Metair Investments Limited (MTA) Earnings Call Transcript

Welcome to the Metair Investment Limited Interim Results Presentation. [Operator Instructions] I will now hand over to our CEO, Riaz; and CFO, Sjoerd, to take us through the presentation.

Great. Thank you very much. Welcome, everyone. Apologies for being a few minutes late. We thought we'd give everyone a chance to get on to the call. So we have 115 odd guests onto the call. So welcome to each and everyone of you. Very warm welcome on this Thursday afternoon. My name is Riaz Haffejee. I'm the CEO of Metair, and I'm joined by our CFO, Sjoerd Douwenga, and we're here to take you through the 2021 interim results presentation. And it is a great pleasure for us to take you through these results. They have been hard fought throughout the first 6 months of this year, and we're proud to represent and present to you record results for Metair. I just wanted to start off my presentation with a safety message. And as we do as a manufacturing company, it's our prowess. That's what we do. We make things. We take raw materials and we make them into components that we supply to our various customers. And within that, we use various resources and what's close to my heart to the people that we have that make our products. And for that, my safety message today is therefore around COVID-19. It is still with us, don't become complacent. Additional waves can be expected. We remain vigilant and always stick to the protocols. And remember to vaccinate. And this is for yourself, your family and your friends and to be able to train your immune system using a harmless form of the virus is very important. And remember to take care of yourself, take care of each other and make sure that we're able to protect each other during these difficult times. We're going to go through a few items on the agenda, opening observations, salient features and operational and financial review, the outlook and prospects and then a Q&A session and some additional information at the end of this, if it's required. And let me start with my opening observations of the issues that we've -- I've had in my mind for the first 6 months of this year. I think the first thing is being new to the organization, starting on the first of February and coming in at quite a critical time in the company, with so many things going on. It was really important for me to settle the organization to make sure that the leadership team were in place, to make sure that they had the necessary support that they needed to do what they needed to do. And I think this really took a lot of my time upfront. It was difficult because it's also based on virtual discussions, the ability to travel through the end of the second wave in South Africa and then through the third wave from about the start of May onwards in South Africa here again. In Mutlu, we had in April and May, a second wave coming through in that part of the world and in Rombat just before that. So a difficult year to find face-to-face conversations. But nevertheless, it was a bit of an extra effort required and what happened in the end was we managed to settle the organization well. I had 2 new CEOs, Dennis in Mutlu and Alin in Rombat. Both of them have completed the 100-day period very well. And they've settled in very nicely. And I can see that based on the results, certainly that we've gotten the changes that we're looking at, just the changes in operations that we want to make there to increase our efficiencies and so forth, they're doing quite well. So leadership-wise and with some other leadership changes throughout the group, I think overall, I'm really satisfied that the organization is set, leadership teams are well in place and myself being accepted in the organization and taking that leadership position for Metair was a big step for us. So continue to do that throughout. It's something that is close to my heart. Next was ensuring that project delivery for both verticals are on track. And here I think is the big effort that we needed to make to get our 6 companies who are involved in the new projects that are going to come to Metair that if I look at the future and specifically around the end of '22, '23, '24, when we start to see higher volumes coming through to the South African auto industry, because of various projects that are coming through from either Toyota or Ford or other OEMs, what we see is that these projects are really important for us to get right to make sure that we give our customers enough confidence so that they can rely on us to provide them with components in the right way. And that's why these projects are so important. Second half of the year, very important for these projects to be delivered and really crucial phases for many OEMs. Managing the COVID-19 disruptions was really quite a challenging task. There's 4 elements. I think there's 4 things to these 4 elements. There's human impact, supply chain coordination and stabilization disruptions. We've had chip shortages and semiconductor shortages, and I'm sure some of you have seen the notes about -- the notice about Toyota in September, and travel restrictions and some of the impact on the business, which I've talked about brief just now. The human impact is still an impact that we face as various waves come through various regions and even in South Africa, as they came through Gauteng and as they still linger in [ KwaZulu-Natal ] in the Eastern Cape, it gives us high absenteeism. It sometimes affects pockets of the business. And what happens is we have a slowdown in those areas. So we have the inability to do the things that end up being urgent for us to do, especially we're in this project phase. Nevertheless, I think we figured out how to manage our way through this. It's tough going, and it certainly gives us challenging time. But we've managed it very well in the first 6 months of the year. And I think as we have a greater vaccine rollout and as we have still maintained the level of prevention that we do and that awareness, I think these should ease as we go along. Will it become any better? I don't think it will become better from a COVID point of view, just so quickly. But I certainly think we will be able to live with it in a better way overall. Supply chain still remains a big problem for us. Once this shipping supply chain was broken last year, to get it back together again is proving to be quite difficult. And I think we -- not just us every person, every company who imports product into South Africa who export product out of South Africa or any part of the world is having to face multiple challenges with cross-docking with just ships on delay, ships never leaving, ships passing by. And this is a major cost for us. We estimate that in the first 6 months of the year, we expect more than ZAR 60 million on air freight just to mitigate the cost of that