Mustek Limited (MST) Earnings Call Transcript & Summary

Good morning, everybody, and thank you for joining us on this results presentation for the 6-month period ended 31st of December 2025. My name is Hein Engelbrecht. I'm the Group CEO of Mustek Limited. And with me is Shabana Aboo Baker. She's the Group Financial Director of the Mustek Group. Maybe just the way we're going to maybe conduct this is obviously, after the welcoming, I will just maybe have a look at -- or give you some idea of where we are, some salient features of the results. And then Shabana will unpack it in a lot more detail because I know a lot of people want the detail. And then at the end, I'll just come back and maybe just give some comments on how do we see the industry going forward, how we're positioning Mustek, what are the opportunities out there, and what are the key focus areas for us as management going forward. [Operator Instructions] But again, thank you for joining us. Right. As we discussed, I mean the presenters myself, obviously, and Shabana. So just on the group and who we are, and it's probably more for people that's not familiar with the group. We'd like to -- we describe ourselves as a seamless technology solutions provider, a bit of a shift from where we started off in 1987 as a component or more of a hardware distributor. Obviously, the company is involved, or the group is involved, over the years, and I'll go through a bit more detail on the next slide on what actually comprises the group currently. And we operate through a network of companies across core areas of distribution, manufacturing, training, and services. So if you look at our mission, and I think it's quite important, I mean, this we really defined a couple of years ago, and it's centered around anticipating material stakeholder need for long-term sustainability. Now if you look at the group currently, and I think Shabana, you've also segmented it in our results along the lines as presented here. So you've got the distribution side of the business, which obviously contributes the bulk of the revenue and profitability currently, and consisting of Mustek itself and Rectron. We've got a training side to the group. Mercer Inter-Ed is the vehicle that we're using there. Then on the manufacturing side, we put Mustek there because we do assemble our own Mercer-branded products, which was established in the early 1990s, where we decided to actually put all the components together and start selling a PC. Then YOA, that's our cable manufacturing company, fiber cable manufacturing company situated in Durban in Kwa-Zulu Natal. They had a phenomenal year. And if you look at the forecast, there's a lot of initiatives for rolling out fiber, and at least for the next year or 2, I think they're well positioned to obviously benefit from that being a local manufacturer. and being able to supply. I mean the capacity, we've increased -- it was quite a substantial divestment about 2.5 years ago, where they could manufacture about 1 million fiber kilometers per annum to over 3.5 million fiber kilometers per annum that they can actually do now, and they're pretty busy. CPS, manufacturing network cabinets, and the like. And then on the services side, we put Mustek there because obviously, we still do a lot of on-site service, not on-site service necessarily, but on-premise service for walk-in customers. And then the same goes for Rectron. I think we've always had the philosophy that if we sell something, we must be able to service and support it just to protect the brand, and obviously, from a company point of view, to give value add to our resellers. Then we've got [ Calaliso ], typically the man in [ the van ] desktop service and support, quite handsome contracts that they've won recently, one in the Western Cape and one with SA Police Service, and the profitability seems to be picking up there. It's a bit of a volume game, the infrastructure has been established over many, many years. And now that the contracts are coming in, we do believe that the profitability is going to pick up, and it will turn out to be a nice investment again. And then 2 of the newer ones, and then I'll touch a lot more on it at the end of the presentation of some of the opportunities we've invested in a company called Business AI, and I'll give you a bit more detail on what they do as well as CyberAntix, which we invested in about a year and a bit ago and nice to report that the progress that the management there is making and signing up new customer is very encouraging for us -- for them as a company, but also for us as a group. Some of the salient features of the results, and like I said, Shabana will go into a lot more detail. And if we do repeat, I apologize for that, but I think it's quite important. From a revenue point of view, on a comparative basis, down from last year by about 2%. But I think the previous comments that we've made and the people that did attend previous presentations, we did indicate that we do feel that we need to consolidate a bit. A couple of years ago, it was all about growth, and we were quite successful in growing the business, but it was -- it came at a cost. I mean it didn't necessarily translate into increased profitability, put a lot of strain on the balance sheet, and that has been a key focus. And I think going through the numbers that Shabana will be able to demonstrate that our initiatives on the balance sheet specifically is starting to bear fruit. And fortunately, we're seeing some of the improvements there in the profit before tax and the headline earnings per share as well. So from a revenue point of view, are we concerned? No, we're not. I think the market is still there. We've been quite selective in deals. So if you look at the segment analysis, you'll see that on a comparative basis, there's 2 areas that we were down compared to the prior period, the one being the exports. In the comparative numbers, there were quite a sizable deal with the client in a neighboring country, which didn't repeat itself this year. And then also, if you look at the government business, slightly down compared to the year before. But again, that's been selective in some of the transactions and deals that we do enter into because historically, they might have contributed on the gross profit