Mustek Limited (MST) Earnings Call Transcript & Summary

Good morning, everybody, and thanks for joining us on the results presentation for Mustek Limited for the financial year in 30 June 2024. My name is Hein Engelbrecht. I'm the Group Chief Executive Officer of Mustek. And with me is Shabana Aboo Baker Ebrahim, which is the Group Financial Director. So welcome to all of us -- from both of us to all of you. And if there's any questions, I think just on the Q&A section or the Q&A box on the live feed, you could just post it there, and you can post it during the meeting as well. And at the end, when we do some questions and answers. [ Dimitri ], that's sitting in the control room here will just relay the message or the questions to us, and then the we'll ask -- try and answer as best we can. Now I think just a bit of an apology. There were some late changes. I mean, Shabana got the message from the auditors of Sizwe late yesterday afternoon that they want to make some changes, which resulted in, well, all the financial statements actually having to change. So she was busy fighting with them until 1 o'clock this morning still. And then I think you got up at 5 or whatever just to make sure that we get all these announcements out. So terribly sorry about that. The big effect there is basically reclassification of certain expenses in Sizwe's books, which has resulted in our provision for the -- or the impairment that we've put through being overstated and then obviously, that had an effect on the headline earnings per share, so sincere apologies for that. If we can move along, I think like we've done just now, introduce ourselves. And just some of the salient features of the results that -- for the last financial year. I think, let's be honest with one another, these are not good results, and it's not something that we're proud of. And it's something that we do realize that we've got a lot of work to do within the organization. I'll touch a bit on what affected us and it's not to make any excuses, but there are certain things, and obviously, that we can control in certain things that we can't. On the detail. Shabana will go into a lot more detail later on in the presentation, drilling down on the revenue side, what effects we've had there on the EBITDA headline, earnings per share as well as the NAV. I mean, obviously, the NAV increased slightly because we're still profitable. And then the cash generated from operations got drilling down a bit more because although it doesn't look that great on the cash flow statement, I think we've made some big strides in -- from a receivables point of view, from an inventory point of view and then obviously reducing a lot of our interest-bearing debt, which is typically finance, which is affecting our results quite substantially as well. And in the dividend per share, I think like we've communicated in the past is to stick to around 20% of intravital earnings and that's the dividend that we're proposing. So if you look at the last year, so what affected us. I think we've discussed it in quite a bit of depth last year. But just to recap, we were overstocked from the sustainable energy, strategically the batteries and the inverter side, and that affected our performance quite negatively. Shabana will give you the detail. But I mean, the difference between the 2 years, '24 and '23, just on sustainable energy is more than ZAR 1 billion. And at that stage, it was quite decent margins that we could be trading at. We still got some excess stock, it needs to be flushed to the system. We're not going to start banking and just dropping for the sake of dropping prices. It's probably going to take us another 12 or maybe a bit more, maybe 15 months to correct that. But we're going to do it on a responsible basis. So yes, I mean, if you look into the financial year, so suddenly, the revenues from the sustainable energy dropped off substantially. I think it was about 80% down compared to the year before. The consumer -- average consumer, I think they're still under pressure. We've seen it specifically in electronic results where they're a lot more exposed to the -- kind of the consumer market out there. And that was obviously quite a bit of a negative. I think our traditional core of the PC business is still holding up nicely and there's some opportunities going forward as well, which we'll touch on a bit later in the presentation. And then if you look at the first 6 months of this calendar year, January to June, it was difficult, where normally we would see a bit of a spike from the government and the [ Paris titles ] and the corporate environment during the month of February, March and April. Unfortunately, this year didn't materialize as it did in the previous years. And yes, the consumer is still under pressure, the interest rates are hurting people and hurting people badly. I think some of them may be a bit more positive side. I think we've also seen a bit of hesitation from the corporate market on the Spain preelection. And the reason why we're saying it because subsequent to that, I think July, August and September, if you look at Mustek results, good July, August nice, September is looking good. So this quarter is looking a lot better. Rental is still tracking behind budget. And then if you look at it from a training point of view, MIE, I think they have the best July ever in the history of the company as people started training again. So I think there was a lot of holding back of spend. But hopefully, that's coming back to the market. And yes, I mean, if -- Shabana will also go in a bit more detail what happened in the U.S. last night, the 50 basis points cut that should have a positive effect for us going forward, over and above the initiatives that we do have to correct our inventory and receivables and trade payables. I think that's going to help us as well because, I mean, historically, those rates were very, very low. And was trading about from close to 2%, 3% up to 8%. And at least we're getting some relief. And I don't think the Reserve Bank will assist us this afternoon as well in lowering the rates, and we can see some of the consumer pleasure being released lightly. And I think more importantly, not only a specific cut now is what are the forecasts going forward? What are the predictions of, say, the next 12 to 18 months as regards to -- has to go through industry rate. So yes, just to sum up on that side, not a great results at all and not something that we're particularly proud of. So we've got a lot of work to do. And I think we all understand that and everybody is on