supply chain. It's a huge amount of money. That's the promise to our customers as well, so to enable all of our companies to remain in supply mode. Semiconductor problem also part of our COVID legacy here. And we don't see that this is ending as quickly as we would like it to have ended. Thankfully, it hasn't affected our customers as much as we would have thought. Certainly, there are some OEMs in South Africa that have been heavily impacted by this and have been starting and stopping and starting and stopping multiple times in the year. It certainly slowed down, and it's hand to mouth in some cases for some certain components. But overall, we think that the impact to us, we've taken it into account with what we say is about a 90% 2019 production result for the year. Maybe even slightly greater than 90% production result for the year, which we think is a reasonable recovery rate for South African production. If things go the way we expect them to go to the end of the year. And then I've spoken about travel restrictions and reluctance and the broader business impact. I think that will come back as we go through the vaccination process. Recovery from civil unrest in KZN. July was a really tough month for the company, and it was a tough month being a citizen of KZN seeing what went on and how it went down was very difficult for everyone. We also supported all of our employees during that period for the 4 companies that are in KZN, some 4,100 of our employees with food hampers, which I think went a long way to providing a bridge for about 2 weeks' worth of food during that time. There were no supermarkets. There were no -- there was little cash available. And we really needed to just get our employees in the right frontline people with trauma times. So we needed to make sure that we -- our employees were careful that they were able to have the ability to come back to work in good condition and so for all of us as well. I think the recovery, by and large, is okay. We've back at work, main customers are active work. And that happened fairly quickly overall. I think we're still working with the government on figuring out what do we need to do as a society from a security point of view, multiple different aspects. What do we need to do so that this doesn't happen again. I don't think we have that answer just yet. And I think that's something that we do need to see the answer for and find something that enables us to mitigate that risk for future so that we don't have that in front of us. Second to last point is strategic review. I think strategic review for us is something that's certainly top of mind. And what we anticipated to do in the first 6 months of the year we did. We aligned ourselves to what we thought were the main priorities of our investment, our investees to make sure that we were able to produce the best value for all shareholders alike. And so we've come to the conclusion now that there's the recovery for energy and the recovery for auto has happened in the way that we anticipated and certainly from an energy vertical perspective, we think that this recovery for us has been quite bullish and we want to keep an eye on that for the year remaining and then ensure that we're in the right position for optimum value unlock in '22. Green manufacturing strategy, I think this point is becoming more and more important. I mean, we were always very transparent in all our ESG metrics. In all our IRRs, we were quite transparent about what we did, how we did it, and we always had targets that pushed us to do better and better. I have becoming carbon neutral way into the future, is now becoming carbon neutral in the near future, and this is going to become a bigger topic for us. As we export products through our customers into the EU specifically, there's going to be greater pressure in the next 5 years, 10 years, that we do things in a way that's as green as possible. And so I don't think any of us want to wait for that time to come where legislation is already in place. We know this is coming. So we want to look down and see how do we do this in the way that's best for us as a company. So those are the top line issues I have at the moment in front of me. So salient features of our performance for the first 6 months of the year. I think at a group level, really very satisfactory results. Revenue up 53% from the same period last year to ZAR 5.9 billion, EBITDA at ZAR 701 million, a 400% increase there. And operating profit increased to ZAR 545 million in the same period last year with ZAR 18 million loss, obviously, because of COVID and lockdown. Net debt increased by ZAR 366 million as we anticipated with capital expenditure and some working capital increases. Good positive cash flow in the last 12 months of ZAR 475 million. We don't have an interim dividend ever since Metair has been in existence. We've looked at an annual dividend because that's -- in terms of our planning, that's how we've worked it. So we know we've already put a dividend in place for FY '20 of ZAR 0.75 per share that was declared and paid in March, April. Middle left, loss time injury rate improved to 0.3, target is less than 1. Debt refinancing was a successful 5-year extension of the RCF funding. We achieved a consolidated group B-BBEE score of 1 in March, and we have all subsidiaries, South African subsidiaries at Level 4 or better, really good effort for us coming through for that. A lot of work going into that. And 28.7 tonnes 1,000 tonnes of lead recycled year-to-date, well on track for what we think as a max capacity in our recycling facilities across the 3 battery companies. COVID-19, bottom left, the response we think was effective. The recovery is in line with expectations. But as I've mentioned just now, there's still challenges remain. And we think that as we go along, we either learn to live with some of these challenges better or some of them will dissipate or both. And I think that's pretty much what we figured out in the first half of this year. That this new normal is going to be with us for some time. And we've successfully progressed some of the new projects that we're in all of them are on track and some busy months ahead of us. Talk about the strategic review to finalize in the second half of the year. And from a lithium-ion perspective, we've taken a broader view to focus purely on the manufacturing part of it but we are still doing that. We are still working with our partners on the manufacturing facility to commission it. However, we are also looking at the ability to trade and assemble in our various battery companies as well. This will be important because the shift into products and segments here will be quite important for us into the future. So that's something that we're actively pursuing. Sjoerd, I'm going to hand over to you to take us through operational and financial review. Thanks.