line, sometimes the same as or slightly lower margins than the rest of the business. But what eventually drops to the bottom line because of the length that it takes or the period that it takes to actually get paid. Most of the profit gets absorbed in the interest line. And I think that's something that we've decided that we're not going to chase those deals because it doesn't make business sense to us, relieve a bit of pressure on the balance sheet, and obviously then start seeing the benefits coming through in the finance cost line. So I think the other one that affected slightly is the rand-dollar exchange rate. I think the average -- the rand-dollar exchange rate for this period compared to the previous is a lot lower. And because we're a dollar-based industry, that gets passed through to the customers basically immediately, because I think the market that we're trading in dictates that you -- if you price, you got to price at the placement value, not necessarily at the original cost. And typically, if you look at our numbers and obviously speak to some of the GP margin decline. Typically, what happens in the rand strengthening environment, our GP margins from an accounting point of view, at least show a decline, but you show ForEx profits. And the opposite is also true if the rand weakens, you'll see a margin increase of the gross profit line. But typically, that will be associated with unrealized and sometimes realized foreign exchange losses. Shabana will go into a bit more detail on the GP margins. We have put through quite substantial provisions for the slow-moving and not necessarily obsolete, but slow-moving stock in the energy sector or the sustainable energy sector of our business. We do believe, and we've seen it now that we should start seeing some margin increase now. And the main reason for that is I think a lot of people are very familiar with the fact that we do have a worldwide component shortage that we're obviously affecting us as well, and the prices are continuously going up. Anything from October last year to now, anything from between 30% and 50% on specific items. What we have seen, though, in the last 2, 3 weeks is a bit of stabilization in the pricing, where at some stage, it was price increases in the daily, if not daily, at least weekly basis. We've seen some stabilization there. So maybe the market is correcting a bit. But we obviously keeping a close eye on it, and then we'll manage it as things unfold. Main shortage, and I'll go into a bit more detail, the reason why there's a disruption, and there's a component shortage, is obviously the demand and the rapid expansion of global artificial intelligence infrastructure projects. Those guys typically will buy out manufacturing of components for an extended period. And that puts a lot of pressure on, call it, the traditional products that were delivered and manufactured by the big manufacturers. Again, we've seen this before. I mean we've been going for many, many years. I've been here myself. These things tend to go into cycles, tend to work in cycles where either supply outside demand or demand outside supply. So at this stage, the demand, specifically in the area in the spaces we play in is outstripping the supply, and that's putting pressure on the margin. So not pressure on the margin, pressure on the price, and it's upward pressure on the price. So we'll see how that happens because typically, what will happen at some stage, there will be expansion in the production facility, or a lot of the production that's currently focused on the AI initiatives will start reverting back to the traditional business, and the market should stabilize. So there is -- we're watching it carefully. There are constraints across the board worldwide. If you look at the big suppliers of ours or the big international vendors, they feel that they are okay until at least the end of the year. And if things don't normalize, then obviously, it will extend into the new year. But at this stage, no real reason to panic. I think part of the reason why there's shortages is people were anticipating that there might be some shortages, and they bulked up and they stocked up. So the stock that we've got on hand, I think is good stock. And like I said, I mean, we should start seeing, and we have started seeing some margin expansion during this period as we get a of it. And it also gives us opportunity because of the shortage to clean up the inventory book, the 1s and 2s that typically would go and sit in 360 days plus in your inventory file, which doesn't necessarily get all the attention that it should. There's an opportunity now, and we're using that opportunity to actually get the rest of them. So those are a couple of the high-level comments that I've got to make, and then obviously, from profit before tax, and Shabana will go in there. The margins were fairly stable if you strip out the provisions we've put in. The OpEx, I think everybody jumped in, and we're controlling OpEx quite well. And then obviously, the finance charges, we're seeing the benefits of the initiatives that we've put in place in the last 2, 2.5 years, bearing fruit. So headline earnings per share up substantially, so NAV slightly up. And then the other one where we're seeing some benefit, although not as impressive as last year, we still generated ZAR 187 million cash from operations, keeping in mind that if you look at our historical numbers, not last year, but prior to that, typically in the December period, we absorbed cash as we're stocking up for what's normally our busiest season, which is February, March, April. But still, even with that, we managed to still generate ZAR 187 million cash compared to absorption in the prior financial years. So those are just some of the group salient features. We'll go into a bit more detail and give some more comments on the industry itself later on. But it's just some of the things that I wanted to highlight to yourselves from a reporting point of view. So I'm going to give it to Shabana now, where she will then go into a lot more detail and obviously give you all the numbers that you need, hopefully, all you need. But if there's certain information that you still need, please by all means reach out to us, and we'll try and accommodate you as much as we can.