board and hopefully, it's going to be a much different picture next year than what we're actually presenting to you now. If I can carry on just from a group over point of view for people that don't necessarily know Mustek and what we're all about and I'll go into a bit more detail on our product mix as well and where we are and what we're doing. We were established in 1997. David Cann, late David Cann unfortunately passed about 2 years ago. National presence, we listed in the JSE in 1997 and the way we see ourselves, we'd like to be is an end-to-end IT and sustainable technology solutions provider. Yes, the sustainable technology is under pressure, but it's not that there's nothing. I think it's just slowed down quite a bit. We are still moving stock and quite a bit of stock, but we've got some work to do. And I think our mission is around anticipating material stakeholders' needs for long-term sustainability. I'll go into a bit more detail there. I think one thing that we've had a look at it over the last 2 years and myself and Shabana started getting involved from a CEO and FT point of view. The first year, I think, was more of a stabilization after the passing of David, just to make sure that everybody got comfortable, but they realized that that's sad, but it's not necessarily going to be the end of the group because I think we've established quite a strong group over the years. Last year, we spent quite a bit -- digging a bit deeper into what investments we've got and then come up came with a plan, which was approved by the Board. And so that's been going forward. There are certain areas that we need to have a look at. And unfortunately, I'm not going to give you detail. But we've looked at all the investments, property included and say, isn't that the reason why there's such a big gap between the market capitalization or the market share price and the net asset value of the company. And how can we do it? Maybe we need to exit some of those investments, but we need to put it into cash. And then obviously, the options are then going forward, whether we're going to buy back more shares, depending on the price and if it's earnings enhancing, whether we're going to clear additional dividends or special dividends or just use it to settle our borrowings. So those are just some of the -- a bit of background on the group overview, what we are and what our mission is for the group. So if you look at Mustek, Mustek Limited, obviously is a holding company being listed in the JSE. Then from a distribution side, I think the 2 bigger ones there are the only ones actually is Mustek and Electron, which will give you the results in the segmental analysis as well. And then on the training side, we've got a Mecer Inter-Ed. And I think we mentioned last year, they were accredited as Microsoft will partner, a training partner of the year worldwide, which is quite exceptional. And a similar award was given to them from Huawei this year where they were actually awarded as the best training partner of Huawei in South Africa. So a nice company, doing well and pleased to say that we've seen now in July or was in September, a lot more positive than what we've seen in the previous financial year. On the manufacturing side. We've got Yoa, they're a manufacturer of fiber cable. They situated in Dubi Airport in KZN. We've kind of 25 plus 1% share in the company. Again, quite a bit of slowdown in the rollout of fiber from the big boys during this year that we are actually focusing on. But pleased to say suddenly now the big rollouts are starting to happen. The order book is -- I think is fully booked its production through to end of October. Keeping in mind that last year, we also invested quite a bit of money with our partners in the business to double the capacity. And I think our timing was right. A lot of people look at the sizing at that stage will say, why are you investing more money into the manufacturing capabilities of the company if the market is slowing down. I think the benefit we're seeing now is we're ready and the market is coming back. Also from a profitability point of view, I think we'll see some nice improvement on the profitability side from Yoa, some pressure last year that they brought in raw fiber or raw material at quite an expensive price compared to what you could actually get and the price was actually going down slightly, the international price. But also now, I think, worldwide, there seem to be an increase in demand. Prices have gone up, and they've actually stocked up quite a bit and are manufacturing at a low input cost and margin expansion, we should get there. CPS manufacturing, and used to do a lot of manufacturing of our trollies for us. Main business is basically the racks and server racks and cases. Also with a slowdown in the sustainable energy side, I mean, they come in on a bit of pressure, but once again, looking a lot better. And then on the service and support side, you've seen Mustek and Rectron there. It's not a core part of the business, but obviously, being a distributor, we do provide services and support on our products that we sell. I think we believe that it's a competitive advantage. And hence, we're also in -- nationally, in all provinces. We'd like to get closer to the customer. And first line service and support, be able to actually provide that in that specific environment. So it's not like a shipment of product up and down, up and down. I think it improves the customer experience with us and obviously, the efficiencies that goes with it. [ Caalessa ], in the IT services and IT solutions space. Also, if you look at their results like loss for the year, but I think if you look at the income results, a nice turnaround from interim, profitable on a monthly basis, got a 5-year contract with partners in the Western Cape Department of Education with a rolling out infrastructure for schools. So I think that's going to start generating some handsome profits going forward compared to a couple of years ago when they were actually doing the SAPS maintenance support. So quite excited that that's turning around and seem to be moving in the right direction. And then Sizwe. We mentioned Sizwe earlier. Just to announce, we've signed the agreement. We've disposed of our investment in Sizwe effective first of October, but we're out of that investment. And I think the effect of that is 1st of October, if I'm not mistaken. But we provide it for whatever losses we think is going to be incurred. So if you look at the financials, and maybe Shabana will touch it in a bit, equity accounted how much about?