Thank you, Riaz. Let me see if I can control this correctly. So firstly, looking at the operating performance of our automotive components vertical, it is very much dependent on South African OEM production. And I think in that context, it's very important to understand that at the moment, more than 60% of vehicles produced in South Africa are export. So we're not just dependent on the recovery in South Africa, but certainly what happens mainly in Europe and some other markets, but predominantly Europe. And what we've seen is good demand out of Europe specifically, and that has resulted in OEM volumes rebounding quite nicely by 54%, the 265,000 vehicles for the year. Our main customers actually had a much better start up this year or, let's call it, a faster start up this year. So their volumes have been really good and comparable with 2019 levels. As we've mentioned, the outlook remains quite positive. We think we've got a chance to get close to 2019 levels overall. But as of late, there has been some chip shortages and some disruption. So at the moment, it looks like overall, for the year, we could be slightly in excess of 90% for the year. But our main customers would probably, barring any disruptions to operations, be very close to actually 2019 levels of production. I think we've been battered and bruised this first 6 months dealing with supply chain issues. It's been tough. It's actually been quite amazing throughout the industry, and it's not just us. I mean, everybody like we ourselves is dealing with this, but that throughout the supply chain, largely speaking, OEMs have been able to continue to produce. But it didn't come cheaply. Our shipping lines either delayed or shipments don't get made, et cetera, we have to revert to air freight. And as such, we've incurred quite a bit of cost in air freight. It's still ongoing. Hopefully, we'll be subsiding, but certainly has had quite a big impact on the margin performance of automotive components division. For energy storage, on the other hand, very much dependent on aftermarket export and OEM production in all of the territories. And what we've seen is generally speaking, a good return, sustained demand for automotive batteries within all 3 of the regions. You'll see from the graph there in the first half 6-month performance in terms of volumes have been really excellent, but it's also in terms of margin per channel, which has been quite good in some of the base that we've had in the past. Mutlu specifically in Turkey. OEMs in Turkey, it's also very much focused on European exports recovered in terms of their operating volumes. And Mutlu continues to gain market share in AGM. So that's absorbents last neck, start-stop battery supply were the only Turkish producer of AGM -- OEM level Turkish producer of AGM batteries. And the net market is changing in terms of its technology because of it -- because of its export destination being Europe. And we even seen enty-level vehicles, much smaller vehicles being fitted with advanced start-stop systems and no longer the entry-level systems, and that gives us great benefit. And you'll see later on when I'm talking about capital, we're also increasing capacity in AGM to deliver on contracts we secured beyond this year starting to deliver in 2022. And aftermarket demand has been very good in Turkey as well. Second half of last year was strong, but that has just been sustained through to the first half of this year. So even the January result this year, much stronger than 2019 half year performance. Export volumes is a real success for us. Last year, really impacted by country lockdowns, inability to move goods and ensure shipping to export destinations. So generally speaking, export environment has improved quite a bit. So we are able to move goods, but we've also secured very meaningful export business, contract business for Mutlu as well as Rombat, which is high-quality export to a high-quality customer. So that's very good. In Romania, we saw the same trend, good sustained demand across all channels aftermarket European export as well as a strong recovery in OEM. And broadly speaking, all of these were also higher than 2019 performance. From a South African perspective, FNB benefited from the recovery in OEM production. So that was up 57% as we largely normalized. We did have good aftermarket demand in the first half and probably focused on, again, quality of volumes rather than sheer quantity. And we're still seeing a continued weakness in industrial demand. And as we mentioned strategically mostly likely there will be a business model change in FNB to address that changing market and to ensure that we're very competitive within that space. So looking at how this translates into the overall result. Riaz has touched on a number of these items already, but the headline earnings of 170 cents per share is the best first half performance that Metair has delivered yet. Operating profit at ZAR 545 million and just above 9% operating margin. So from a margin perspective, pretty much -- pretty good especially energy storage above 10%. And then EBITDA at ZAR 700 million, also a really good performance. On return on invested capital, we're showing 2 metrics on return on invested capital. The one is adjusted return on invested capital at 11.6%. It's an incentivization linked return on invested capital, and it does take into account historical capital allocation especially on goodwill and intangibles and correct currency devaluation on those items. So it does come out a little bit lower at 11.6%. But on a pure balance sheet to balance sheet perspective, right