Thank you, Hein, and good morning, everyone. Thank you for joining us. The financial summary presents the 3 years -- past 3 years in the 6-month period over the financial year '23, '24, and '25, so that you're able to see sort of a trend. For the 6 months ended 31 December 2025, as Hein very eloquently put together was that our trading conditions have improved compared to the prior comparative period. The markets do still remain competitive. And as Hein mentioned, we're still seeing some public sector bottlenecks, which continue to persist. However, the lower inflation and the modest interest rate cuts that we've seen over the past 6 to 12 months have improved the overall consumer sentiment, and we are seeing an improvement in that space. Just -- I mean, when you're looking at the trends for FY '23 and FY '24, it's just important that you note that those 2 years were still very largely driven by the sustainable energy sort of boom that the Mustek Group and the distribution sector within the Mustek Group was -- had the opportunity of supplying even though the pace of the sustainable energy sales slowed down during financial year 2024. The margins in the traditional business being the supply of our -- which makes up the bigger portion of the group currently, is the supply of IT equipment and peripherals, have improved and the details will be covered in a short while as I go through the detailed revenue and GP margins. It is important to note, and as Hein mentioned, that you'll see that our segmental reporting has changed in line with the way the group is being managed and in line with the way that we've -- Hein has pointed out and explained how the group is sort of segmented into a distribution segment, into a services segment, into a training segment. And then a big -- again, a big portion or a big impact for our overall profitability in this period was because of the focus that we've had over the past 24 months, specifically within distribution on the balance sheet optimization, and we've started seeing benefits of those initiatives during FY '25, and that continued into the first half of this reporting period with the net -- the impact on net financing costs being significantly reduced. So moving into some of the details around the revenue and the drop in revenue. So we've had an overall drop in revenue of 2% to ZAR 3.5 billion for this current period, which is very flat year-on-year and compared to the previous 2 halves. The decline is mainly attributable to the distribution segment of the group. And the 2 main reasons is, number one, is that we had a stronger average dollar during -- I mean, rand during the part of the period, which reduced the translated revenue and USD-linked products. And then the second one is that we continue -- as Hein mentioned, we continue to prioritize business that meets our pricing, meets our credit, and working capital parameters. It makes no sense to chase business that has an impact on overall GP margin. But when we drop it down to a net profit, there's actually no profit or a loss in some cases. Public sector revenue declined by 6% year-on-year. So we are experiencing or continue experiencing certain bottlenecks as well as risk-based selection in the contracts that we decide to go ahead with. And then as Hein also mentioned, is that export sales year-on-year are down due to a once-off project in the prior year. If I just look at the other segments within the group, for example, our training segment, that remains stable. And whilst it's still very small, we've seen good growth in our Services segment, specifically our investment in CyberAntix. Business AI is still in a start-up phase, and we hope to see some revenue contribution -- positive revenue contribution from them in the next 12 to 18 months. Moving on to -- just to explain our -- the GP margin. So I hope I'm not going to confuse everyone with regards to these 2 graphs, but I'll just put 2 graphs in here to try and explain the impact of foreign exchange on our GP margins. So the top graph titled GP percentage represents the GP margin based on just playing out sales less cost of sales. However, because majority of the inventory purchased is denominated in a foreign currency, majority being USD, we are very exposed to foreign exchange. And thus, you always see significant swings in the foreign exchange lines in our income statement. So typically, what happens is that because our selling prices are determined by the current USD prices. So for example, if -- for example, I've got this iPad in front of me. And if that -- the USD price for this is $100. And if the rand is trading at ZAR 18.50 to the dollar, it's ZAR 1,850 that we are selling this product for. However, if the rand drops down to the current ZAR 16 that we're trading at, then we are selling this product at ZAR 1,600. And that has an overall impact on our margins. So when the rand strengthens, our GP margins typically drop. And when the rand weakens, our GP margins typically increase. So -- and that brings me to the bottom graph, where I've adjusted the GP margin to take into account the ForEx exchange gains or losses to sort of show a better trend or smoother version of our GP margins and give a better indication of what our true GP margins are. We don't bring our ForEx gains or losses into our cost of sales, which ideally is the right way to do it. However, because we don't apply hedge accounting and IFRS does not allow us to do that, it does sit below the GP margin. Just in terms of the various segments of the group, the GP margins for the distribution segment was overall lower in the current period. However, it's important to note that there was a ZAR 62 million stock obsolescence provision that has been put through in this period, specifically for slow-moving stock and in line with prudent stock