Mustek Limited (MST) Earnings Call Transcript & Summary

Good morning, everybody. Thanks for joining us. This is the results presentation for our -- the interim results presentation for the 6 months that ended 31st of December 2023. I think the la time we have over 100 people that actually contacted or were a part of the teams. So welcome, everybody. If there's some important people that we're not aware of or protocol observed. Welcome, everybody. Just by the way forward, my name is Hein Engelbrecht. I'm the Group CEO of Mustek. My email address is there. I think it's quite important to have a look at that because I will invite you if you've got questions that maybe we haven't covered or we don't feel like you want to ask it in front of the audience that's around that, my contact with us and me is Shabana Aboo Baker, our Group Financial Director with her email address as well. So please, by all means, you're welcome. [Operator Instructions] We've only got about an hour, and we're going to give some minutes have some time for questions as well. So it's difficult to maybe just get to all the questions that [ come out ] also or maybe answer all your questions in the presentation, but we're going to try our best. Welcome and off we go. I think from my side, maybe just like on the high-level group, some of the salient features, what we've achieved in the last 6 months, the revenue to ZAR 4.3 billion, down about 13% compared to the year before or the comparative period. GP margin, slightly down, profitably before tax down. Headline net earnings per share of ZAR 0.91 per share for the 6-month period and net asset value currently at ZAR 27.25 a share. And I think one question that everybody asks is obviously cash flow, cash flow, cash flow. And I will address that as we go through the presentation. But pretty much in line. And I think Shabana, you've got the slides that just demonstrated that this is the way. Typically, our business goes where we absorb cash through to December and then start generating cash through to June. So those are just some of the salient features that we [ just ] touch on. If you look at from Mustek, and this is more for people that don't know us, where we're from and where we started. We started in 1987 by -- the business was started by the David Kan and 2 partners, initially just importing computer components and distributing in the local environment. And then I think it was the early '90s if you're asked, but there might be an opportunity now and just instead of selling the components, why don't we put it together and actually sell it as a complete unit or as a PC as we know it today, specifically in those days desktop PCs. And the brand most was created to marketing guys and Dean Barkhuizen and these guys were involved in establishing the name of the company, after the name of the brand, and we started assembling machines. And the focus initially obviously, was with -- in the Mustek table was at that stage, the Mesa branded products. And on the printing side, it was Brothers. So pretty much those 2 products that got us to the game and established us. We listed on the JSE in 1997. I mean, there was obviously a lot of listings happening in those years, a lot of tech companies as well because tech became quite relevant in local environment, keeping in mind that prior to '94 with the sanctions, a lot of the big boys weren't in town, and we had a pretty comfortable time and actually operated well and in the protected environment to a certain extent. And as we progressed over the years, you'll see in the product stack and [indiscernible] present to you now because that's the question that gets asked, you've got all these products. I mean, why? [ And we're going to ] explain to you why. But we've taken the decision that we want to have a share of wallet and with end-to-end IT and sustainable technology solutions provider. Sustainable technology came in a bit later, obviously, and I'll elaborate a bit on that. I think you will go through the numbers as well, what effect it had in us in the past 2 years and obviously, the lack of performance in the last 6 months and how it affected our numbers. And yes, just a national presence. And then again, I mean, we're in every province except for Eastern Cape where we've got 2 offices. And the main [ impetus ] is to get close to our customer. We believe that being close with the customer, if there's something wrong with the product, we don't have to ship it up to a central destination meeting [indiscernible] or whatever the case may be, and we will be able to keep you the service and support in that environment. And that's how we evolved over the years and actually started bringing in more of the multinational products as they came into the local market. That will lead us to now to the next one is from a group point of view, also trying to diversify our revenue streams a bit over the years. So the bulk of business is still the distribution business and specifically, distribution ICT and now obviously lately with the energy products, Mustek and Rectron. Rectron was established in, I think, 1995. So as Mustek started moving more into the complete and total units space, we felt that there's a gap on the pure distribution of component area, and Rectron was established to start addressing that market. We'll be preferred from a Mustek point of view to have all those components in one machine. And we could actually ask a bit of a premium because it's off sales service and support and its a functional device. And Rectron is more focused in on the components in those days, but they've also evolved over the years, getting more products and then having their customer base, which is also a couple of thousands, the same as Mustek with a specific need and a specific product, and they can supply that. Then this is where some of this [ plus part ] we made from a management point of view, sometimes a little bit lazy, but I mean, we identify opportunities where we've got a need. And I think Mercer Inter-Ed is a good example where we've got to need within our organization to train and to upskill and obviously, it will be employment equity and so on and so forth. There's a need to spend some money on training. We engage with some people that we were involved in way back when, and we established Mercer Inter-Ed as a training company, specifically obviously focusing on the ICT training. Done exceptionally well the last 6 months, but under pressure as well, although they were very busy. I think if you look at the type of trading that they did was a lot more on the entry-level side of -- and that they sit a higher value and higher margin type of training that they normally do. Also, I'm very proud to say that they've actually, last year, won International Microsoft World -- the Training Partner of the Year. And that's worldwide. I think it's phenomenal from a South African company to actually be recognized by Microsoft that they're the best in the world. And then if you look at on the manufacturing side, looking at -- once again, we'll go through the stack here, but YOA. YOA is a company where we've got 25 plus 1% stake in a fiber cable manufacturing concern in Dube in Kwa-Zulu Natal. Our partner there is YOFC, which is, if not the biggest, probably second or third -- well, not fully at least, manufacturers of fiber worldwide. Again, if you look at the last 6 months, but under pressure. A lot of it depends on projects out there, and there were some delays on some big projects. But having had a meeting with [indiscernible] yesterday, I think it's quite optimistic come second half of this calendar year, things are looking quite good. We have, with our partner, also invested in expanding their production facility. They were capable of doing about 1 million fiber kilometers per annum up until recently, and they were under severe pressure as some months to actually [ even I ] were produced. I mean we're working 6 days a week, basically 3 shifts a day just to try and meet the demand. So it's work in progress. We'll probably go live with the new manufacturing towards the latter part of this year, August, September, I think the plan is. And that will improve that capacity to about 2.5 million fiber kilometers. And I think then we'll also be able to more aggressively have to look at the opportunities within the African continent because that's why they were specifically set up in the Dube area as well, just from ease of export close to the airport. And obviously, there's something that as being in the zone. So they are looking at the fiber. So quite optimistic, taking a longer-term view and we're going to still do well with that organization. CPS, all of the manufacturing, quite phenomenal, and I'll touch on how we're using robotics there to streamline processes. So whatever you can do out of a sheet of steel, you put it down, then you tell the