around 16.3% for this half year. We've also -- from a free cash perspective, it was an outflow of ZAR 142 million as working capital increase, as activities levels pickup as well as the working capital spend in the first 6 months of the year impacted us on an LTM basis, we're still positive. So on a vertical -- overall performance from a vertical compared to 2020. Energy storage, 32% increase in turnover. Automotive components, 88% increase internal and for the group perspective, a 53% increase in turnover. Operating profit, ZAR 328 million at a margin of above 10% for energy storage and a return on invested capital of 23.5%, which is on a last 12-month basis, which is really great performance. Automotive components, ZAR 254 million operating profit at a margin of 7.3%. As we mentioned, there were significant costs incurred in the first 6 months of the year, which did impact that margin. The biggest single factor is the ZAR 60 million in air freight. But on top of that, we are starting to spend project costs for new models and new projects as we gear up for launching and then it was another ZAR 30 million to ZAR 35 million that we incurred in gearing up for those projects. So adding those items back, not much very good performance for the first 6 months of the year. And relative to 2019, energy storage at ZAR 328 million excellent performance. I think the first half 2019 was the previous best performance for energy storage. It is typically a second half -- more predominantly second half business because of the seasonality in Rombat and Mutlu, but certainly from the export business that we secured in the first half has really supported that on top of the increase in aftermarket volumes. Automotive components, slightly down on 2019, but 2019 didn't come with the level of disruption that we see in the 6 months. So I think still a really good performance from the teams. Return on invested capital, 22.3%, slightly above the 2 cost of capital. But yes, somewhere off the heights of the mid-30s that we used to see in the automotive components business, but I'm sure post model launches, we will gradually progress back to those levels. Then from an income statement point of view, just high-level income statement, our operating profit really impacted by or supported by improved volumes and capacity utilization. Capacity utilization has been really high. So the operating leverage has certainly assisted us especially in the energy storage part of the business and we will be seeing a record result. And 2020 June also included employee support costs of ZAR 75 million part of our COVID response strategy, and that hasn't been repeated in this year. So that's obviously a big difference as well. And then I've mentioned the supply chain issues in terms of overtime cost, air freight and on top of that, I mean, it does bring a lot of inefficiency in production and variability in production, which is not great. And other operating income has been largely in line with last year at around ZAR 74 million. And then we did see increase in our effective tax rate. Last year's tax rate was not a good reference point because it did include some loss-making entities in there, which distort the rate. But normally, we would be around 25%, 26% tax. So we are slightly above that, partly because of Turkish tax rates actually increased by 30% this year from 22% to 25%. We were expecting it to go down to 20% that actually increased to 25%. It's forecast to go down to 23% again from 2022 onwards. And then also good return on net equity performance of -- on a last 12-month basis of 18.1%, slightly better than what we achieved in 2019. From a returns perspective, as I mentioned, returns have been progressing well, improving post the disruption of 2020. And on an unadjusted basis, we are at 16.3% adjusted, slightly above 11.6%. And this is just the invested capital. So in energy storage, we have invested capital the absolute numbers and just not to confuse anybody. Energy storage, we have a ZAR 2.5 billion invested capital; automotive components, ZAR 1.5 billion. They will certainly increase as we increase the capital expenditure in the second half of the year. And then total for the group, we have ZAR 5.3 billion of unadjusted invested capital. From a balance sheet perspective, no major movements. We did see another Turkish lira devaluation on a spot or spot rate of 17%. So that did impact the asset base slightly. And we've seen some higher inventory, relatively speaking, higher inventory levels as we've -- as the operating levels have increased. We're also seeing, again, supply chain energy is difficult to manage. And some companies, we overshot; some companies, we hardly have enough stock. So it's really a big effort to manage it optimally, which is now near optimal. We're hoping it can get there. But I still think a very good performance given the disruption that we had and then still net healthy net cash on hand of ZAR 1.1 billion. On equity and liabilities side, the total net borrowings of ZAR 1.2 billion similar to December 2020, but that will increase as our new projects are coming online. Our CapEx split is more predominantly to the second half of 2021. We successfully extended the revolving credit facility, ZAR 750 million facility maturing in August by 5 years mature in August 2026. More specifically on working capital. The working capital days improved to 64 days, which comparatively in 2019 was mid-70s, I think it was 74 days in working capital. So although we've seen an increase in absolute terms in working capital actual underlying performance in working capital has been