start to push this big wheel, and gain momentum, and win back our confidence making sure that the MDs deliver on their promises, we have to come up with a new strategy. We can't just keep looking in the review mirror. And again, we've made commitments to the Board that in the second 6 months of this year, as we start to feel the momentum, as we start to get where we need to get, we will come up with a new strategy. It will be a turnaround strategy, but it will also be a forward-looking strategy. Where does Metair want to play? Where does Metair fit into the new automotive in South Africa? And what are the other geographical opportunities we may or may not have? So, that gives you a real good snapshot of what we deal with on a daily basis. I'll hand over to Anesh now to take you through the finances for last year.

Okay. I'll try and cover financial review. How we performed on bottom line, earnings per share, HEPS, and operational performance concisely. I think Paul gave a nice overview of where the group landed and the key issues that we focus on for the next and upcoming current year. Revenue grew 14%, really driven by strong automotive volumes recovery in our South African context. If you remember, in 2022, midyear, we had those floods from a major customer in case it in. So, volumes recovered quite nicely, and we had a new major customer new model ramp-up that we had earlier in the year from January onwards, that boosted automotive volumes by 48% and boosted revenue by 14% to ZAR 16 million. Just remember, those numbers don't include Hesto, our significant operation in Stanger. If you overlay Hesto into it, you're talking about ZAR1 billion to ZAR 20 billion business for the year. Group operating profit up 7% to ZAR 487 million. Just remember, these numbers include hyperinflation. Mutlu operates in a hyperinflationary economy. And that basically means we've got to do some restatements on the operational results due to the impact of those complications with IP inflation. And therefore, our margin comparatively is on line, 3%. But just remember, if we exclude the impact of hyperinflation, we move more closer to the lower range of long-term margins of between 7% to 9%, we're actually around 7% on an operating basis. What's key to these results is obviously the interest cost. Because of the impact of new investments that we've done for major customers, the impact of doing business in Mutlu, which is the high cost of replenishment of working capital, and the peak debt that we have incurred because of new projects, the debt in the business at the moment from a group level is ZAR 2.8 billion. And with the high cost of borrowings in Turkey, because of the impact of hyperinflation, you've got interest rates that are at average range between 45% to 55% because of the country dynamics. Our interest bill has increased by almost 100% to about ZAR 741 million. About 65% of that interest bill rises out of Turkey and Mutlu. Because of the hyperinflationary statements, we have something called a net monetary gain. This is the impact of indexing your operational results, the cost of doing business in a hyperinflation environment, and the result is an increase in the gain of ZAR 556 million. And what's driven this gain is because of Mutlu's leverage position. The more debt you have in the hyperinflationary economy, the more monetary gains you have in your income statement. What's also important in these results and as we mentioned in half year is Hesto and how we treat Hesto. Although the group has a 75% or 74.9% holding in Hesto, it's treated as an associate, essentially a joint venture. And it comes through in our results in one line accounting or equity accounting earnings. Because Mutlu's written down, because of the losses, it's written down to no and there's no requirement for shareholders to fund losses directly or make due losses in terms of the contractual obligations. We are limited in terms of the amount of profits we take into the books. So, these results will exclude about ZAR 390 million of the Group's share of Hesto losses incurred during 2023. We had to due to technology shifts in the lithium industry, especially how we set up the incubator line at time. We did incur an impairment of about ZAR 179 million. Really, that's due to technology shifts in lithium together with delay in commissioning since COVID. The impact of COVID did have challenges for us in terms of the engineers we needed to deploy to get the line operational, and we'll need to look into 2024, how we treat this line going forward, but it was a ZAR 179 million impairment, which is added back in your headline earnings per share. The effective tax rate in the group is high, traditionally, if you