computer to go and do this, and then goes and slices and dices and bends and boom, out pops a trolley, which we've actually used quite extensively with our batteries and inverters. So a lot of people will say, where does all this come from? CPS manufactured for us, but also the racks and the outdoor racks and server racks and all those other things, which is typically their line of business. Also with the slowdown in -- from a Mustek and -- well, Mustek and Rectron point of view, in the solar business, also not as busy as they used to be in the past, but still very profitable and a nice little operation. Then on the services side, and I know it's going to be one of the questions that's going to be asked, Khauleza for the first 6 months, the reporting period that we're talking about now still made for the 6 months, some slight losses. But I think the positive is the last 2, 3 months, they were -- they actually turned into profitable. They were fortunate to actually land quite a nice contract in the Western Cape, Department of Education, and that started rolling out. Now I think we've seen in the budget speech now recently that Department of Education in the recent [indiscernible] actually get quite a bit of money for schools and new schools, keeping the older schools upgraded. And they've also got a quite initiative that they started many, many years ago in IT in schools where they've got computer labs and obviously using IT in the school environment. So I think going forwards, at least the next 3 to 5 years, quite exciting for Khauleza. And I think that creates some opportunities to expand the business a bit as well from this base is now being established to -- with a contract that they've got. Then Sizwe, also have first 6 months some losses. I think it's quite well known that we've got some challenges in Sizwe. There's some concerns about the partners within the business. We are really working on trying to resolve it. But to be honest with you, when we leave here, myself and Shabana are actually going to have a meeting with somebody to see if we can get some resolution on that. So as it stands now, I can't give you anything concrete to say [ on Sizwe ] We're going to increase, decrease, exit the [indiscernible] as soon as the time -- or as soon as we've got something that we can present to you guys and let you know the way forward, we will definitely do so. But it's something that's good that we're obviously quite serious about. I think there is a certain amount of added destruction that's happening there and we need to stop it ASAP, to see if we can turn it around. And also keep in mind there's close to 400 employees, just looking at asset management and say, what are you guys need? Because as much as might be skilled people and they might find some other job, there's a lot of people that are not necessarily going to find some other jobs. So I think from a management point of view, we are definitely back [ considerably inclined ] trying to resolve this as a matter of urgency. So that's just basically the group and also the reason why we're actually putting it -- just to say that it's not purely just distribution. We are trying to diversify the income streams across the industry. And there will be some opportunities, which actually will be presenting itself in the foreseeable future, which we are looking at. But that -- when I come back later after Shabana's given you the results I can maybe just touch on some of those. Some of the opportunities that we see within the ICT space and also the energy space going forward. So that's the group. And then a lot of people, like I said earlier, a lot people say this, you've got all these products. Why? What we're trying to show you that there is bit of reason behind our madness, is if I can call it that. We're looking at and we call it the stack, stacks in the IP distribution [ guide ] where we've got, obviously, on the edge, the different products to the client. And I think it's quite important, and I'll mention a little bit later, again, that device in front of you, that's the edge. You're looking at us now, that device that you're looking at, that's the edge and that's our product [indiscernible]. Then on the gaming side, we've got some offerings because gaming is obviously quite a sizable market. But also, if you look at the gaming side of the business, which other people don't realize is NVIDIA and everybody will talk about NVIDIA. I think that what, $2 trillion market cap in the week or last week, whatever it has been. And they are a manufacturer of GPUs, which is typically used in gaming machines because it can do multiple tasks at the same time compared to [indiscernible] CPU that does 1, 2, 3, 4, 5, 6, but it obviously doesn't work very quickly. This thing can do multiple tasks and obviously, that's quite important when you're a gamer, to see multiple things happening. And the realization came that -- and AI is obviously the buzzword going forward, and hence, they're not necessary flying because of the gaming market is going to explode. It's because the opportunity that's actually available there in the artificial intelligence environment. And I think that's quite important to understand that as well. Then obviously, on the software in the cloud, we've got our offerings there. And again, we don't transact direct with the end customer. So we've got to have specialists and we do have them. I mean we've got some serious [indiscernible] people and people that's committed to take. I mean that's all they do the whole day, and they want to know what's the latest [indiscernible]. They want to see what opportunities are what are the risks. And then we also decided that we've got this expertise inside, how can we package in? How we can bring more in to basically get share [ of what are to ] our clients? So we've got now offering -- software offerings going -- that we can obviously present to the customers to present to their customers. So part of the thing is because we've got these people that's close to the action and close to the Tier 1 suppliers, they have to speed at the latest and [ greatest ] what the opportunity is in the [ risk ] role, and we feel that we can [ on ] sell it. And we've seen that where in the past, where we've got skills in [ ourselves ] we actually need to do something, how we can actually turn it into a business. And I mean the training is one example, where we have to look at our own environmental stuff and the panels that we put up and the batteries [ and we said ] there might be a business here. We used to sell, what do you call it, [ UPSs ] in the past. The customers come back to that only gives me time to shut down. I need something that can just take me to this through those 2, 3 hours. And we engage with our suppliers and we came with a battery offering and the same as with Rectron as well. And he's actually done phenomenally well for us. A lot less in the last year than the years before. But I think taking a longer view, we're still confident that there's going to be a market going forward specifically in that space. Worth saying that as well because sustainable energy, maybe going to touch on that, Huawei, a great product. And that's more focused on the bigger projects. And from what we've seen, the big projects are still going in. It's not because we're [ there from ] down from level 6 to 1 or 0 or 2 or 3 that they're going to stop this. They're going ahead with us and they're going to implement that solutions. So again, within this fact, you might see that I might say, but there might be simple as competing. Yes, it will be. And obviously, we're trying to make it as little as possible, the internal competition [indiscernible] competition among different products, but some of them might be focused on specific market segments. Some of them might be in the corporate market, some might be in government, some might be the retail markets, some like to the consumer or the SMB. So there is the reason why we've got all these. And also, I mean, we're continuously looking at what's adding value. And if it's not adding value, we're going to discontinue those products and then look at opportunities or something else we might be short and add that. So that's the ongoing process that we've been doing for the last forever and a day, and we will keep on doing that. So those are all the products in -- mainly the distribution side, but also the solutions side of our business that we've taken to the market. And we think we've got a nice offering that, well, has historically been and we'll be well to see in the market going forward. So just a bit of background and then ask Shabana, just to go through the numbers because I'm sure there will be a lot of people that's more interested in the numbers than what we're actually doing for a living. But Shabana yes, please, if you don't mind? If you can just take us through.