management practices. If we have to exclude that, then we've seen a slight improvement in the distribution sector year-on-year, with GP margins increasing from approximately 14.4% to 14.7%. Just please be aware that that is stripping out the stock obsolescence impacts in the 2 years. During the period, we've also seen the GP margins from the training business reduced slightly, and that's pretty much just due to product mix and the different courses that they provide. There are certain courses that are a lot more profitable than others, and it just depends on where the volumes lie. Overall profitability, or earnings before interest, tax, depreciation, and amortization, we've seen a stabilization. And you'll see that there's years pretty -- a few years that I'm missing from this graph, and that's over the COVID period. Over the COVID period, for all of you that have been following Mustek for a few years, you know that those periods were almost pie in the sky trading and profitabilities were unprecedented. So this is more of a normalized trading period, and we have returned to pre-COVID, or we have to pre-COVID stabilization. Like we said, we have seen EBITDA margin remain stable compared to the comparative period and the period before that between the 3.5% and 3.6%, and we've seen signs of improvement to pre-COVID margins if write-offs are removed. Another area that has been under the focus of -- over the past 12 to 18 months has been cost containment efforts by rightsizing the various businesses and rationalizing on costs. We have started to see the benefits of this with operational costs reducing year-on-year. However, we still believe that there is room for improvement on our operational cost line to ensure that our OpEx margins fall back within our targeted 8% to 9% region. This has been a highlight for us in the past 2 periods, and we are on the right track, and the trend is going in the right way with regards to net financing costs. As I mentioned previously, the focus over the past 24 months has been on balance sheet optimization and reducing our working capital, reducing our borrowings, and we have started seeing the benefits of these initiatives over FY '25 and continued in this period. The modest rate cuts that we've seen from both the South African Reserve Bank and U.S. Federal rates have also brought some relief to the overall cost. So we are quite sort of chucked with this benefit or the result of these initiatives, and we continue to try and reduce our financing costs as much as we can. Headline earnings per share in line with our operational or the profit before tax movement or profit after tax movement, and there's been no significant headline earnings per share adjustments in these numbers. Just looking at our balance sheet overall, looking at the movement in net asset value and tangible net asset value, we've seen a sustaining balance sheet with continued, even though small growth on our balance sheet year-on-year. The Mustek Group currently is very working capital focused. And as we mentioned, we are still -- a big portion of the group is still related to distribution, and working capital is a big portion of our balance sheet, inventory being one of those components. Although we've seen an increase in the absolute value of inventory from June 2025 by approximately ZAR 200 million, ZAR 250 million. Those increases have been pretty deliberate. Hein alluded to the current stock shortages that the industry is currently experiencing, specifically around memory and storage. And we have taken strategic decisions to increase our stock levels within these areas, and this decision has been positive for the group's current H2 performance to date. Our current net exposure to the sustainable energy stock is about ZAR 230 million. There are SKUs within the product range that are price sensitive and being tested continuously. And there are quite a few initiatives within the distribution segment of the group that currently are on the go to reduce the exposure as much as we can. As I mentioned on the gross profit margin discussion that we have increased our stock provisions by approximately ZAR 62 million in this period, and we believe that we are currently sufficiently provided based on the current exposures we have on slow-moving stock. Trade receivables, we have seen an overall increase in the trade receivable days, obviously impacted by the reduction in revenue. And this is out of our margin or our targets of between 60 and 65 days. But so there is significant room for improvement. However, we have seen still big customers pushing for extended terms. And there has been also included in our receivables where there's big working capital investments for specific projects that started to be rolled out in the latter part of the period that we are reporting being towards the end of November and within the December range. So that obviously still sits in receivables, and we're hoping that should clear out and reduce our receivable days in the next period. Cash generated from operations, as we also mentioned previously, or typically, the Mustek's cash flow cycle is that during H1 period being July to December of a financial year, is normally a cash absorption period. And that's because we usually stock up for big deals coming through within Q3 and Q4. However, with the working capital initiatives that we currently have a focus on, we have managed to reverse that trend over the past 2 periods to become more cash generative than we absorb cash. And that has also bode well on our net financing costs, and we continue to ensure that we become -- our focus again is on cash generation. That's it from me on the detailed results. I'm going to hand over to Hein to give you a bit of an update on some of the strategic priorities and opportunities that the group focuses on.