go back to 2021-2020, our tax rates were about 27%, 28%. It's now 56% of 55%, it's come down from previous year. And largely, it's the low-profit base. It's higher taxes in Turkey, compounded by inflation, and some nondeductible expenses at head office with the debt that we carry. All in all, headline earnings improved to ZAR 262 million. It's ZAR 135 per share, a good improvement from the ZAR 0.17 per share loss that we had in 2022. Other intricacies in the results is other operating income. We had the business claim fully settled in terms of the interruption claims from the floods. It was all in all a ZAR 377 million gain in 2022. We don't have that this year. And all we have in other income is the APDPs that we have through our businesses like First Battery. If I look at a more operational context, and this is based on operational numbers. Turnover in energy storage was 7% down. And largely, that's due to Mutlu and the lower volumes that we sold in the 2023 year. Mutlu did undergo curtailment in volumes during the busy season due to some contract work issues we had in the country. We have resolved that. We've resolved the bargaining unit wage negotiations, and we're on track for the good year for 2024, buying any other external intricacies in that country. Automotive up nearly 100% to ZAR 13.5 billion volume boost from our OEM customers. And from a group perspective, as we said, 14% turnover growth. Operating profit for the group, ZAR 487 million. And you might add the parts and wonder why you don't get to ZAR 487 million, if you add ZAR 89 million and ZAR 41 million loss from the 2 business verticals, that's largely the difference that we have out of Hesto. And that's why the sum of the parts is a bit just joined ZAR 89 million is the impact of hyperinflation. If you get to add back the impairment of the lithium-ion line, we get more to ZAR 270 million, which is comparable on ZAR 195 million from the energy vertical operating profit. Automotive components, if we add back the loss from Hesto, we get more towards a ZAR 580 million mark from the rest of our auto businesses, close to a 7% margin. So, those businesses, core businesses have done quite well for us in a very challenging year. EBITDA on a reported basis for the group at ZAR 1.1 billion. Free cash flow, we improved from last year. There was some curtailment in CapEx, additional earnings out of EBITDA. And financially, the working capital did improve on the books because of the impact of hyperinflation in Turkey. We did have a good reduction in trade receivables in the year, and we generated positive free cash of ZAR 300 million compared to an outflow of ZAR 664 million in the previous year. Group EBIT margins at 3.1% on a reported basis and ROIC improved to 11% from a group perspective. If I just move on to the balance sheet and relay the key issues on our balance sheet, 2 items, the amount of fixed property that we have, it has moved up about ZAR 526 million. That's the impact of capital investments we've done for new customers, on top of the hyperinflation impact. The hyperinflation impact is that you've got to keep your historical cost books up to date in terms of current purchase power, and we have about ZAR 6 billion of assets on the group at the moment. NAV per share improved to ZAR 27.90 million, up 6.7%. And I think one of the big wins we had last year was the ability to still get our funds to support the group. They remain very vested in Metair and we've extended the ZAR 525 million pre-facility during April for a further year, and that's done in context with restructuring the group's debt and repackaging it to something more attainable that the group can manage from its EBITDA getting capacity. Net cash was impacted by 2 factors: the larger interest payments that we had together with low cash inflow out of Mutlu operationally. Cash held in the group, it's about 34% of gross cash we hold internationally and about 66% that we hold locally. Group net debt-to-EBITDA of 2.6x. If you overlay the Hesto debt into this, we're more around 3.1x, and we've complied with our funder's covenants, which was a good improvement from where we were in 2022, and we had to condone our covenant breaches. What I've done is just to help understand where Metair's debt is at the moment. And you can see from a net debt perspective, we had ZAR 2.8 billion, a little bit of an improvement from where we were in the half year of ZAR 3.2 billion. But the main item and what we always look at is the whole encapsulation of debt, including Hesto in the group, and we've improved from half year of about ZAR 5.2 billion to ZAR 4.6 billion at year-end. And at largely, we did have some improvements at Hesto. We had a cash recovery