ZAR 20 million from Sizwe. About ZAR 90 million, under ZAR 90 million.

Yes, just from Sizwe in these current numbers, which then obviously will not be part of the numbers going forward. So that's just overall the group for the people that don't know and what we're all about. And then if you look at from a brand portfolio, we've got a lot of products that we do distribute. People are saying, yes, how do you determine what, where, and when. And typically, what we do is we've got to certain categories, so you've got what we call edge. That's typically your notebooks and desktops in front of you. On the gaming side, those are our products. I'm not going to go into every single product because it's going to take us forever. And with software and cloud, we've got some solutions that we provide into the market on the network and the infrastructure and service side, those were product offering on a sustainable energy side. Secured in compliance and then trading enablement. Trading enablement, obviously, more specific towards Mecer Inter-Ed, which are providing the training. So what we're trying to do, if we do bring in new products, obviously, first thing is it's going to make a difference because the numbers, although it's quite a bit down from last year. It's still a sizable number, 8.5 billion turnover that we did do. So we don't want to just provide any product to the market. So it's got to fit in somewhere. We also obviously then try not to have internal competition to the extent possible. It's not always possible, but that's something that we try and avoid as much as we can. So that's my story. I'll be talking to you again a bit later, but I think just going to hand over to Shabana now, and she can go through all the detailed numbers with you guys.