Okay. Thanks, Shabana. And as I discussed earlier or said earlier, you've got more detailed questions, please always reach out to Shabana or post it on the Q&A box, and then we'll address it. So from a strategic priorities, that's something that we decided a couple of years ago from Mustek Group is that we would like to preserve and grow, obviously, the profitability from our core IT distribution. And I think we're moving in the right direction there by a more focused and aggressive working capital management, as I discussed earlier, not necessarily to just try and trade for the sake of trading, but to try and do a responsible and profitable business. So that's definitely a strategic priority for us, but also then area of growth that we see is expanding in the group service segment. And with the service segment, it's not only Callolisa and the work that they're doing there, but also the business AI initiatives that we've got and cybersecurity. We regard that as part of the service offering that we are actually giving to the market, whether it's through Mustek Rectron or some of the subsidiaries. So that's the area that I think we've made some progress there in the investments, although Business AI is still in infant stage and not necessarily profitable. I think the feedback that we've received on the product that they're going to take to market has been exceptionally positive. And I think a lot of people can't wait for them to actually have everything in place so we can take it to the market. I think it will be a big benefit to a lot of organizations from an AI point of view, making use of our service offering there. And then the optimization of the capital allocation across the group, I think it goes hand in hand with obviously the working capital management, but there are also -- and forgive me if I'm not going to go into detail, but there are some investments that we do feel that necessarily giving us the right return on the capital that's in the business, and we are looking at maybe repositioning them. We've had some discussions, but nothing concrete to report on. Then just some of the opportunities that we see, and I've listed a couple there, but I think it's fair to say that the SA technology sector is a complex landscape, but it also gives both challenges and significant opportunities. The global supply chain disruption continued to drive component shortages, particularly in memory and storage components, due largely to the rapid expansion of global AI infrastructure projects. I mean I think we've touched on it earlier, but I mean those guys are buying infrastructure like you can't believe.

