Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Successful commencement of the new strategy execution with a clear path to doubling profitability by 2026.
- Strong focus on mining operations, with significant investments in innovation and digital solutions.
- Positive EBITDA run rate of ZAR400 million in the first half, indicating progress in transformation projects.
- Improved working capital management in the mining segment, maintaining it within the target range of 14% to 16%.
- New executive hires, including Stuart Miller as Executive Vice President for Mining, bringing global talent and expertise to the team.
Negative Points
- High transformation costs, including ZAR255 million spent on consultants in the first half, impacting profitability.
- Elevated effective tax rate of 54.5%, driven by non-deductible expenses and foreign withholding taxes.
- Significant front-loaded costs for the transformation program, with 60% of the total investment incurred in the first half.
- No interim dividend declared due to the focus on strategy execution and cash flow management.
- Challenges in the South African market, with a 9% decline in mining volumes, necessitating a focus on international growth.
Q & A Highlights
Q: Can you provide more detail on your target to double your EBITDA? You mentioned organic growth and other growth. Can you break down the sources of this growth, including cost savings, new projects, and potential acquisitions?
A: The target to double EBITDA does not include acquisitions; they would be additional. The ZAR3.2 billion growth includes ZAR800 million from the average historical CAGR of the core business. The remaining ZAR2.4 billion will come from cost savings and new commercial projects, with a 50-50 split between cost elements and top-line growth projects.
Q: You are positive about FY24, but it looks like there will be further large costs for the transformation in the second half. Is your positive outlook EBITDA-related?
A: Yes, the positive outlook is related to EBITDA. We expect EBITDA to be stable and in line with last year.
Q: The effective tax rate is very high. How much maneuverability do you have to reduce this, and where do these legacy problems come from?
A: We are focusing on improving our tax efficiency. The high effective tax rate is due to legacy issues, including transfer pricing assessments and non-deductible expenses. We are enhancing our tax function and looking at the optimal structure for the group. We expect the effective tax rate to normalize to 42% post-2025.
Q: Consultant costs look incredibly high. If the returns on this investment do not materialize, is there a clawback?
A: The consultant costs are high but necessary for the transformation. We expect the costs to be covered by the benefits realized by the end of the year. The consultants are also transferring skills to our internal team, ensuring long-term value.
Q: Are you not overextending the business capabilities by entering the AU and U.S. explosives markets instead of gaining further market share in existing markets?
A: No, we are not overextending. Internationalizing the business spreads risk and creates resilience. Entering new markets like Europe, where we already have a factory, makes strategic sense. Different geographies offer different margin levels, and we see more value in markets like Australia.
Q: Can you elaborate on the SAP rollout and mining digitalization platform? How much is this going to cost, and what has been the spend to date?
A: The SAP rollout in the chemicals business cost just under ZAR30 million. This investment enables centralized purchasing and better governance, leading to cost savings. The digitalization platform involves internal process improvements and customer-facing digital solutions, with costs justified by business cases.
Q: Of the ZAR2.4 billion EBITDA unlock, how much is dependent on the disposals?
A: None of the ZAR2.4 billion EBITDA unlock is dependent on disposals. The transformation program focuses on the core business, and the managed businesses are not included in this initiative.
Q: Can you provide more information on your strategy for green ammonia and your potential partner?
A: We cannot disclose specific details about our partner for competitive reasons. The green ammonia initiative is a partnership, not a direct investment by us. It reduces current risks and offers flexibility to serve markets willing to pay a premium for green ammonia.
Q: Is the demand for green ammonia driven by mining companies, or are you trying to convert them?
A: It's a mix. Some geographies, like Europe and North America, show interest in green ammonia. We provide what the customer wants, and over time, green ammonia could become the most cost-effective option due to free energy.
Q: The full-year EBITDA guidance is on reported EBITDA and not normalized EBITDA, correct?
A: Yes, the full-year EBITDA guidance is on reported EBITDA.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