good at 64 days. And that, again, we have higher inventory levels and debt balances, especially in Mutlu at least as a result of the high activity levels. And we're also attempting to increase safety stock levels to support our customers, especially in South Africa, because of shopping delays, commodities, so shortages, et cetera. So we would probably like to see a little bit more inventory in South Africa, just to buffer that, in particular companies, especially. And then specifically on capital and debt structure at the moment, we are below 1x net debt to EBITDA. So about 1.8x. On a covenant measurement where we bring in Hesto, which has the big capital expansion, we are touching 1x net debt to EBITDA. So that's still very healthy. And as you can see, we've spent a lot of time raising debt this year. So I've seen a lot of -- a lot of our banks, a lot of Standard Bank, a lot of Hesto, a lot of Investec, and thank you for your support, but we did raise ZAR 850 million total facilities for Hesto to support them that ZAR 600 million 5-year term loan at 245 basis points above JIBAR and then a ZAR 250 million working capital facility, 3-year revolving credit facility at ZAR 225 million above JIBAR. And then secondly, we also, like I mentioned, extend as we said, the first bigger RCF facility of ZAR 750 million by 5 years, and that was priced at ZAR 225 million above JIBAR. And the final, we also have our preference share facility maturing in December 2021. And we have received favorable terms for the extension of that. So now it's just a matter of executing the process on that. Our capital expenditure, I mean, this is the biggest capital expenditure year for Metair because of the big growth and big projects that we are involved with. So most of our customers are busy with project. In this -- for 2021, we had approved or committed capital expenditure of ZAR 1.3 billion. We have authorized another ZAR 272 million of value-accretive CapEx during the first half of this year. The additional capital expenditures as new additional projects in South Africa, which are also linked. Secondly, as I mentioned, in energy storage, Mutlu is gaining significant market share, not just in Turkey, but also in some European factories in AGM. So we need to expand capacity in AGM. That's around ZAR 150 million to ZAR 160 million for AGM. The benefit of this new technology and localization initiative in the Turkish environment is that there are quite significant incentives attached to it. And for this capital, we will be receiving that 55% incentive of the total capital outlay. So that is very favorable and a good time to be spending on expansion with that -- with those incentives behind us. So automotive components vertical on a stand-alone basis. Sorry -- go back. On a stand-alone basis, turnover recovered to -- in excess of 2017 -- 2019 levels. Just again, just mentioned ZAR 60 million unplanned air freight expenses, more than ZAR 30 million in project cost for the component business. Lumotech performed particularly well in the first 6 months, and then has grown quite strongly over the past few years. And certainly, with the projects ahead of them seem to be in a very good space. At the moment, free cash for the period improved, although it was negative, and that improved comparatively -- compared to the previous period. And as I mentioned, ROIC 22.3% as we start the recovery of this business. On energy storage, turnover at 107% of 2019 levels, a very healthy margin of 10.1%. Mutlu, in particular, operating profit of TL 86 million which translates into ZAR 160 million. Rombat achieved ZAR 64 million and FNB generated ZAR 103 million, just reaching the 10% margin. I mentioned FNB specifically because they have been targeting to get back to that 10% margin for a year or two, actually 2 or 3 years now. So good performance from FNB in that respect. Working capital increase, so we see a little bit of increase in net working capital. Other invested capital declining a little bit. And industrial, as we mentioned made a small loss for the first 6 months. Now we anticipate firstly, in Turkish environment that it should improve for the second half of the year. We predominantly exposed to telecom business. And we think that part of the business will improve for the second half year. And in South Africa, as we mentioned, FNB will become more trade-focused in their operations. So longer term, I think the positioning of that business will be very good to service the market with great range of products at the right price and it doesn't -- it does not depend if it's late asset or of the mine, it will service the market on both and yes, 23.5% return on invested capital very good. Margin-wise on segments. Automotive margin was above 11% for the first half, so very good performance. And then industrial demand was still fairly weak, as we discussed in a small loss of 3% for the first 6 months. Overall, just looking at energy storage, separating them. Mutlu, I wish I could -- I wish next year when we report back to the market, I can repeat these percentages again. But for this first half, Mutlu is up 500%; Rombat up 183%; and FNB up close to 700% and I think importantly, this is on an LTM basis. So last 12-month basis, operating profit, so you'll see Mutlu has grown on an LTM basis from 2019 to 2021 from ZAR 413 million to ZAR 532 million. Rombat has almost doubled from ZAR 77 million to ZAR 145 million on an LTM basis. And FNB has remained fairly flat, but at ZAR 163 million, a pretty reasonable run rate for that. And with that, Riaz, I'll hand back to you for outlook and prospects.