Thank you, Hein. Good morning, everyone, and thank you for joining. As Hein pointed out earlier on, we do apologize for the late release of our results. I think the past 12 hours have been an absolute roller coaster. I think that's an understatement. But we're happy to be here and to present yes, not great results. And as Hein mentioned, we acknowledge that, and we've got a lot of work to do. But just over -- yes, just to give you a high level over the past 5 years, this is just a snapshot, and I'll go into the main detail contributing to the results for this current financial year. I think what we just need to remember, and for those that have not been accustomed with Mustek previously, if you look at performance over financial year 2021, 2022, those years were marked by COVID with the group experienced significant growth and exceptional performance, but those years were also trading at almost perfect conditions where we had excess demand with understatement of supply, where we had stock shortages, chip supply issues and then also low interest rates and the work-from-home phenomenon really benefited the group fantastically. In financial year 2023, although the traditional business of the group being the IT supplier or IT hardware, that business did decline from the peaks that we've seen over the COVID period. It was sort of masked by the surge in sustainable energy revenue that we had in the 2023 year, particularly. And then obviously, now in financial year 2024, I think the results have been marked by 2 main contributing sectors, as Hein pointed out, the one was the drop in the sustainable energy market in this financial year, predominantly as a rise of Eskom just slowing down, lad shedding and that having an impact on overall demand and supply. And then the second one, biggest contributing factor has been the increase or the increase in the average interest rates between the 2 financial years, which hopefully now from last night's announcement and hopefully today, we see beyond the downward trend for that. So as I just move into a bit of the detail around where we were with the revenue. As you can see, there was this nice step up between -- from 2020 up to 2023, which I explained with regards to COVID and sustainable energy. And we've seen a 16% decline in the current financial year. From the ZAR 1.6 billion or so that we've declined in revenue, ZAR 1.3 billion of that actually was the drop in sustainable energy. So in excess of 70% of the revenue -- drop in revenue from sustainable energy in particularly. And then not as big of an impact, but also had an impact was that in the last quarter of the financial year, April to June, we've seen almost a freeze in spending from both consumers and corporate. And I think that was as a result of the uncertainty in the market with regards to the local election. If you look at our segmental revenues between Mustek, Rectron, and our now training business, Mustek down by 11% or 12%, Rectron, down further by 24%. And as Hein mentioned earlier, if you also just look at our revenue disaggregation, you will see that our revenue from the retail sector or the consumer and that's where Rectron is really focused on has had quite one of the biggest impacts. So market economy constraints, cash flow constraints and then also the green energy all sort of encapsulates the reduction in revenue by 16%. The traditional business compared to FY '23, we've now seen almost that stabilization in that part of the business, which is quite a positive going forward. And as Hein mentioned, the first quarter issuing prospects of recovery are not significant, but picking up and ticking up nicely. On the gross profit margin, we are down from 13.9% in the previous financial year down to 12.2%. And another big contributing factor this year is on, again, the sustainable energy or the green energy products. Historically, in 2023, we did an average of 20% to 22% GP margin on Green Energy products, whereas in this financial year, we did an average of 12% to 14%. So whereas the revenue was down by 70 -- interest in excess of 70%, the GP impact of that was down in excess of more than 85%. And then also with that, we had some initiatives on reducing some of our stock levels, slow-moving stock, which at lower margins, not at losses, and that resulted in the overall GP margin dropping by 12.2%. With the current stockholding that we have on sustainable energy, as Hein pointed out, we're not going to be irresponsible in how we get -- we reduce those stock levels. It is going to take us some time probably at lower margins. We're getting vendor support, et cetera. But -- so we do see maybe in the short term that GP margin maintaining, but we are confident that over the medium and long term, we should reach back to our 14%, 14.5%, which is where we traded historically and probably our average of what we be comfortable with. If I just look at profit from operations and the reason that I've sort of extended the graphic or the graph to pre-COVID being the June 2019 and June 2020 reporting period, just to indicate that, yes, COVID profit from operations shut up, and that was because of the increase in performance from -- at a top line level. But we are still trading higher or have traded higher than pre-COVID, ZAR 279 million versus the pre-COVID levels of between ZAR 220 million. Just also from an operating margin perspective, historically, we've also traded at about 4% -- 4.5% trading margins. So we are back to those sort of sustainable operating margins, which we see going forward. And something that I also like to highlight from an operating expenses point of view is that, obviously, when we've also seen the cost -- the performance -- the pressure -- the performance being under pressure, we are agile enough to be able to pull certain levers to allow us to experience immediate cost savings. And our operating expenses year-on-year before depreciation and amortization is down by 9%. And within H2, specifically, we were down 11% from the first half of the year, which was quite positive. So we are able to manage our operating expenses as the business we see impact in the business even though we are a fixed cost heavy. The second contributing factor of our results overall was our net financing cost. So we experienced a 36% increase in our overall financing cost. And this wasn't just due to increased borrowings. It was purely because of the increase in the average interest rates between the 2 financial years. And as you can see, as those interest rates significantly ticked, up our finance cost did the exact same thing. So it was something that's also very important, and that's why we're quite excited about the FID announcement last night, was that 60 -- more than 60% of our borrowings are USD based, and we are therefore exposed to the USD based borrowing rates and that increased by an average of 34% in the current financial year. So with 50 basis points that was announced last night were automatically bring relief to our finance cost bill. And hopefully, with the interest -- with the prime interest rate also on the cards or reduction in the cards with this afternoon's MDC meeting that also be hoping to bring some relief to our overall financing costs in the next financial year. Headline earnings per share, obviously, 82% drop in our headline earnings per share ending at ZAR 0.6713. And that was -- I think I memorized that mode, that was the biggest change that we had in the late adjustment for financial 0.13. So that's driven by the decline in the operating profit and the increase in the net financing cost. The big difference between our earnings per share, which is around ZAR 0.37 and the headline earnings per share is the impairment of investment in Xilisoft, which is Sizwe, of about ZAR 13.5 million, which impacted obviously written back for HEPS purposes. On the dividend per share, we declared a dividend of ZAR 0.075 after tax being ZAR 0.06 per share. As Hein also mentioned earlier, we have maintained our 20% payout ratio of attributable earnings or attributable profit, and we hope to continue that in the foreseeable future. Just on the PE ratio, we've done pretty well over the second half of the financial year and probably going to tick up now based on where we're trading at the moment, but -- and we're hoping to continue with this trend going forward. So moving now on to our balance sheet. I think a different picture from where we are on the statement of profit and loss or the profitability point of view, a lot more stability on the balance sheet with an increase of 3% on our net asset value and an even bigger increase on our tangible net asset value, which is quite positive. Just something to note is that we've got 57.5 million shares in issue, but about 3.4 million of that is actually treasury shares. So that does have an impact on our net asset value and tangible net asset value per share. But overall, showing stability and even though it's small growth, showing growth on our -- on the balance sheet point of view. So from our balance sheet, if you look at it, the biggest numbers or the biggest line items there is our working capital made up of our inventory and our trade and other receivables. Inventory, we have seen an improvement, although there hasn't been an improvement in the inventory days, so going from 101 days to 102 days. That is as an impact of the lower revenues. But the overall gross inventory or net inventory rand value, we've actually -- we were kind of proud that we were able to release more than ZAR 400 million of stock over the financial year, and that was part of our working capital initiatives and remains a focus area because we still acknowledge that we've got a lot of work to do. Obviously, we don't want to end up in that -- stay in the business where we can't actually do business but we still have a bit of room to go to actually reach that happy -- that medium -- happy medium place for inventory, which we are working on. And as Hein mentioned, we still got a bit of sustainable energy stock, which we know is going to take us some time, but definitely a focus area going forward. On the trade receivables, we average -- we try to maintain a 55-day trade receivable days. Obviously, that has been -- that has ticked up also in the current financial year finishing off at 62 days. And there's a bit of -- there's a few factors I think that impacts that. Number one is based on the economic constraints, the cash flow constraints, we have seen certain debtors requesting longer payment terms. Also, it is taking a bit longer to pay. And then we've also had some big project-based deals over the years that have pushed out, but also impacting on our overall trade receivable days. Working capital, again, remains a management focus. We are driving to ensure that we stick on our credit terms and also just trying to ensure that we don't stifle the business completely, but definitely a work, definitely something we'll be focusing on. From a rand value, we were able to also release in excess of ZAR 200 million on our trade receivables, which is showing that we are making improvement in it, even though it might not show in the trade receivable days. Cash generated from operations, so the reason that I've -- also this graphic is half yearly is because we -- our -- the season of our business is that we typically absorb cash in the first half of the year and then generate cash in the second half of the year. So we have returned to those traditional seasonal patterns, as you can see the curves. Even though our cash generated from operations is ZAR 60 million year-on-year by the cash flow statement, what is a part of that is our repayment of our trade financing. So as I mentioned, we were able to release in excess of ZAR 450 million on inventory in excess of ZAR 200 million on trade receivables so that's more than ZAR 600 million just on working capital. And of that, we were able to reduce our trade finance facility, which has a direct correlation to what our financing cost is of -- from ZAR 1.9 billion in the previous financial year to ZAR 1.3 billion. So that's a significant drop in trade financing or in borrowings, which does then flow down to our overall bottom line. If you look at the financing costs between H2 versus H1 because of the release of working capital and repayment of borrowing, we were able to save really ZAR 10 million in financing costs. So as we are on this positive streak of reducing our working capital, and I think we've already -- we started that momentum. Hein said that it makes an analogy that it's a big shift to turn. And once it turns and starts moving on that course, we know we are on our way. And I think we have turned that ship and we're leaving the docks now or we have left the docks, and we should be smooth. Yes, I would say smooth sailing going forward.