Hein, I can just also add with regards to what we're seeing with artificial intelligence, is that we're seeing a move from training AI models to inference adoption. And that's where previously, all the AI initiatives and all the AI investment was in training the overall AI and these large language models, and that was the massive investment. With the inference is now that using that trained AI model to generate output. So that's actually now adoption and implementation. And for us, this means that the shift means that we have more AI-enabled PCs entering the channel, enterprise servers upgrades to support all of these AI workloads that our corporates and entities are utilizing, increased memory and storage attachments, and edge compute solutions. So instead of just hyperscalers now buying racks directly from our OEMs, inference growth trickles through to the distribution, and that's where Mustek comes into play. And that's where we believe there is a significant opportunity in addition to the AI opportunity that business AI is driving.

Yes, definitely. And I think we started seeing that. The device in front of you, we call it the edge in our industry. I mean there's a requirement there, obviously, to have more power, faster, smarter, and we start seeing that coming through to the market as well. So that's definitely a great opportunity for us. The other one I want to touch on is I think cybersecurity threats are accelerating against a backdrop of heightened global tensions, yet many South African organizations remain unprepared for the -- to counter the increasing sophisticated -- and they are sophisticated AI-driven attacks. I think that combined with the talent shortage and burnout in security teams, there's a pressing need for advanced security solutions and comprehensive training that equip organizations and employees to identify and respond proactively to evolving risks. We believe that our group cybersecurity services fill that gap by reducing operational strain and providing peace of mind to organizations of all sizes. And just on that as well, CyberAntix has launched -- not launched, but they're putting a lot more emphasis on the consulting side of the business as well. It's led by Dr. Pierre Jacobs, he's a PhD in cybersecurity. And they've got 2 products that we're going to take to the market in the consulting basis. And the first one is what they call GIS, and that's CyberAntix's proprietary framework that delivers comprehensive, transparent, and cyber risk reporting aligned with governance and stakeholder needs, and it translates into technical risks, translating complex technical risk into clear actionable insights for boards, investors, regulators and customers to ensure that trust, accountability and sustainability and sustainable businesses value. A lot of people that we've engaged with obviously understand that cybersecurity is a big risk. But the question is, normally, where do I start. And a lot of people that might be dialed in now might be sitting on boards or from the investment community, you might be invested in certain companies. And I think it's one of the questions, what are you guys doing about cybersecurity? And then sometimes, not always, the answers will be vague because people actually don't know where to start.

So also on boards and the responsibility for directors overall around cybersecurity with the new King 5 implementation, there's a specific principle that has now been brought in with regards to cyber data and technology. And it becomes a lot more important for these conversations to be had in the boardroom and for there to be actionable strategies and plans put in place to deal with this particular area.

I think it's quite important. And the next one that they're also bringing out is what they call Journey to Green. And that's basically CyberAntix's strategic pathway to cybersecurity maturity and resilience, guiding companies from reactive risk management towards proactive optimized protection and obviously incorporating advanced SOC operations, AI-aware defenses, and continuous improvement to achieve a green status of strong posture, compliance, and long-term resilience. We believe that these offerings will empower CEOs and CIOs to transform cybersecurity from a cost center into a strategic driver of trust, competitive advantage, and enduring organizational resilience against evolving threats. So if there's any opportunities and people don't know where to start, and they think this might be important, please reach out to CyberAntix. They will gladly give you a quote and help you with your journey to make sure that your organizations are -- well, to the best of everybody's ability, fairly safe. Then the training and certification will obviously continue to play a vital role for businesses going forward. We think programs such as workforce in the future will help close the IC gap by preparing learners for globally recognized certifications and connecting them to internships and employment. And then by combining practical learning with active talent placement, our training and certification services, and skills development into sustainable career opportunities that strengthen communities and industry. So we believe that despite all the global pressures, the technology sector remains rich in opportunities. And we believe that we're strategically positioned to address key ICT challenges through our integrated approach across supply chain management, AI enablement, skills development, certification, and cybersecurity, and thereby empowering organizations to navigate the complexities of the digital landscape with confidence and resilience. And I think if you look at the history of Mustek, we tend to do well when there's a crisis. It goes back to why an economic crisis 2008, then COVID, and then the power issues and all that. So not to say it's a crisis, but I mean it's serious. I mean stock shortages are real. We're experiencing it. And we obviously have to try and manage it to the best of our ability to meet our vision, which is sustainability, and anticipating, obviously, shareholders' or stakeholders' needs for a sustainable organization, taking this into the future. And I don't know, Shabana, is there anything else that you want to ask, say, or comment on?