in Hesto from our major customer that helped us on a net debt and cash basis. So, we carry about ZAR 1.7 billion of debt at Hesto. We carry ZAR 666 million at Mutlu. In absolute terms, it might look a bit small, but Mutlu used to be in a net flush position, not a net geared position. From a group perspective, at head office, we do carry about ZAR 745 million, and that's the preference share facility. That's a large driver of that. It's about ZAR 840 million, and we took that out when we acquired Mutlu way back in 2023. It's due in December, and that will be part of the refi package that we do in terms of how we treat that debt and how we unlock value out of Mutlu as the year goes on. We spoke about the debt mandate. Paul has mentioned the debt mandate. That's a key focus for us for the first 6 months of this year, and we will look at deleveraging out of Mutlu in whichever way possible. From a movement in gearing, we were at ZAR 3.8 billion at the end of last year, including Mutlu. And you can see that 0.5 and 0.4 is where we crept up in debt out of Hesto and Mutlu to about ZAR 4.6 billion at the end of FY '23. Debt by geographical area, majority of the debt is still in essay, 68%, 29% coming out of Turkey. And from a maturity profile, 73% of our debt is short-term. We have extended the ZAR 525 million, and we will look to extend and have a more bearable structure as we go through in the next 5 years. The increase in borrowings I spoke about, it's difficult in Turkey at the moment. The ability to raise financing is also difficult. There's a tendency for banks to lend you USD borrowings as opposed to local Turkish borrowings as a method to prop up exchange rates between the U.S. dollar and the local Turkish lira. What's changed during the year as well in Hesto, there was shareholder funding that was put into the business, and Metair is guaranteed ZAR 57 million of debt effectively. And the whole Hesto debt restructure will be looked at as well as the group structure in terms of our funding mandate into the future. 21% of the group's debt is in hard currency. That's mainly euro funding in Turkey and in Romania. If I move on to working capital quickly, we did have a reduction in days from 83 to 77. Our long-term targets or current or medium-term target still remains between 65 to 70 days. We target to be around 68 days in 2024. And that reduction has come from trade receivables. The profile at Mutlu did change during the end of the year. We do carry a lot of safety stock, and that is a method of combating any short supplies that may arise due to suppliers and customers. Our main motto is to keep our customers going, and we've got to be adequately supplied to supply parts into them and to combat whatever supply chain challenges we have. And obviously, we know about the issues at Transnet. So, we got to carry on the average 8 to 10 days additional stock, additional inventories in our automotive businesses to ensure stable supply in to our customers. Net working capital as a percentage of revenue reduced slightly to about 21%. We will look at optimizing working capital, and we are looking at that on a daily basis in terms of trying to reduce safety stocks, trying to look at daily customer volumes, and how we navigate to breed with our customers a bit better, and as well as improvement in terms of terms that we get from our customers. From a cash flow perspective, the graph doesn't look better from a cash conversion perspective. We've had improvement in EBITDA. We had a reduction in working capital from a financial point of view, and we had a cash conversion of about 104% for the year. Cash generated from operations improved from ZAR 800 million to ZAR 1.1 billion. And net finance charges, unfortunately, has increased from ZAR 391 million to ZAR 771 million, a big outflow for us in the Group. Financing inflows, we raised a lot of our debt in previous years. So, that reduced quite a bit from ZAR 1.3 billion to ZAR 155 million. And just remember, the cash flow is presented on a hyperinflation basis. So, complexity is that we actually got to analyze all our inflows and outflows from a working capital perspective and re-indexed that based on CPI tables in Turkey. Net cash on high end did reduce. We had the impact of foreign currency movements in IP inflation, and the group net cash stands at ZAR 576 million. From an operational viewpoint to some context in terms of volumes, good growth, 48%, especially from our key customers on the top. And if you go back to 2019, this volume of ZAR 649 million is actually much more higher than what we had from a pre-COVID basis, where volumes were about ZAR 615,000 from a market perspective. Where we're concentrating on is energy