We're not going to be smooth, but we're sailing.

We're not going to be smooth but we're sailing in the right direction and with the interest rate cuts coming through this week, we definitely -- we are positive and optimistic about the cash generation over the next couple of months. Thank you very much, and I'm going to hand over back to Hein, who's going to discuss some of our strategic priorities for the next financial year as well as some of the opportunities that we've identified for the group.

Yes. Thanks, Shabana. Again, I mean, even if you don't want to post the questions now, I mean, our details are available. So please, pop us a mail for Shabana, specifically if it's more related to the financial statements. And if you want anything else, please give me a shout as well. Yes. So we've gone through this exercise, which we normally do on an annual basis from a strategic point of view and say, what are we going to be focusing on the next year, 2, 3. And yes, top of mind is still the structural improvement of the working capital, reducing our inventories a lot more, stricter controls on what -- on the great terms that we're giving to our customers, but also on the buying patterns and being a bit more stricter and a bit more scientific about what we buy and how much we buy and when we're buying it. So that's going to be an ongoing focus for us. Working capital, working capital, working capital. I think that people probably think I'm going to drive the math, but that's the one thing that I'm going to be hearing more than what we had said the last year, but I think we've already seen the benefits that Shabana emphasized what benefit has on our interest expense, just stricter controls and getting the cash in. Also big data. So we, hopefully, will be paid within the next couple of weeks, which is substantial and those benefits we can get through. And then if we get the interest rate cuts going forward as well and if it's consistent over time, I think it can make a big difference in our numbers going forward. Hopefully, we'll also get some, with the interest rate cuts, get a bit of stability on the currency side. If you can just like find a level and trade there, I think it makes it a lot easier for us because it's quite tricky if it's all up and down in '17 and in '19 from a costing point of view, from a sales point of view, becomes a bit of a challenge. Then like I've discussed, I mean, we have to look at every single thing was in the organization, and we've identified certain companies or investments that we want to take forward as part of the group. And there are certain ones that maybe we need to reposition them. We're not going to be, again, sitting in just like a fire sale. I think we've got to be responsible. So this might take about a year or 2, 3. I think if we can turn some of those investments, which at current market share price and then compared to the NAV is trading at a 50-odd -- probably even more, 60% discount to NAV. Now if we can turn that into cash and hopefully, I think we will be quite successful in keeping it at least NAV return sitting with the cash, I mean, you've got options. I mean, yes, we can continue paying off of some of the trade debt we've got or we can look at maybe some of the acquisitions. I think from a distribution side, we've had the discussion with the Board yesterday. If we're going to do an acquisition in the distribution space, which is not necessarily what you're going to do, I think the best option for us as Mustek Limited is obviously invest in ourselves. And for the long-term shareholders of which we obviously are, that will be the benefit to either buying yourself at a 60%, 70% discount. So I think that makes sense. But we are looking at it, and we'll make the announcements as we go along, like we discussed just now, Sizwe, where we exited. And then there's some smaller complementary acquisitions that we're looking at. And the one that we've done as part of the Sizwe transaction, it was a subsidiary of Sizwe, is a company called CyberAntix. They are in the security space, and it's quite a little product. I think everybody is -- there's a big concern about the exposure that you've got, the systems is exposed. And what they basically do is -- I'm going to put in layman's terms because it's the only way to understand. What they call a SOC, a security operation center as a service. So what they do is if you allow them, you contract them and then you get billed on a monthly basis. They look after your network and your system 24/7, right? So you don't have to necessarily just rely on your own traps that you've got within your organization to warn you if you're being attacked. And then obviously, there's operating procedures that gets negotiated with the client, smaller things, can it be fixed. They don't fix themselves. I mean, they're just basically watching the system. So you don't have your IT manager spending weekends or have 2 or 3 people in IT departments specifically looking at your network and your system and the security around it. So they do it for you. We've seen some nice -- they've landed some nice contracts, which unfortunately, we'll not be able to share the details with you. But yes, I think quite excited about what can be done with this company. The management is on board. We're going to -- we acquired 70%, but we will sell off 19% to the management so we'll have control. And I think that's also going to be part of the plan going forward. We've got a lot of these investments where we've got 36% or 40%, whatever, to see to what extent we can contact, get into a control situation and then obviously try and influence a bit more than we currently have done in the past. So yes, that's going to be the plan, what we're going to be focusing on. And then, yes, I mean, if you look at the results, as we've discussed, and we've apologize, it wasn't great, but it's not all doom and gloom. I think there's a lot of opportunity still in our space that I've mentioned. I think cybersecurity is very relevant, and I think it's going to be around for quite a long time still. We want to position ourselves there where we believe we can make a difference going forward. And obviously, it's complementary to our own business as well, the distribution business. They've also got an indirect model where they work through value-add resellers or system integrators and the like. So that's a great opportunity for us. We've gone in there and I'm pretty excited about it. ICT skill shortage, like I've discussed, if you look at Mecer Inter-Ed, yes, that was under pressure for a good couple of months, but we're seeing that. And the skill shortage is not going to go away quickly. I think it's real, a lot of people need to be upskilled. And it will probably become even more relevant in the future to make sure that you've actually got skilled up people within your organization, specifically from an IT point of view. On the artificial intelligence, I know that's quite a buzz word going around these days. We're not looking at doing any investments at this stage in any artificial intelligence organizations or companies. I think where the benefit is going to be for Mustek on your artificial intelligence side is a requirement for hardware. If you want to get the benefits for -- within your organization of proper artificial intelligence of however way you deploy it within your organization, the requirement for hardware is a lot higher than that typically what it used to be. Not me saying that. I think if you look at the NVIDIA, which -- historically, which is more on the gaming side with their GPU, that has taken off over the last, say, year 2, 3. And that's because of demand. Demand in devices, that can actually give you the benefits of artificial intelligence. So that's the one thing. The artificial intelligence definitely, we think that's going to drive some spend in the foreseeable future. And then the other thing as well is Microsoft is ending its support of Windows 10 in October next year. It sounds like it's quite a bit -- quite far in the future. But if the companies and the organizations don't start planning and getting themselves ready now, it's going to be a bit of a challenge because you need to be on Windows 11 currently from a security point of view. And then obviously, from artificial intelligence to get some of the benefits that's incorporated in the Microsoft suite of products. And in the self-service offering, I mean, that's just more of an internal thing that we want to do is we need to position ourselves for how business might or might not be conducted in the future. If you look at the ERP system which we had in place, it was a legacy system, which we developed many, many, many years ago, ourselves. But I think looking at and positioning ourselves for our business is probably going to be done in future. We need to have a system, which we've implemented. And yes, it came with a lot of pain and cries and screaming and shouting and fighting, but we stabilized. I think we're there now. We can start getting involved for some of the nice stuff. We will be able to offer a service to our customers where they can actually come in, maybe be able to see what the stock levels are, what the pricing is and just automatically place it, not necessarily having to deal with some individual, if not needed. I think there will still be because a lot of people still like to speak to some individual because they've got the knowledge, they've got the advice. And we've got the insight of where the industry might -- not might. Definitely will be going. And then comes from our OEM status for the likes of Microsoft and Intel, where typically, they make it a part of their plan or road map. And you can see when either new products is going to be launched or there might be some price drops and all that. So those offerings will still be available. It's not like we're going to get rid of all the people. I mean, they're playing a crucial role in our business. But we also need to be in a position where we can make it easier for people to actually do business with us. So yes, not great results, but it's not all doom and gloom. I think we still got a business. I think we can turn it. We should be able to give you some decent results in the foreseeable future. There are some opportunities, like I've discussed. And then with our focus on our key strategic initiatives, I think things are looking a lot better than the results that we've actually presented to you guys. And if I'm not mistaken, I think this is me. And if there's any questions, please Dimitri will relay the message to us. And hopefully, you'll be able to hear it because I think last year, we had a problem where the guys couldn't hear the question. So if you want to stay on and listen to some of the questions, I don't know, Dimitri, are there any, and then shoot. And then we'll try and answer as best possible. If we can't give you the answer right away, we will revert back to you. So just maybe leave some of your details as well, if we can't actually answer your questions. Dimitri, anything from your side?