I think we can take some questions.

Yes. Then Dmitri, if there's some questions there.

First question from Alexander D. Was the bulk of the inventory provisioning attributed to the renewable energy stock? In addition, what is the amount of excess renewable inventory stock?

Yes, Alex. The majority of that provisioning was attributable to the renewable energy stock. What is the amount? As I mentioned, the net exposure of our renewable energy stock at this point in time is ZAR 230 million.

Again from Alexander. ECL increased to ZAR 20.8 million, largely from a single export exposure. What is the total exposure to this counterparty? Are you satisfied with the current provisioning for the entire receivables book?

Yes, Alex. Yes. So that was related to a specific export client where there's regulatory issues in getting money out of the country. The exposure on this counterparty, if I'm not mistaken, is around ZAR 10 million to ZAR 12 million. Yes, we fully provided for it with the balance being in line with our ECL provisions and all the assumptions that go with that. And we quite -- I must be honest, even though our stock days look like has increased, we are quite -- a lot more comfortable with the health of our receivable books, and we're not concerned, and we're quite comfortable with the provisioning that we have around our debtors.

From Alexander, is the current run rate for interest finance cost in H1 sustainable for H2?

I think there were -- obviously, the slowdown in the reduction in finance cost, we will see a slowdown in the reduction in finance costs over H2. I think year-on-year, if you look at it, the big working capital efforts started materializing in H1 2025 and moved into H2 2025. So we will see improvements in our finance costs over H2, but not to the levels that we've seen in H1.

From Alexander. With risk management pursuing more profitable deals, any guidance on what targeted GP margins could represent in short to medium term?

I don't think we can -- we definitely want -- we're pushing GP margins as much as we can. I don't want to give any targets out right now. But I must say we're trying to maintain our -- we've always had a target for the group of between 13% and 13.5%, and that's where we try to push as much as we can.

Yes. I think we're moving in the right direction, but we're not where we think we should be.

Also from Alexander, I was under the impression that 2/3 of imports was hedged. If that is correct, why can't you include ForEx losses within gross profit?

So I think, Alexander, it's an accounting technical issue. We do hedge, but it's economical hedging. So we take out FECs and cap forwards, et cetera, to hedge our foreign exposure. However, because we don't apply hedge accounting in the technical terms per IFRS 9, we're unable to account for ForEx gains or losses within gross profit.

Also from Alexander, trading performance is disappointing to history. What is the prospects and targets of this division over the short to medium term?

I think if you look at from the first 6 months, I mean, there was a lot of spend from Microsoft specifically through to June last year, with a profit, and then it slowed down quite substantially in July and even August, and then it started picking up. So in the first quarter, they were actually way behind budget and actually incurring losses, and then they recovered quite nicely through to December, a lot of planning initiatives there. A lot of initiatives now in place as well. I mean the targets from Microsoft is quite high, and we'd like to believe that not necessarily to the same level as last year, but that the profitability through to June will improve substantially from what you've seen so far.

Question from [indiscernible] Tech Central. Headline profits surged due to currency gains, ForEx hedging, and cost-cutting. Two of those factors are largely out of your control, while cost-cutting efforts can only go so far. How sustainable are these profit margins going forward? And what is the outlook?

I would like to believe that it's sustainable going forward and hopefully improve it. I think -- and the presentation earlier, currency gains and losses is part of our business. And that's why she had the second slide that you show what effect on GP and how stable the GP is over time, if you include that into your calculation of GP, either ForEx profit or a ForEx loss. Like we've explained earlier, typically, margins under pressure when the rand gains, your GP margins are under pressure, but you typically do ForEx profits, and then obviously, the opposite is true as well. So we're managing it. So we don't control those, but we're managing it as best as we can. I think we -- what you call -- the policy that we put in place from a hedging point of view seems to be working. So we're not totally 100% covered each way. So there is flexibility for the rand moves up or down because we can adjust the pricing. So cost-cutting exercises, I mean, there's always some fact that can be too taken away. Obviously, we've got to be careful that we don't cut too deep, and it starts affecting the business negatively. But I think we've seen what can be done. And hopefully, we can do some more. But you're right, you can't keep on cutting forever a day. But hopefully, the margins start improving, which hopefully will be the case now, or we've seen it to be the case now, that will drop straight to the bottom line if we can manage our cost properly. So yes, so we do believe that around the areas that historical numbers are probably sustainable going forward. As and when some of the services revenues and services businesses start doing better, I think you might, from an overall point of view, start seeing a pickup on the overall group margins in future.