Thank you. Thank you, Hein. Good morning, everyone, and thank you all again for joining. As I mentioned, my name is Shabana Aboo Baker Ibrahim, and I'm the Group Financial Director. I'm hoping that I can add some color to the red indicators that you're all seeing in this -- this is just a high-level summary of our past 3-year performance. And I will go into detail in each of the individual line items, just to give you more perspective as to what actually happened in the first half of this financial year. I think just as a backdrop to what the business has experienced, it's nothing different to what the economy is experiencing both locally and globally, where we're sitting in an environment with high inflation for the past 2 years, high interest rates that have increased significantly over the past 18, 24 months. And just subdued consumer and investor confidence that is having an impact, not only on our business, but on the economy as a whole and the general public out there. So just to go into some of the detail around the numbers, I'll start off with the top line being turnover revenue. As you can see, for the past 3 years, we've had some very good growth. Just to reemphasize, over the 2021, 2022 financial year, those were the COVID years, which [ must have been that of ] fantastic 2 financial years for COVID due to the work-from-home phenomenon, et cetera. And then in 2023, what bolstered us up quite significantly as well as the demand -- the increasing demand in clean energy products. So specifically from July 2022, Level 6 load shedding started up and we had the most amount of load shedding in the country over first -- when load shedding started in 2008, 2009. So that had significant impact on our revenue numbers in 2023. Coming down to the first half of 2024, we have seen a drop in the demand for sustainable energy or green energy products. We're about 55% down year-on-year on revenue for that specific category. However, if I look at the period ending December 2021, so say the first half of the financial year of 2022, at that point in time, load shedding was not the only -- or did not dominate our conversations around the dinner table. We had a market of green energy people who are installing inverters. People were -- have been putting backup power into their houses. But it wasn't -- the need wasn't as crucial as what it was in the last financial year. So if I look at the comparison for that period versus what we performed in this period, we're still in excess of 70% up on revenue. So that market is still there, and we are still selling. And as I mentioned, and I'm sure everyone has seen the noise in media recently with this latest Eskom report, in the 600-page Eskom report that was done, is that load shedding is not going. We're still in a crisis and it's not going anywhere, and we're probably going to have -- we're probably going to see this market continuing for some time. So on the traditional business, if I had to strip out our revenue figures for green energy and our traditional business year-on-year. The traditional business, slightly down, but a lot more stabilized than what it has been over the past financial year. So we're quite confident on that and happy that is stabilizing as well. On our gross profit margin, slightly down also from the year-on-year comparator from 14.1%, down to 13.4%. And the major impact of this year was because of product mix. I think on our green energy product specifically, because now it's a market where demand is subdued, supply is in excess because we've had so much of oversupply into the market. I mean you would recall that last year, every Tom, Dick and Harry who could get their hands on sort of product got -- tried to get into the business. No, there was no warning. Load shedding stopped suddenly in July last year. And now there's just this dump in the market. So there has been a lot of pressure on the margins for green energy products, whereas last year, we were averaging at about 20%, 22%. For this period, it's been between 11% and 15%. So that impact on the product mix, et cetera, has had an impact on our overall gross profit margin. Looking at our operational profit, and you would see that in the graph in front of you, I've extended the period to the first half of the 2019 financial year. And why I'd like to do that is just to emphasize that I think a lot of the questions of analysts that I've engaged with is around, are we going back to pre-COVID levels. And from this graph, I think it's quite evident that your pre-COVID level was -- pre-COVID period 2019, 2020, we were sitting at from the 100 -- averaging the ZAR 120 million profit from operations, whereas in this period, even though we've had subdued operations, impact on turnover, et cetera, we're still exceeding that. So we still have higher profitability. If we ever saw pre-COVID level versus the demand [ once that ] we had in COVID as well as the green energy. So yes -- so we're quite comfortable that we're not going. We've set a new pace. There has been a slight downturn in the business, but -- I mean, it's overall economic indicators as well. And then I wouldn't say that we are at a cost-cutting position right now, but more cost containment. So all of our businesses have been briefed in terms of where can we just -- we just tightened our belt slightly, how do we contain our cost and be able to -- weather through the storm. The other big impact on our results for this period is financing costs. So the first one was obviously the turndown in green energy products that dropped from a revenue or top line perspective. And then the next biggest impact was on financing costs. And why this is important is that as a group, we've got approximately ZAR 3 billion worth of financing facilities and they're all working capital facilities because we are a working capital-intensive business. 60% of those financing facilities is actually USD based. And we are then exposed to the secured overnight financing rate of SOFR, they call it, which is a USD-based borrowing rate. And if you have a look at this graph, you'll see that the green light -- the green line is your average SOFR rate, and that has increased from 2.9% in the comparative period to 5.3% average in this period that we've just passed. So that's an 83% increase in your interest rate. So even though you might have -- we're borrowing almost exactly the same or even less, just because of interest rates, we have higher financing costs. And then from a South African perspective on the prime rate, up from 9.5% to the 11.75% that we've seen, there's been no interest rate cuts over this period and hoping there's -- with optimism that there'll be cuts in hopefully, the second half of this financial year probably in the first half of the 2025 financial year. So that's really why interest rates have increased by 50% year-on-year that we've seen is purely because of interest rate that is not within our control. From the headline earnings per share perspective, again, still higher earnings versus pre-COVID. Yes, quite a drop from where we were at the highs of the COVID as well as green energy surges. But we think we set a new base, and we can be sustainable in our headline earnings per share. Just quickly, very quickly on dividends. So we don't declare a dividend at half year, is generally -- we only a year-end declaration that we look at. We try to maintain a 20% payout ratio of earnings, obviously, Board dependent. But just an indication of what our dividends have been over the past couple of years. On the PE ratio, I'm not going to say too much. I think the audience can interpret this one on their own. But yes, we have seen quite a drop in our PE ratios. And yes, I'll leave that one off to you. If you look at our -- more on our balance sheet now. Looking at our net asset value and tangible net asset value per share, I mean the picture compared to our income statement is a lot different. So as you can see that our balance sheet is pretty stable and has been growing. So finishing off this period at [ 27 and 25 ] on a net asset value, [ 22 and 27 ] on a tangible net asset value, consistent growth over the past couple of years and I would say quite a stable balance sheet there. Okay. So 2 line items on our balance sheet that I'd like to focus on is -- and that's the biggest line items on our balance sheet, right, is inventory and trade receivables. As I mentioned earlier on, we are quite an intensive -- working capital intensive business and we're driven by inventory and trade receivables. You would recall, at 30th June 2023, we were very highly stocked. I think we were sitting at approximately ZAR 2.8 billion worth of inventory. Working capital management has been our biggest focus and remains our biggest focus. We've managed to drop our inventory down to approximately ZAR 2.4 billion as at the end of December and continuing to drop that. Yes, we would have liked to be in a much better position with regards to inventory. Obviously, the subdued demand, the drop in revenue, et cetera, has had an impact on that, but it's something that we're continuously focusing on. Ordering process controls have been put in place, and we've been very -- there's a lot of tightening in that space. And we're quite confident that come year-end, we would be in a lot -- in a much better position with regards to our inventory.