Thank you, I appreciate it. Before I move on to outlook and prospects, I think it's -- I just need to say to all of our employees, all of the leaders in the business, a great job for the first half of the year. Given all of the challenges that we went through, supply chain, some semiconductor issues, being in the middle of a global pandemic. And certainly, the general disruptions we faced in each of our businesses, a great job to all of you for pulling together and bringing forward a fantastic result for us. Thank you for that. I think looking forward to H2, we have a positive outlook for the second half of the year. It will come with increased investment and project costs. And we will be focusing in automotive, certainly now is crunch time for a lot of the projects that are coming. So our priority is to support flawless new model launches and faces while maintaining positive operating activity momentum, very important for us. And even in energy, there will be some projects that will come through for OEs in each of those markets. We'll continue to drive effective project management and improve operating efficiencies to maintain our current base while still investing into the future. That's something that we have to do in parallel. Strong performance and quick recovery in energy storage, combined with those growth opportunities. For automotive is providing a pretty impetus for us now to refresh our strategic approach around the energy storage vertical, as I've mentioned before. Energy storage will continue to focus on expanding our automotive battery product range. And in South Africa, we've evaluated the technology, the market, the demand shift on our industrial battery manufacturing business at FNB. And this will be a strategic shift to a trade-focused model. Automotive component companies enter a preproduction and prototype manufacturing phase for projects, which will result in increased project costs ahead of the model launches. And as Sjoerd mentioned, that will continue into the second half of the year as well. And the impact of this as a result of this weight in this part of the year in anticipation of these launches coming through in the next 12 months will be that it could result in margins dipping below the 7% to 9% market guidance on auto, but we know that this comes with substantial long-term benefits. Outlook for the year is dependent on the continued availability of components and raw materials. We've mentioned that, and we think that will be the same for the second half of the year. And that's throughout the global supply chain. And that's assuming that we have logistical import, stability at the same time. And if I then look at auto and energy. In automotive, we expect FY '21, the local OEM manufacturing levels to be greater than 90% in 2019. We see that as something that possible, and we're working towards that with our customers. However, we expect our key customer volumes to remain approximately to FY '19 level. So we think that customers we deal with will have good volumes to the end of the year. This is subject to the availability of raw material and chips impacted by supply chain disruptions. We're seeing some of that come through. We're hearing some of that in the market. But thus far, we're still reasonably confident that our volume remains where it is. Full year EBIT margin will be adversely affected by project costs. I mentioned that before that it could dip below 7% and a further ZAR 100 million value accretive CapEx was approved during H1 '22 for new project business secured, including the total amount for Hesto, bringing it to ZAR 1.2 billion net. ln energy, we're expecting strong momentum from H1 to continue into H2 and a much improved full year outlook for other battery sales volume, sustained aftermarket and OEM demand and improved outlook for H2, we think that that's a possibility. This is barring any further supply chain interruptions there as well. Margins will be impacted in the short term by continued low industrial demand. This is from an FNB perspective. But we do think that there's good prospects in automotive battery sales for 3 companies. Full year segmental CapEx anticipated between ZAR 350 million and ZAR 400 million, including ZAR 150 million for AGM technology capacity expansion at Mutlu to support some of the new contracts awarded there, as Sjoerd mentioned before that Mutlu have a unit position in the Turkish market regarding AGM technology. So all in all, a busy second half of the year. And we are positive, confident that we think that we can finish the year on a very good note given the first half year performance. Thank you very much. Are there any questions? I'm going to hand over to Louise who may be able to pass this on to me.