Also from Niti, you're facing a number of headwinds regarding the Novus takeover. How confident are you that the deal will go through? Are you going to up your offer to shareholders as the TRP audit?

Well, I think you're asking me a question that you should be asking Novus. We're not involved in discussions that they're currently having with shareholders or the TRP. I can't give you a comment on how confident are that the deal will go through. I think that you've got to ask them. I mean I think obviously, from Novus point of view, the last discussion, they obviously like the asset and they're still keen on increasing their stake in the asset. There is a bit of a hurdle that they need to overcome. There is -- as far as the information that you've got is basically the information that we've got. The only thing that maybe as far as I understand, there will be some sort of a hearing somewhere in April to set up another hearing in July or somewhere there. So I think to get a proper answer, please reach out to Novus, or there's one complaint. It's Mr. [indiscernible], as far as I know, he's the only complaint about the whole transaction. So maybe he can give you some insight as well of where they are and how does he foresee this thing panning out in the near future. But from our side, we are employed to run the business and to fix what we can fix and put the business in the right direction and the trajectory, which we do believe, over the long term, is a sustainable way to go. That's what we've got to do, and that's what we're focusing on: what's going on between Novus and the JSE and all the complaints. I think it's better that they comment on that.

Question from Chris Logan. You mentioned that there are some areas where you're not getting the required returns you're looking. You are looking at this, this sounds very significant given the group's history of low returns. Can you please provide greater detail of these areas? How significant they are and any potential return uplift?

So not going into specific products. It's typically big rollouts for larger organizations that takes time to roll out. Unfortunately, not all of them, some of them, but not all of them are willing to pay for the hardware as soon as they delivered. They're waiting for the whole project to be completed, and that might take 6 months, 12 months, and sometimes even longer for completion and final sign-up before payments get made. So those are typically the type of transactions that we're shying away from. On the gross margin, it might have a slight pick up on the gross margin, but definitely on the net profit margin, you should see a substantial improvement on that side, keeping in mind that you won't have to incur any debt to fund the deal. So those are the longer-term projects that we were involved in, great revenues, great initial GPs, but from a profitability over time, not what we're looking at.

Question from anonymous. With your new focus on ROEs, where do you anticipate these ROEs to trend to over the medium term?

Well, obviously, we're going to get to mid-teens at some stage. But I think in the short term, we're looking at 8% to 10%.

Medium term, yes, to, call it, 5 years time, a stretch of probably 8% to 10%.

That's with the current base. I think the opportunity might be there as we reposition some investments that we can reduce the capital base.

From Chris Logan again. Your ROE appears to be 5.7% on these results. Is this about right? And then he follows up with your ROE appears currently at 5.7%, which is very low. Are you happy with this level?

No. First answer, I think, yes, it is what it is. And the second one, we're not happy, we'd like to improve it. And there's a couple of ways doing it. Obviously, the one that we're focusing on now is the profitability, but then it's also to look at your equity base over time. And as and when cash gets generated, I think it gives you more opportunities to address that side of the calculation as well.

That's the questions we have currently. I'm sure we give them a minute to digest.

But I think like we said, if there are questions, and I know sometimes people don't want to ask in the public arena or public audience, please by all means reach out to us. We will try and without putting us in a predicament, try and give you as much information and as accurate information as we possibly can. I think that's it, Dimitri.

I don't think we have any more questions. Thank you, everybody.

Yes. Thanks for your time and effort. And let's hope we've got a nice positive budget this afternoon. Right. Thank you very much.