Yes. I think just to add to there as well, I mean, all the different divisions are -- that's the key focus now. And yes, it's a big shift to them. But I think if you look at those absolute value numbers [ we've done ] and we're moving in the right direction. And with the momentum, I think over the next, say, 6 months, to like a year, 18 months, you're going to see a substantial improvement in our working capital management, at least from [ inventory view ] as well. So we're moving in the direction.

Yes. Obviously, from an inventory days point of view, it looks slightly worse off, and that's just because of the drop in revenue. So obviously, your denominators decreased and that's what impacts it. But from an absolute -- as Hein mentioned, from an absolute inventory level, we made some improvement and continuing to improve. On the receivables, so our healthy range of trade receivable days is between the 55, 57 days, which you can see we traded quite consistently over the past couple of years. As at the end of December, we are -- our trade receivable days are way out of our range at 72 days. And there's reasons for that. So there was quite a few deals that were done in December where we made concessions on payment terms with a few deals, as well as a couple of project-based deals that were completed. A lot of those are like back-to-back deals. And obviously, the end user only pays once the project is completed and we're sort of waiting out on that. But post the reporting period, we have seen improvement in that. The cash is coming in, and we're quite -- and we're on top of that. On my last, just on cash generated from operations. I think as Hein alluded to earlier on in the presentation, we are in a cash used in operation of ZAR 126 million versus ZAR 125 million in the comparative period. That is traditional seasonality. So we generally do absorb cash in the first half of the year and we generate then cash in the second half of the year. So it is a part of our normal operating cycle, if I can call it that. And we're quite confident that come year-end, we would be able to -- we will be back on that upward trend again. So that's my story, and I'm going to hand over back to Hein to discuss some of our strategic priorities and opportunities that the business is currently looking at.