We have our first question from Andrew Moses of MIBFA. He's asked if you can comment on the large increase in provisions.

Sure thing. I'm going to hand over to Sjoerd for that one.

There hasn't been any unusual increase in provisions. Some of the provisions, I'm not sure which time periods are being referenced, but towards the end of last year, towards December, we did take some small increase in provisions related to debtors. It wasn't anything significant. So I might just need to get back to you on this one if you've got some more specific detail, happy to answer that.

Thank you, Sir. The next question comes from [ Tinashe Ho ]. It is good result and congratulations on the good results. Could you please give some color as the size of the growth ambitions of the other OEMs, except Ford on which you have guided? What could the contribution from these new projects be to the group revenue?

Difficult to say exactly because we've got indications of what those volumes should look like. Suffice to say that let me give an overview, and then I'll hand over to Sjoerd for a little bit more information. And we think that by '23, '24, '25, where current volume is around the [ 500 ], we think it will be around the 560, 575, 580 mark 2021. By the time you get to '23, '24, '25 , it should be in the mid-700s. And that will be 4 plus the other manufacturers, Toyota, et cetera, et cetera. So we think that our big customers will grow a reasonable amount during that period. Sjoerd, your thoughts on that?

Yes. So on the overall production landscape not being customer-specific because some of the 2 or 3 big changes in model, which -- generally speaking, all of the investments that are going in our volume, some are big volume up and some are doubling production, et cetera. But our view is, by 2023, South African automotive production should be in excess of -- could be in excess of 750,000 vehicles. That's from, like Riaz said, just below 600 outlook for this year and 2019 was about 614,000 vehicles built in South Africa. So that is quite significant. So that is already, let's call it, a 20% increase, 20% to 25% increase in overall vehicle production. I think what's more significant from a Metair perspective is that our participation within that growth, our market share within that growth is growing quite significantly. We have not had -- I mean, Ford is a customer of Metair, but nowhere to the same extent as they will be in the next 2 to 3 years. And therefore, I think last year, and net guidance still remains in our -- in the presentation we did on a post-COVID recovery plan, we have not changed our view in the potential for Metair turnover growth could be based on, let's call it, 2019 -- let's call it, 2019, at least it could be anything between 50% and 70% within the next 3 years. We have the revenue. So that will follow on the back of a 20% to 25% increase in production volumes in South Africa.

Thank you. Just sticking with the projects. I'm just going to need another 1 from [ Tinashe ]. As you also spoke to the strategic region potential value unlock in the energy business, could you please comment on the prospect of disposing the business?

Yes, sure. I think one of the things that we need to make sure here is that the recovery is -- has been sustainable. We are quite confident after Q4 last year, after the first half of this year, that we should see this. There are some things that are out of season in the way that the performance worked in the first half of the year. But we think that there's -- it's going to continue. So once we, I think, consolidate that current earnings momentum, it's important for us to then conclude our evaluation of how this industry trends. These industry trends are going to emerge into the future. Once we've understood that, we want to then be able to be in a position where we position the business for the optimum value unlock potential. And we should be in a position to understand that much better by the end of the year with a view of taking action next year if needs be and there are a number of options, but that's the basis.

Thank you, Riaz. There's another question related to the energy storage business. Just asking whether the potential sale of the energy storage would be for all of the assets at once or separate. And then any indication of potential EV to EBITDA multiples and interest from potential acquirers. That's from Paul Whitburn of Rosendal Capital.

Thanks, Louise. I think yes, I've answered part of that question. Is it all or some, I think that's part of what we're going to look at now, certainly in terms of how they will recover, some are recovery more equal than others. And so we want to look at that during the second half of the year. Should I let you answer on behalf of credential multiples and so forth?

Yes, Riaz, from a multiple point of view we when we abandoned the previous process or post the process, it was COVID but also valuation multiples that recently treated last year, and we said we need to see a recovery in those multiples. So I think it's fair to say peer multiples, although there's no peer measurable because it's difficult to fund, but we understand broadly speaking, where the multiples are. And I don't think we will do justice to the value of the asset if we sold it below market multiples. This is a fantastic business. Great assets if we finally decide to dispose or sell or extract value in that fashion, it will be in line or above I think, the valuation range that we're seeing for peer companies.