storage, obviously. Total auto batteries sold of 7.3 million units is not good enough for us. It's about 75% of the capacity, and that really will come out of what we trying do in Mutlu and how we try and replace our export volumes with the loss of Russian units. From a Rombat and FNB perspective or FP perspective, we are more or less in line with previous year. And obviously, Mutlu is where we want to collect the mix at the moment. We are towards OEM mix of 36%. So that balance is a bit misconstrued in terms of margins. We need to get it closer to 30-30-30 in terms of aftermarket exports and OEMs. Capital expenditure and capital requests for the year, we did spend ZAR 690 million during 2023 on new equipment, maintenance, and new projects, largely due to new OEM models, as we've mentioned. For F '24, there is a request for ZAR 900 million, and that largely is driven by new models. There's new models that our customers have, not just in 2024, 2025, but also running into 2026. Some of our operations like Lumotech is what you call long lead time supplies. They got to prepare at least a year to 2 in advance to invest in new customer models. We've got new derivatives that would affect Hesto. We had to put in a capital of ZAR 80 million as a request. Health and safety in the group has increased quite a bit, and that's largely also driven by the earthquake issues that we had in Mutlu. We're going to reinforce some of the buildings that we have at Mutlu, and that's driven health and safety. We did put on an approval for Rombat, a solar park at Rombat strategically to combat the high energy cost in that environment so that ZAR 69 million allocated to Rombat. And in total, I mean, we do always have maintenance that we spend more or less in line with annual depreciation and amortization. It's about the ZAR 400 million mark. An important thing with this group CapEx. It is ZAR 900 million. It is high, but it's controlled by myself and Paul. It's dependent on cash flow availability. It has to meet the requirements of Metair's investment criteria, and it's a request pending on the affordability and availability of credit lines that our funders will allocate to us. In terms of commitments for 2023 or capital expenditure, it did come down to 3.79% compared to about 4.5% from the previous year. From normalizing, let me speak about normalizing the result. I know it's a bit difficult to analyze Metair's results. It has complications of hyperinflation in one of its biggest environments, which distorts the income statement. We've got the normally of Hesto and how we treat it, and we've had 1 or 2 major impairments in the year. So, if we just try to contextualize it in terms of our verticals and especially as well on a group basis. From an energy storage perspective, if we exclude the hyperinflation impacts that we do on Mutlu, if we exclude the one-off impairment of the Rombat lithium line, a normalized operating profit is ZAR 760 million, which is more or less in line with the previous year, ZAR 760 million. If we try to do the same principle in automotive components and exclude the effects of Hesto, our remaining businesses have an operating profit of close to ZAR 570 million quite strong and quite an improvement from previous year of ZAR 465 million. From a group basis, we add back hyperinflation, we add back to Rombat line, normalized based on current pull in volume in the year of 2023 is about ZAR 1.2 billion. From a normalized PAT perspective, if we move up and we creep up from EPS of ZAR 0.49 and add back the normally as we get to a normalized HEPS of ZAR 1.05, which is quite significantly down from prior year and from the current year reported EPS of ZAR 135 million, and that's largely the impact of the interest cost that the group has at the moment, arising out of Turkey. And one of our key focus and priority is to try and reduce this interest cost coming into the new year. I've put together for information purposes, more of an operational context in terms of the business verticals and from a normalized basis in Metair, excluding the impact of Hesto, is 6.2% operating profit. Automotive, 7.3%, the lower range of our guidance in energy, quite a good or healthy operating margin of 9.5%. And a normalized ROIC of 13.4%. Metair's WACC is 15.7%. So, we've got to make due with about 2% improvement we need in terms of WACC. Automotive, yes, 7.6% ROIC normalized, below our requirement of 25%. So, we're going to look at what we can do in terms of normalization of EBITDA and improvement on cash flow. Energy storage doing better, 17.4% is the average WACC and we're at 18.8%. So, energy storage is doing well at the moment on a normalized basis. That's my financial summary. Thanks.