Yes. I think from a strategic point of view, some of the stuff that we put up for ourselves and I think we've actually extensive [ we told you ] what we're doing from improvement in the working capital point of view, that's key for us. Key for us and will be key for us going forward. And we need to get it to reasonable levels and then hopefully keep it there. The fact that we've maybe had a overstock situation benefit us 2 years ago. But -- I mean there was a slowdown, we going need to fix this. I'll go into a bit more details [ as we go along ] but that is some of our strategic priorities that we as management are looking at, unlocking with the value of data driven decisions. I'll maybe give you a bit more information on that. Grow product lines going back in sustainable technologies. We continue to look better currently, as we stand now, there might be some add-ons, but we do need to flush through the stock first and do it in a responsible manner. And then the other one is from an HR point of view, we've had some challenges in the past. We've appointed a group HR executive, not on the Board, but a group HR executive just to make sure that internally within the group, the policies and the procedures and the training and so on are aligned. And we're seeing some nice positive feedback from the staff complement because I mean, the group, we've got right close to 2,000 people. And I think it's a great opportunity where we can maybe look good opportunities for individual that might get stuck in a certain environment and maybe reposition them in another environment and giving them growth opportunities. So human capital, and I think we've always stated that it's our biggest asset because, let's be honest now, without people, you don't have a business. And I also have to say, I think one of the guys that had an interview when David -- when he was still alive, looking at David. So what was your greatest achievement ever being a business man, being in the industry at that stage with about 30 years or whatever the case for me. And the individual probably expected some [ yes, turnover and grow ] and he said, is, you know what, we've never missed a payday, always over 30 years pay our people on time. I think there was once or twice where there's a bit of confusion where we should have paid the Friday and we paid the Monday. That is the greatest achievement. It's something that we hopefully can continue to even a day and that we're particularly proud of what we've achieved over the last couple of years. But maybe just going on maybe the next one, if we -- just some of the opportunities. And I think I'd just like to expand a bit more because we, as management, we're close and we are tuned to a dynamic technological landscape in South Africa. Through our partnerships with Tier 1 vendors globally and locally -- local specialized companies, we are guided and informed of what the opportunities are. And currently, we're focusing on a couple of key shifts in things which we've seen. And I'm not going to go necessarily from left to right to the right bottom. I might be all over the show. So please excuse me, I mean -- just if you look at from -- and I'll touch a bit on cybersecurity because that's another big one. On the digital transformation side, and again, it's not that we're looking at internally, and then obviously taking it out to the market as well. We're embracing technologies to streamline operations, to enhance customer experience and improve efficiencies through and across the whole supply chain. We've seen it mentioned earlier, CPS, the automated system that they've got and actually producing those things. If you look at Rectron, I mean their system that they've got in their warehouse is phenomenal, where it goes and picks up the stock and brings it to you. So we're in there and we do believe there's a lot of opportunities, what we're doing to actually expand it and particularly give it to the market and make -- help everybody to be more efficient and to be more profitable. From an internal point of view, also from an e-commerce point of view, we've recognized the growing importance of e-commerce. I don't think anybody can disregard it. Although we don't sell direct. I think the platform we created, the platform, and we're investing in stages to hopefully seamlessly integrate with our distribution partners and their processes, which are typically their online marketplaces. From the data and fix point of view, and I'll maybe just touch a bit more on AI and data analytics. We've got looking at how can we leverage the big data that we've got that analyze and gain valuable insights into our consumer behavior, market trends, operational efficiencies. And then that should enable us to make more informed decisions and then drive growth, hopefully. And then supply chain automation, we're looking at implementing automation technologies such as robotics, and I think I mentioned 1 or 2 examples. And then AI-driven systems to optimize inventory management, warehousing, logistics and operations. And ultimately reducing costs and improving speed and accuracy and then profitability. Then I think I mentioned earlier, sustainability is something that's quite important. I mean we're embracing the environmental-friendly practices and technologies as [ purchaser ] of renewable energy solutions that we've implemented in our facility to minimize the ecological footprint and meet evolving consumer expectations. And then the other one that we've seen now as well is cybersecurity. I think it was quite concerning, you might have read -- most of the new guys, well, us