Certainly, I've got about 25 questions for you. First question is from [ Anthony Clark ]. Thanks for the update. Your inventory has reduced by 15.7% to 2.35 billion. How much more excess green energy products need to be shifted to bring your inventory back to levels you wouldn't feel comfortable?

Well, I think, Shabana, you have the right numbers, but the inventory, sustainable inventory. The total is, what, ZAR 600 million.

About ZAR 600 million.

It's about ZAR 600 million that we need to grid off. If you look at the current trend, it will probably take us about 12, 10, 15 months to get it. That's down to 0, so this is what we're going to end up. I mean, we're probably going to keep another 2 or 3 months worth of inventory, which is probably going to be ZAR 60 million, ZAR 70 million worth of inventory. And the main reason why is the long lead times between supplier and Sizwe. And that's one of the reasons why we got a bit caught last year is that orders were placed 2, 3, 4, 5 months out, number one, because of the big demand. And then you've got the shipping. I mean, it takes 6 to 8 weeks at least to even just get it to port and then you're still going to get you and it might take another week or 2, 3. So we won't keep 0 stock, but we'll reduce substantially, but that's a number that we're sitting with currently.

Similar line from [ Alexander Pace ]. On inventory, what is the target absolute inventory level? How much excess stock is still in renewable and can Mustek grow revenue while still decreasing inventory levels.

Yes, I think we can. I mean -- what's the other question, Dimitri?

So Alex, I can't give you an absolute value. We work on days. And that's historically has been between 85 and 90 days of stock. Obviously, we're across the businesses like Rectron being very focused on run rate. We, Mustek, has also bigger project businesses that stockholding defers across the two. And -- but yes, to answer your question, I think we definitely can continue with a conservative growth strategy with reducing our inventory because we are -- we do believe that we are a bit overstocked at this point.

Also from Alexander. Please talk about targets for gross margins, considering change in mix and market dynamics you have experienced and expect going forward.

Yes. I think we've touched on that during my presentation on gross profit. Yes, we are down from the 13.9% down to the 12.2%. A big portion of that has been on sustainable energy. And for the short term, we do see probably that margin maybe ticking up slightly, but not back to the 14%, 14.5% that we previously have had. However, in the medium and long term, that's where we aim to hit back with our -- with the current strategies that we have in place.

Question from anonymous. Page 10 of your results report, your detailed shareholders at 30 June 2024. There's been big changes since staying with material trading on Mustek with PERESEC owning 23% or more if the market to be believed. Can you enlighten investors to the ownership movement?

Well, PERESEC, and we've got confirmation, I mean, because we had the question from shareholders. PERESEC confirmed back to us that they are the beneficial holder of the shares. They bought from Standard Bank, but Standard Bank initially bought probably quite a bit from our future, I think. And which -- the other one was quite sizable.

Old Mutual and State Capital.

Old Mutual and State Capital, sorry. And so those are some of the big moves that we could pick up on the share register.

From Alexander again. Why has MIE struggled from a revenue margin perspective, medium-term prospects for this business?

Medium term traffic, I think, is good. Why we've struggled is just people holding back on the spend. And we've seen that, and it's corrected itself immediately straight after election where people actually -- I don't know that's -- it's going to be our guess, but we've got the feeling from the corporates that they were holding back on training spend. I think we may be waiting for the outcome of the election to see whether they're further invest in the skills of the people.

And I think also a big impact for them in the beginning -- in the beginning part of the last financial year or FY '24 was there was big changes at Microsoft as well that also kind of impacted training spend and initiatives that went out with -- that Microsoft does.

Again, from Alexander. What are the noncore assets that you're targeting to sell? And how material could it be after debt costs?

Well, we are in the process. We've identified and I don't want to certainly go into detail in public, if that's okay with Alexander. But we've identified and yes, it could be a good couple of hundred million.

Question from [ Matthew Roberts ]. With regards the trade payables portion that is interest-bearing. I see this has reduced from 1.9 billion to 1.3 billion, if I'm looking at it correctly. Where -- at what level are you targeting and we'll be happy with that H1.

So I guess, the trade financing, it is dependent, it fluctuates over the period. But I think if we can release an additional ZAR 200 million to ZAR 300 million from that number, we'd be happy with that. But I think just an average utilization over the period is probably where we will see the biggest benefit, not at a point in time. And if we can reduce over -- that average utilization over the period, we'd be comfortable with that.

Question from Alexander. Can you explain your targeted cash conversion cycle? Do you expect both inventory and accounts receivable days to decline? And what can we expect for accounts payable days? I need to understand how bank overdrafts will be materially released.

You've got the days, the working target?

Yes. So we've got a cash conversion cycle for the group at 106 days. And that's taking into account receivables, inventory as well as trade payables, excluding our trade financing. And just you have to -- and that's the target that we internally set for management with the various businesses having particular -- their own targets, but averaging out for the group at 106 days. The same way as trade financing, bank overdrafts work in that way. So as we release cash from working capital, that number starts reducing. In fact, we've already started seeing reductions in our bank overdrafts, I mean, we -- the way we see this part of our trade financing borrowings.

Does management and Board still target an ROE of 13%? If so, how will that be achieved?

Well, it was a target, we readjusted.

11.5% minimum, 11.5%.