Thanks, Anesh. So, let's look a little bit at the outlook. Obviously, we spoke about our 5 key challenges. This can't deflect from running a business. And so, we need to make sure we're really up-to-date with rapid changes in the automotive industry, the new technologies, how does Metair fit into those new technologies, and that's ongoing discussions with our major customers, with our partners to making sure we're well placed in the vehicles of the future. Obviously, looking at our lead-assets energy storage and where do we play going forward. Anesh spoke about the ROIC, so we have to de-risk businesses. We have to de-risk businesses to make sure that everything that we're doing fits into the investment profile, otherwise, it's not worth investing money any further. And that speaks to portfolio optimization, which geographies? where do we play? Where are our really key strengths in our core assets? These are what we will deal with. And then obviously, we have the South African challenges that every single manufacturing company in this country experiences, whether it be Eskom, Transnet, ArcelorMittal, potential close down of new cars sold at the end of the year, and therefore, the long steel and then the potential Sasol gas issue in 2026. Those are what we face with. Those are what manufacturing companies deal with. That's not unique to Metair. Our customer mix is really important, particularly in Turkey. So, yes, we have our pride in the OEM support, but we have to actively improve our aftermarket. We have to actively improve our exports, and particularly in Turkey, as I spoke about, run full, look for the export opportunities. We continually collaborate with our OEMs and our technical partners to balance demand and improve efficiencies, talk to the new entry, potential new entry vehicle manufacturers. There's a South African initiatives to drive a pan-African model that has always spoken about. So, those interconnections across the continent are important to us. We have to remain competitive. The people in the room, they have to remain competitive through quality, cost and delivery. That's their commitments. That's their commitments, what they are absorbed with every day. And we have to make sure that in the longer term, Metair is still and remains fundamental to the supply chain for the OEMs in South Africa. In Hesto, we've got everything on it. We've got our most experienced operational executive in Hesto. We're on top of what [ Wolf ] and the team are doing. We are with [ Wolf ]. We are working with [ Wolf ]. And any specific questions is he is here in the audience. He can answer that himself. And then a little bit of a lookout for half 1 2024. What will you see potentially in June? So, first, as I said, we will be presenting options to the Board in the first 6 months on the debt restructuring and the options about de-risking Mutlu and what we need to do. So, hopefully, we can report good progress there. Customer volume volatility, that's what the MDs live with. I know they always raise it to me and extended shutdowns of major customers deal with it. That's what they deal with. That's what they're good at. That's what 40 years of experience in this industry teaches you to do. And that's what I expect from the MDs. And they've got all the action plans, short-time production, cost cutting, reduced safety stocks, adjusting long lead times, talking with the customer, making sure everybody is on the right plan, making sure your planning is right, making sure you're planning to deliver. So, excluding the effects of hyperinflation, which we can't predict and dependent on customer volumes for the next 6 months, our targets include making sure operating margin is closer to our overall 5% to 6% for the first 6 months. So, last year, it was 4.2%. The year before, it was 2.5%. We need to get closer to that 5% to 6%. Our interest level is low. If you take the second half of '23, interest levels of around, if can calculate it yourself, of around ZAR 500 million. While we figure out what we're doing with the debt, we expect the same interest cost in the first 6 months of the year. So, those are giving you a small outlook as to where we operate today. Okay. So, thank you for your attention. We're going to take some questions firstly from the floor, and then we'll go to the online. So, Luis, is there any questions?