included the [ sectors ] companies in the [indiscernible] that's been [ separate sub C ] now. My name, my surname, my ID number, my contact details, my residential address, my work address, e-mail. Everything is [indiscernible], and it's a serious concern, and it's a concern for me personally because I mean, obviously, we can [ compromised ] the also only look at maybe the larger financial institutions that -- it's everybody. It's us, it's you, as an individual. It's you as a corporate. It's you as a SME. Whatever you are, we're all exposed. And this is not like a scary story like Y2K, the world's going to come. This is real. I think this is real. People are getting hacked on a daily basis. I know now you'll probably see where the U.S. elections coming up and all, what's that's going to happen there. And as much as we need to secure ourselves, there's the opportunity in our environment in our -- by strengthening our own cybersecurity measures to save quite [indiscernible] since data they can protect us against the evolving cyber threats, to ensure the integrity of our digital infrastructure. We need to collaborate with tech partners, establishing strategic partnerships with technology vendors and startups to stay abreast of emerging innovations because you're dealing with clever people there. You think you've got it covered in one hand and then they might have been coming in on the other hand as well. So it's a bit of a -- trying to limit, but will we ever get it 100% right, probably not. But we need to help -- to help our customers to help their customers. So this is best efforts that we can do and hopefully protect ourselves because like I said, I mean, this is real. And then obviously, the buzzword is going around these days is AI. And from our point of view, AI to edge and at the data center. Now why is it important? Why do they tell you what the edge is? The edge is the machine in front of you. So if you do actually get benefits of complete benefits or maximum benefit out of AI, a couple of things need to happen. That machine you've got in front of you needs to have Windows 11 operating system on it. Windows 10, I think the support is ending October next year, right? Then there won't be in more support for Windows 10. And I think if you look at Windows 11, firstly, it's probably the most secure operating system that Microsoft has launched, number one. Number two, beneficial to our industry. It needs hardware. And it's hardware hungry. So you probably have to go and upgrade your machine to get the benefits. And the same goes now with AI. We've seen a presentation last week we did for Copilot, which is part of Microsoft operating system in [indiscernible]. It's phenomenal what that can do. Where you've got the basic type and say, do me a presentation on our sales performance of last year. And then it goes into your internal stuff. It might go and get some stuff from the outside on the web, but it's more focused internally in what you've got. So it's obviously a lot more secure, and it gives you valuable information that you can use because you've got it. And literally, instead of having to go and try and design a spreadsheet, try extract the information and sort it, everything gets done within seconds. It's actually quite amazing. And if you want it in the presentation formally, do me a 10-page presentation or 10-slide presentation on the below. It's phenomenal. It's your assistant, it's going to create so much value add to all of you guys. I mean it's going to save you a huge amount of time and money. So that's quite exciting from that point of view. And like I said, I mean, there's a lot of enhancements that's happening from integrated service vendors and hardware vendors like Intel. It's going to speed up innovation and productivity. I think we -- we've been around for a long time, but I think it's going to grow exponential and everybody will see the benefits of it. If you look at our industry, I mean we are driven by, what, 3 factors: storage, compute and bandwidth. I think storage, we have solved and important part, but I mean it's as cheap as just leave that. On the computing power side, I mean it's not a limiting factor anymore. And I think the rise of AI is thanks to storage and compute being what it is today. I mean just be honest there. Now if you look at the bandwidth, I mean, that's still a bit of a limiting factor. If you look at 5G, 5.5G, 6G, it's making at faster and faster, but that latency is still a challenge. Just as an example, if you have a robotic arm that has a latency of 20 milliseconds and the cloud has a latency of 50 milliseconds, your robot is not going to go. It's not going to work. And you have -- you've got to move back from the cloud to the edge. And again, edge is that device in front of you, and that's where -- that's where we start coming into the game as well. So that's the #1 driver for AI at the edge and why we believe that the PC will be -- well, at least for the foreseeable future, will be relevant and we've got a business. And we aim to remain agile and responsive to the evolving technologies and the landscape in South Africa, obviously, and then positioning our company for sustainable growth and success. And hopefully, we can be successful in achieving that. That's me. That's me just to maybe say, thank you for your time. Much appreciate if you'd join us. If there are any questions, please shoot. [ Dimitri ], I think, is in the control room there, hell take -- he'll take the questions and then pass it on to us. And then if we can, we'll try and answer it. If not, we'll get back to you.