Yes. For us to earn anything, are we going to give about 11.5%. Yes, of course, we'd like to do 15%, but I think we've also got to be realistic. We've got some challenges we still need to be sorted out, and that will be the longer-term target for us, and we've achieved it in about 2, 3 years in a row, but not this year, obviously not this year. But that's still the target. But realistically, if we look at the 11%, 11.5%, I think it's more realistic.

[indiscernible] of sale is effective for 1st October. Has this asset being fully reflected yet to reflect the sales value?

Yes.

Yes. It's currently -- it was classified at year-end as an available for sale asset, and that's sitting at ZAR 15 million, and we've analyzed our negotiations and signed the contracts at a sale price of ZAR 15 million.

Again from Alexander. Has Mustek breached any debt covenants.

Yes. So it is also disclosed in our financial statements. There was a covenant features with 2 of our facilities, which we received waivers for and we haven't -- we are in constant communication with our bankers. There's been no change in the terms or repayment schedules or the interest rates. And as we go into our renewal cycle for our facilities, those bank covenants are actually going to be renegotiated to reflect more of where the business is and the current circumstances. Also -- sorry, also just to note that all our borrowings are basically -- if you look at our balance sheet, majority of our borrowings are actually current. So it doesn't -- from a liquidity point of view, it doesn't impact any liquidity ratios. And from a going concern and cash flow forecast perspective, be quite comfortable.

Can you give guidance on how trading has been post year-end?

I think of the debt, it's reasonable. It's not spectacular. Mustek, good July, August and September. Rectron store under budget, MIE doing well. Those are the main big drivers from a revenue and a profit point of view. Then like I've discussed on the associate line, colleagues are profitable, Sizwe is out of the picture. CPS kind of like breakeven. What else is there?

Yoa.

Yoa. Yoa, looking good. They had a good July, August and September, looking good. And like I said, the capacity has been booked at end of October. So yes, and typically, it's because there's quite a bit of spend, and I can say to you, Open Surface is doing some big rollouts. So is [ Dark Fiber ] Africa and [ Bumental ] has also now got some big projects going, and I think they're ready to supply.

What is the value of green energy inventory still on hand at 30 June?

6 and 7 million in the group, it's between both Mustek and [ Vector ].

Similar. Can I ask what is the rand value, the sustainable energy inventory, so I can gauge it as a percentage of quantum or total inventory with Eskom 96 months of low load-shedding. Do you remain confident you can move this excess inventory?

Yes, we can, but it's going to take time.

And we're also receiving support from our vendors.

Yes.

[indiscernible] no IT experts, but can you enlighten if there's any initial interest in corporate South Africa into the global trends of software and hardware upgrades due to the AI rollout? Are data centers an opportunity for Mustek in South Africa?

On the first one, not as big as the move that we've seen internationally. I think the U.S. is a good example where a lot of people are moving to bigger and more expensive and high spec devices. Not really seeing it. But if you look at the RFQs and the requests that we've actually started receiving now in the last couple of months, a lot of it is aligning the corporate and the government and to exactly these initiatives. So although it hasn't really taken off yet, I think we might see some change or some shift in the next 12 months or so. On the data center side, not a big opportunity for us. I think that space is pretty dominated by Dell and HP, but we are doing some decent business with Huawei in that area. And then with Lenovo as well. So there's the opportunities, but it's a tough market because there's some dominant players in that.

How much has inventory write-offs impact to GP margin in '24 versus '23?

So I don't have the exact figures, but there was write-downs, but we generally, we write down, but also cover through the provision. So the movement in the provision was not that big because we were quite highly provided for last year as well with the high inventory levels. So yes, not as significant, but more on the sellout where we had, like I mentioned, on the green energy between, 20% and 22% last year versus the 12% to 14% in the current year.

Wait. Was it total provisions?

About 90 million.

Yes. it's about 90 million. If you compare that, not a big increase on the year before, but it's moved. The year before it might have been some other products and then obviously it's more focused as we got to really other products, more focused on -- and more weighted towards the green energy stuff.

And yes. And just to emphasize that, like we're saying, is we're selling it at a lower margin, not at a loss. So obviously, you're still making margin but always low margins.

Question from anonymous. Could you speak more about your impairments.

Yes. So I think the biggest impairment on our statement of comprehensive income or income statement, is the 13.5 million or so impairment on our investment in [ Xiloserv ], and that's mainly as a result of us classifying it as a held for sale asset down to its value of ZAR 15 million.

[indiscernible] can you tell us what the outlook is for the core ICT distribution business, was stable this year? But do you think with positive sentiment in SA and the impact of AI this can lead to improved growth? Maybe there are other factors?

Well, I think those are the ones that I've mentioned in my presentation as well. So the short answer is yes, we do believe that that's going to come to the market. And I think it's quite -- I've been in the game now for many years. Its got a way of like, honestly, reinventing itself. But every now and then, we bring something that encourages growth and people to upgrade and to look at the latest technologies. I think also keeping in mind, we've had a bump in 2021 -- 2020 and 2021. Those machines that were sold and a lot of it was entry-level machines, we are expecting some of those to come back to do some upgrades because those machines are about 3, 4, some of you are more years old. And I think it's like normally is an example like a Salford. Once you've got one, it can't be do without one. And I think the people have tasted the Kool-Aid, they will be back, and they're going to be back for bigger and better. So I think there's quite a few things that will still drive potential growth within the distribution side of the business.

Three-part questions from [ Karen Maxly ], I hope I'm pronouncing your name right. The 650 million of inventory receivables reduction in '24 was impressive. does the company have a target for an additional reduction in '25?

No, this was a big grand target, but our targets are more days basis.

Yes, down to days based in terms of our cash conversion cycle targets.

Second part, you mentioned the company's long-term gross profit margin target of 14% to 14.5%. Does the overall market need to recover to reach these levels? Or can they be achieved by internal actions?

I think it can be achieved a combination of both, but a lot of it will be driven by demand.