There have been no questions from the floor at this stage. You will go to the webcast for now. The first question comes from Alistair Lee of Coronation. You mentioned a maximum antitrust fund of 10% of turnover. Is that Rombat or group turnover? If it relates to Rombat, what is the current runback turnover?

Well, the Rombat turnover, we don't disclose specifically, but 10% is a maximum. The way the Competition Commission works is it is in the last period of which they believe you may have some competitive practice. They would take 10% of that turnover, and they would apply it for the years in which you supposedly committed the offense, and then you get a whole lot of deductions against that turnover. So, talking about what that potentially could be or not be, I don't think is appropriate at this point.

The next question comes from Sandile Magagula of Umthombo Wealth. It's actually quite a few questions. Can you refinance Turkey debt with SA debt and manage the debt better here in SA?

So, I'll get to Anesh to join me.

Sorry, Luis, can you repeat that?

Can you refinance Turkey debt with SA debt and manage the debt better here in SA?

Well, I think it's one of the options we're exploring. One of those options will be on the table. Another option will be to ring-fence the debt international versus local. Another option will be to how we can refinance some assets or do some asset sales if we need to strategically beat some of the parts in Mutlu. Mutlu does have a valuable property portfolio as well. So, those are the options we need to look at. It's quite challenging at this point in time. You must know we have elections coming up in SA as well, and internationally as well. So, we're going to look at how the debt markets play as well. But those are all the options we're looking at the moment with the core. Core competency is to unlock the debt gearing levels that we have in Turkey.

The second question from Sandile is, how should we think about Metair working capital cyclicality?

Yes. It just depends on the profile and the mix. I mean, we've got safety stock issues at the moment. So, we're carrying about 10 days additional stock in the automotive environment. The balance at our energy storage businesses is something we need to pay particular attention to. The balance at Mutlu wasn't right at the end of the year as we had lower aftermarket sales. We had a bit of production stoppage because of the contract workers that we couldn't find in the market given the economic situation in that country that we corrected luckily in December. So, Mutlu did carry a lot of scrap balance, scrap lead that will be used in the first half. But in terms of working cycle and days, we want to get it to below 70 days for the 2024 year.

The last question from Sandile. In which way does Metair try to optimize tax obligations to minimize impact on the bottom line? Have you got adequate tax expertise within the Board? Or do you have plans to make appointments in this area in the future?

Yes. As part of our structure at HQ, we're looking at capacitizing Metair and let me take you back to what Metair was traditionally a lean head office, basically, 2 or 3 people running finance, but the world has changed. It's become more complicated. So, we're looking at all avenues, including tax. Tax is a complicated space, especially when you're dealing internationally. In the past, we had some good credits out of Mutlu. If you remember, whatever assets we used to put into Mutlu or invest, especially with the AGM line, the government was lenient in terms of investment tax credits. In some of the years, in Turkey, we used to get effective rates of around nearly 3% or 4%. Metair's tax, effective tax in the past, as I mentioned, at MAX used to be 27%. That dynamic has changed, and it's something we need to concentrate on in the '24 year as well as tax losses, we do have some tax losses in the group. So, if you look at some cash flow perspective going forward, once we generate those earnings, we will have the cash savings coming through in the tax line where we can utilize those assets losses. We have assets losses of about ZAR 400 million in the group at the moment.

So, Alister Lee from Coronation wanted to get clarity with regards to the antitrust fund 10% of turnover. He just wanted to check, is it Rombat or group turnover?

At the moment, the supposed contraventions are at Rombat.

The next question is a couple of questions from James Twyman at Prescient. He said thank you for the presentation. Could you talk about whether a rights issue as a possible option for you when doing your strategic review?

Okay. I'll answer that directly. It's not an option.

The next question, could you talk about the recovery at Hesto in 2024, especially regarding the forward contract when you have made adjustments to it?

Yes, I'll ask [ Wolf ], if he doesn't mind, if there's a mic there, Luis. [ Wolf ] can talk about operationally what he's done, as I said, first 6 months, ZAR 711 million loss turned it around to ZAR 144 million profit in the second 6. [ Wolf ], maybe talk about the 2022, where you're going?

Yes, we've made some changes. We've added some additional controls, some reporting, and obviously, had some discussions with major customers, sorted out a few pricing issues, and have gone forward with that. The prospects for 2024 are still difficult. But depending on the volumes, we'll see how that comes up.