[Operator Instructions]

Okay. [indiscernible] anything from your side?

I got a couple of questions from [ Alexander Days ]. I'll post them one by one. First question, has there been a material improvement in working capital post 31st December? Are you confident that cash generation can generally improve by year-end?

Yes and yes.

Revenue seems way below expectations. What is sustainable GP margin considering weak demand and necessity to reducing [ rent ]?

I think where we are, that 13.4% is probably sustainable. Like I said, it -- at this point in time, especially with the green energy products, it's subdued demand with additional supply. But I think we've seen majority of that market flush out, and we have more of a sustainable range.

I need would like to be more than 14% somewhere around there. I think like you said, like Shabana's said before is, at this stage, it's a cost containment. I think the reason why it looks very good is, I mean, we managed to cater for the big influx of business way back when with contractors and all that, it wasn't [ building with ] employees at in to get to. I think the operations now is still very busy. We're not going to start retrenching people or anything like that. The cost containment is more the nice to have. We'll have to wait. It's what we need now. We'll spend the money on. We look totally stop spending on anything, but it's a nice to have, so we'll have to wait. And we'd like to believe that we can [ compete again ] through to June. Also keeping in mind that some of the variable costs you've got is commissions to salespeople, if the sales are not the energy piece, not [ debt ] that obviously reduces as well.

Okay. [indiscernible] covenants and is there pressure from banks to improve liquidity and solvency?

We -- for the majority, there's no covenants that have been breached besides at Rectron. That is a bank of Taiwan on the net equity. However, that covenant was from the time that, that facility was put in place, the covenant was breached. And there has been conversations with the Bank of Taiwan around that covenant. They -- that facility has not been pulled. There's continuous conversations, and they're all aware of it. And there's been no increase in the cost as one of the penalties for breaching the covenant, the cost of that facility has not increased. And from a bank's perspective, we continuously engage with our banks. They're also aware of the position we are, and everyone seems to be pretty comfortable at this point.

Yes, I think the biggest pressure from to fix it is from us internally. We'd like to reduce the exposure. We've seen the effect that it has on the financing costs. I think -- I don't want to think what's going to happen, but I think it seems to have leveled out now. So hopefully, we'll rise, at least stay here, but hopefully get some reduction in the interest rates going forward. It will benefit us but we can't wait for it. I think we need to try and fix. We can't fix the interest rate, but I think what we can do is use our exposures, be leaner on the inventory side and on the receivables side, not to the extent that you're going to start negatively affect your sales or opportunity to sell. But I think we can be smarter and wiser and that probably be smaller and better.

Has demand for renewable products improve since 31st December? And can you give guidance on GP margins considering intense competitive environment?