Yes.

Final question. I think we've covered the current stock levels are sustainable, 600 million.

Yes.

Question from anonymous. If you want to get into cybersecurity, could you get clients overseas?

Potentially they can, yes. I think one of the advantages now, I've explained to you there, the SOC as a service. One of the advantages of these customers, this company does have, it's local. So they actually can set up and they have set up a local SOC. So a lot of comfort from a government point of view because it's not offshore and there's no risk information going offshore, how does get there, and how does it get back. So I think it's an advantage. And to set up a SOC in another environment, it's going to cost a bit of money, but can be done. Well, it varies. I don't know exactly. I mean, we book it in as and when the stock comes in. I know Neil specifically, I'm not sure about Spencer or Christian, but I know Niels took out quite a bit of cover yesterday at 1750 at those levels.

Yes. Obviously, it depends on the stock and when it was bought. But yes, I can't give you an average.

Can you comment on quantum of product obsolescence versus profits? Looks high.

I'm not sure.

So yes. So the provision is high at the ZAR 90 million, but the movement in it wasn't so significant, as Hein mentioned or explained earlier on is that we had a provision in the prior year, and that was related to specific products. And we obviously relooked at that provision and topped it up for anything -- for any changes in the current year or vice versa.

Yes. I think one thing that we've done in the past is we say we're certainly conservative, but I think we're realistic where we make provisions. The worst we can do is to fool ourselves and think something is worth 10 when it's only worth 8. And hence, we've got quite a bit of provisions. We're comfortable with that. And yes, so we'll assess it on a continuous basis where the provision level should be. And like I said earlier, last year, it might have been product A, but this year, it's product B because we might have gotten ridden the product A, but now product B is becoming a bit of a risk. So it comes with the business. You are, by 8, 9, 11 hours from any of the major markets. So unfortunately, you got to carry stock. And if you want to bring it in, you got to bring in by container, which is by a sea, which is obviously a lot longer. So that's the reality of the business we're in. I don't think it's like in Europe where some of the brands might have a central warehouse and it's 2 hours later and pipeline is in front of the customer. It's different, yes. And with that, obviously, does come at risk of obsolescence. Technology changes continuously. So what might be working today is not we're going to be selling tomorrow. And yes, so unfortunately, it is part of the business. But I think from a management point of view, we're just going to be realistic to ourselves and not live in full paradise thinking that everything is fine when it actually might not be.

Can you share anything about movements of the share register? TK Trust a long-term shareholder and strategic investors engaged with Mustek?

We've got to engage continuously with investors. And I think like I mentioned earlier, the big move was from certain to PERESEC”, which was bought quite a bit. And TK Trust hasn't sold anything and they've got no intention to immediately sell any of those.

Many undervalued local companies have been delisting. Is Mustek advantaged or disadvantaged by being the only listed company in its area?

I mean that debate is something that we obviously continuously have internally as well. Is it all bad being listed? Not necessarily. I think the exposure you're getting from a governance point of view, the rules and regulations you've got to comply with. I think those are all good. It does give you access to capital if you need, although we've never, in our lives, actually issued shares for cash because we can't afford to because the share price is under pressure. But I think there's a lot of benefits on being listed. I think from a credit point of view, your bankers, I think they appreciate if you're listed and/or not. Is there cost involved, which can be eliminated if you're private? Of course, there will be that you can potentially save. So if you can give me the money, I'll buy it tomorrow. But -- so at this stage, no specific plans at this stage, we're going to delist, but we'll have to wait and see.

Can we please comment on the local competitive environment? Has industry consolidation or debt level and competitors affected the rationality of competitive behavior?

No, I think we're on the same boat. I mean if you look at our big competitors and, they're not listed anymore, so we don't see their numbers. But historically, at this distribution side of business, it's very similar. And I think all of us understand that you can only go down to a certain level and still be profitable. So yes, you can be irresponsible to get market share, but we're not in it to win awards and achieve market share. I think we need to have a balance between being successful but also a profitable business. So if it becomes specifically in specific areas where the margin is under pressure, we'll walk away. I mean we're not here just to do business for the sake of doing business. It's got to be profitable, both for the company and obviously, for the shareholders or stakeholders in general.

This is from [ Chris Logan ]. Your number of employees at year-end increased from 1,205 in '23 to 1,335 in 2024. Can you shed some light on this increase, please?

I don't know if there are certain contactors hat might have come on board. I'll have to go and have a look.

Yes, probably and might be certain ownerships.

We'd have to go and dig into it. I mean, I wasn't even aware of it just actually shot up quite a bit. It might be that we consolidated somebody as well. I'm not sure. All right. Let's just keep -- please contact me we can get back to them, please. I think the first priority, and we had a discussion at the Board meeting now the first priority is to get the debt levels down, right? So at this stage, although we might have authority -- no, we don't have -- yes, we do. We're not going to be buying back shares immediately. I think the focus is now to get the debt levels down. Yes, generate the cash, get the levels down to where we're comfortable. And then if there's excess cash either coming through from operations or from disposal of investments, then different discussion. And yes, we might get back into the market from a share buyback point of view or, like I said, it might be dividends or special dividends or something like that. But I think now we're talking about, say, at least a year or 2 years in the future. All right. If there are any other questions, please, I mean, you've got our details, shabanaa@mustek or heine@mustek. And we'll see if we can respond to that as soon as possible. I'm actually going to be on leave next week, that's why we push for this to be done today. But we will respond as quickly as we can. Or if somebody wants to come and kick the tires and come and see us in person, you're also welcome to do it and have a cup of coffee. But for the people that have stayed with us and listened to our story, thank you very much. Much appreciate it. And yes, we're looking forward to, hopefully, a much, much, much, better year in '25 than what we've experienced in '24. Thank you.

Thank you.