It's a follow-up question on Hesto from Matthew Robots at Blue Quadrant Capital. Is it in the sense, a while ago, you mentioned cash compensation for Hesto for the complexities during the ramp-up phase? Will this include a one-off payment? Or was this just the price adjustment moving forward?

So, there were price adjustments moving forward. Obviously, based on the cost basis of Hesto for that particular project. So, those are now established. We now need to deliver to that cost base and deliver on our commitments in the project.

And the next question is from Taylor Ginsberg of Umthombo Wealth, she's addressed to you, Paul. You alluded to leadership in the beginning of the presentation. How do you feel you will make a difference to moving Metair forward? Do you think your specific style of leadership is beneficial?

Well, I think I should ask the MDs to comment on it. So, I think what's required is focus. I think what's required is intensity. I think what's required is absolute direct talk, no bull, and clear KPIs that everybody knows what they need to deliver. So, that's what Metair requires today. And so, that sort of leadership style, I believe, is what is required today. And I believe that's why the Board asked me to join Metair. That may not be the leadership style in another environment. So, today, that's what we have.

There are no further questions from the webcast at this stage. Perhaps we can go to the floor.

It's Andrew Moses from MIBFA. A couple of questions, if I may. Firstly, Hesto, is there any parent company guarantee on debt? Is there actually a legal debt issues there? Or is it more of a model obligation thing? Where are we sitting at the moment in terms of Hesto?

Yes. So, the Hesto debt at the moment is made up of 2 parts, right? There's funding debt to Standard Bank, has provided debt into that business and has been supporting that business, and it's about ZAR 800 million rent. And that's part of the debt that we're looking at in terms of the restructuring going forward. And then there's shareholder debt, subordinated shareholder debt, that's a majority of which is provided by Yuzaki. That's about equivalent of ZAR 1 billion so that we can rent and that debt does require rebalance. It does require rebalance, but that is dependent on how we project cash flows at the moment. And that's why we have a Metair guarantee of about ZAR 57 million on that debt.

And if I can ask where we are on Hesto. What was the interest capitalized last year? And what was the interest capitalized this year? Obviously, we can't see deep into the accounts.

Well, interest, I'll tell you what the interest charges. And in Hesto, the interest charge is ZAR 120 million rent for FY '23.

And so was there interest?

Sorry, if you're talking about borrowing costs, no, it didn't meet the requirements for borrowing costs. Those assets in progress were done within a year. So, all interest was expensed.

[Operator instructions] We have a question from Irma Venter of Engineering News. If a new OEM customer comes to Metair, can the company accommodate them? Is their funding available? Also does the restructuring process include selling the European assets?

So, on the first question, absolutely. That's what Metair is about. We need to accommodate all customers. The way these projects work there is funding the customer provides, but there's also funding that we need to provide. Part of freeing up our debt capacity is to make sure that we are well-positioned to take advantage of any new customer requirements. Sorry, the second issue was around?

Will the restructuring process include selling the European assets?

I think what we've said is that, we're looking deeply at Mutlu, and we're looking at de-risking that. De-risking that means many things. Obviously, that may end up that Mutlu ends up being sold. And those are what we have to bring to the Board. We have to go and do our detailed analysis and bring it back to the Board.

The question from Mark Narramore of Excelsia Capital. When do you expect the Hesto earnings to reflect on the group financials again?

That's a question. So, obviously, in terms of this fancy equity accounting, we have to restore the equity of the company by its profits and then thereafter, you should be able to see income from the associate coming through. These projects are long-term to 2032. [ Wolf ] has just said it's not likely. In fact, it won't happen next year that we start to show profit. In other words, that you've absorbed all the losses that you've had, and that is what our plan is the years after that.

There are no further questions on the webcast. Any further questions from the floor?

Thank you, everybody, for your attendance. Thank you.