The next question comes from Mike Townsend. Just to clarify, will total CapEx spend this year be ZAR 1.6 billion, i.e., will the full CapEx amount of ZAR 1.2 billion we spent in Hesto this year?

Sjoerd?

Yes, Mike, it just depends on timing. It might be ZAR 100 million that doesn't get spent that falls over into next year. The intention was to spend everything as much as required, but there might be a little bit that goes into next year. And it doesn't mean the project is delayed, and it doesn't mean that everything is on track. It's just a question of how we're managing the progress in terms of buildings and facilities, et cetera.

Just sticking with capital allocation. There's a question from [ Covis Elias ]. Can you share the capital allocation priorities in the next 3 years? Net debt-to-EBITDA will go above 1.5x with a higher capital expenditure. So will the priority be to pay down the debt to get back to a level of 1x net debt-to-EBITDA? Or will the priority be on buybacks or dividends?

So I think -- I think the debt that we are incurring because it's automotive component related post launch of these projects. It is by nature of the business. It is highly cash generative. So I think it already has a fairly reasonable amortization within the overall debt. So to prioritize anything steeper than that, I don't think would be necessary. We'll obviously assess it at the time. And then the question of dividends and buyback. I mean, dividends, I think our policy is clear between 2x and 4x. If we're highly cash generative, and we are -- we're not spending a lot of other capital, and we feel that from a debt-carrying capacity, we still find dividends will oscillate between 2x and 4x. So it might be -- on average, we've been at 3x, maybe it could be below that. And I think the question of share buybacks is where we are from a share value versus intrinsic value at that point in time. If the share price reflects what the Board believes is intrinsic value, then there's no reason to buyback shares. But if there is a discount, the intrinsic value, then clearly, that has to be a discussion in a full aboard. But we only know at that point in time where we are relative to intrinsic value.

Thank you, Sjoerd. And the next question also relates to CapEx. It's from James Timon of Prescient. Many thanks for the detailed presentation. Could you outline total CapEx estimates for 2021 and 2022, including and excluding Hesto. Also, what project costs and working capital impacts do you expect from the project.

No, that's me, but that's quite a question. So James, it's likely to be total CapEx this year ZAR 1.6 billion for 2021, give or take ZAR 100 million. Like I mentioned, it just depends on timing. Some of that clearly depends on timing. So that should be -- could be the total CapEx spend. Hestos' portion of that CapEx will be about ZAR 700 million. As we -- it's about -- sorry, it's about ZAR 900 million, but we did spend some last year. So it's about between ZAR 700 million and ZAR 800 million for this year, Hesto-specific. And then our CapEx outlook for 2022 is we still have some other projects, et cetera, but including Hesto, it should be close to depreciation and amortization, which does lift as we increase or grow the earnings on the back of projects. So that could be in the region of ZAR 500 million to ZAR 600 million in auto components and about probably ZAR 250 million to ZAR 300 million in energy storage.

Thank you, Sjoerd. The next question comes from Mark Narramore of Excelsia. Can we expect a stronger H2 than H1 as per your historic seasonality?

So Mark, I think from an energy storage perspective, we do have a traditionally stronger second half of the year. So as the markets are at the moment, we certainly think that Mutlu as well as Rombat could have stronger second half of the year. That is certainly what the environment looks like at this -- as we sit here today. From an FNB perspective, specifically, I think it has the ability or potential to have a stronger second half or equal second half to the year. But it will incur one-off cost as we change that FNB business model from a manufacturing -- from a manufacturing service market to a trade service aftermarket and that could bring anything between ZAR 20 million and ZAR 30 million in, let's call it, one-off costs to F&B, but was longer-term benefits. From a component point of view, it's a little bit, I suppose, not difficult to say, but less certain because we do have a supply chain , but putting supply chain aside we have 2 things: production from the second half. We've done 265,000 for the first half. We anticipate that to get closer to the greater than [ 575 ]. So the second half should be slightly stronger from a peer production point of view, but we are incurring project costs. So those one-off project costs, and it's not just Hesto. As we ramp up, we probably expect -- we did ZAR 30 million in the first half of the year and there's probably between ZAR 50 and ZAR 60 million in the second half of the year, costs associated with launching these products. So it's a bit of a mix. But overall, excluding disruptions and excluding one-offs, I certainly think we can have. There is potential for a stronger second half.

The next question comes from [ Covis Elias ] again. On your automotive components margin, how should we look at the margin progression in the long term 2022 onwards? Given the large Ford contract coming online, is the economies of scale that will be in place in 3 years' time?