So on the sustainable energy or the green energy products, we see a direct correlation in our revenue depending on load shedding levels. So I think it was like a couple of weeks ago, we had the Stage 6 that came up over a weekend. And already, that Monday, Tuesday, Wednesday, our revenue -- daily revenue in sustainable energy sort of doubled what it's been over when you have your Level 2 -- Level 2, Level 3 load shedding levels. So that demand is really dependent on the load shedding levels. On the margins, like I mentioned earlier on -- in terms of sustainability of our margins, we've seen that additional -- that excess supply in the market flush out, and we think that the margins are a lot more sustainable now.

I mean the other opportunity that will come and before it comes through is the batteries only got so many cycles. And these people have had it now for 2 years. It comes to end of life for some of those factories. And then hopefully, we will come back and buy new ones to take them through for the next year. We get limited warranty on the batteries in any case, most of it will be out of warranty in any case. But yes, that could only last for so long. And all of them will come to end of life. It's still the target. It's still the target. One effect it will have is it will affect our bonuses. We're probably not going to give bonuses in any case. I know there's still a target, probably going to be a bit of a challenge. But I mean, if you look at the last 12 months or 2, 3, we've seen some sizable transactions going through. So hopefully we can recover some quite a bit through to June.

[ Any ] business prospects? What is the growth potential from this space?

It depends on the training mix. Like I said, I mean, the last 6 months have been very, very busy but the inter level type of training. Hopefully, we can get some more Microsoft. I think we have seen some holdback from larger organizations, specifically on the Microsoft training, but then they seem to be coming back into the market as well. I believe that there's always and there will be for a very, very long time a lot of opportunities. Yes, there's a lot of competition in the market. How well are they doing? I'm not 100% sure, we might have to go and research a little bit. But I still believe there's a lot of opportunities there. And if we're around and we're doing the proper job that they are doing now and being, call it, the one that people want to go to, I think they will do well for the next couple of years still.

A question from anonymous. What are the determinants used for cost maintenance as opposed to cost reduction?

Sorry, just repeat that, [ Dimitri ]?

What are the determinants used for cost maintenance as opposed to cost reduction?

So I want to say there's a set rule or set group of rules in terms of how we do cost retrenchment or cost containment versus cost reduction. But like Hein mentioned, is that it's not like we're stopping to spend completely, but all the nice [ to have ] try to just hold off on that, and let's focus on what's the crucials at this point in time to -- whether and to get through this period and we can then reassess going forward.

A couple of questions from [indiscernible]. And if I mangled your name, I apologize. Are you comfortable with green energy and entry-level notebook inventory levels? Have you taken any inventory impairments during the half? And if so, how much?

[indiscernible] that's pretty much been sorted out. On the green energy, we're not happy with the inventory levels. We've stopped a lot of buying in. So we need to flush this and get this through the system. It might take a couple of months to get it through the system, but that's what we're working on. So short answer is no, we're not happy with the levels and we're working quite hard on correcting it. What was the other part of the question?

On the stock provisions or inventory provisions, we feel that we're adequately provided for on that. So we're comfortable that there's enough provision in the system for that.

Yes. I think historically as well. I mean, when you consider that. I mean if there's any doubt then we adjust. Is that something that if you don't could come back and bite you, and we note into that cap.

This [ post period ] end, were the delayed deals within receivables related to green power?

No. So on green power, on the delay deals, no, not necessarily green power. It's more project-based deals on infrastructure and network. And we have seen an improvement in receivable days post year-end and hopefully to continue over the next couple of months as well.

What is your target debt level before you commence the share buyback program?

[indiscernible] this is you got permission, but we're not buying back shares. I mean, that detailed calculation was too hard to do. Obviously, we need to get a sizable reduction in our debt levels. But currently, as we stand, we have the authority to do it. Yes, we do. Are we going to do it? No. I think we need to get this whole working capital fixed up, otherwise...

Be responsible in this [ debt ].

Yes. So let's get that sorted out first before we start embarking on more share buybacks. Does it mean that the individuals are going to buy back shares? No, it doesn't.

Can you give us the value for trade finance and letters of credit at December '23?

I think utilization as of December '23 was around 70% -- 70%, 75%.

Another question from [ Alexander Days ]. Focus at FY '23 was not our revenue, but to improve working capital. Is that still the case for H2?

Absolutely.

Absolutely.

I think that's all the questions we've got so far. Do you want to give it a minute? Anybody else have a question?

I'll wait.

I think that's it for questions. They have your e-mail addresses.

Yes. Should we just -- are we still on? Are we still live?

Yes. You're still live.

But then from my side, Shabana's for side as well. Thanks for joining us and listening to us. And like we said, I mean, if there's any questions or comments, please let us know. We'll try to respond in the best way possible. Yes. Thanks for your time. Appreciate it.

Thank you. Appreciate it.