Good afternoon, everyone, and welcome to Barloworld Limited's pre-close trading update event for the 11- months ended 31 August, 2024. Dominic Sewela, Group CEO, will be taking you through the trading update, and joining him on the panel are Nopasika Lila, Group Financial Director, Andronicca Masemola, CEO, Equipment Southern Africa, Emmy Leeka, CEO, Equipment Eurasia, and Chris Wierenga, CEO, Consumer Industries. At the conclusion of the update, should you wish to ask a question, please indicate by using the Request to Speak icon at the top right of your screen, or alternatively, you can use the Message tab at the top left of your screen. Kgaugelo Legoabe-Kgomari will read your question to the panel on your behalf. Audio questions will be unmuted by Lumi Global. I now hand you over to Dominic Sewela. Good afternoon, ladies and gentlemen. Welcome to another Barloworld's voluntary trading update for the 11- month, ended the 31st of August, 2024. I hope most of you have had an opportunity to read the trading update. I think, you know, just high level, it's been a very challenging, you know, year from a trading environment, particularly in Southern Africa, where, you know, when you look at a commodity cycle, the interest rates, you know, our challenges, you know, were really negative to our, you know, two business here in South Africa, Equipment Southern Africa, as well as, Ingrain. When you look at Eurasia, you know, I guess, you know, the stellar performer has been, you know, Mongolia, you know, in terms of the sales in the particular environment. I think all the metrics for Mongolia are good. And this is at the back of, you know, basically the, you know, opportunities coming out of China. In spite of China being facing different challenges, but they've been able to draw most of the commodities out of Mongolia. And I guess, you know, when it comes to Russia, from a trading environment, you know, that has been impacted in terms of sales, and I think this is likely due to the addressable market, you know, in terms of, you know, sanctions that have been imposed. You know, and I think, you know, year on year, month on month, you know, and those have been stringent, that we've seen the addressable market being impacted. You know, but notwithstanding, you know, I think, you know, the group has been really focused on the balance sheet, you know, to make sure that, you know, as we go through a down cycle, you know, we are able to release the capital and reduce the, you know, net debt of the group, you know, for this 11-month period. As you all understand, I think come September, we're able to, to, you know, push sales and then, you know, be able to unwind that book further. But I think, you know, when you look on a comparable basis, you know, on 11- months, we've been able to reduce net debt from ZAR 6.3 billion to about ZAR 3.5 billion. I think I won't go through the whole operational trading update. I have the respective, you know, executive on the lines. I have Emmy and Andronica, who are on business offshore, but they're dialing, and I've got Chris in the room as well as Nopasika, you know, the FD in the room, you know, so we will be taking questions. I think if you're able to type the questions, you know, we will be taking questions, you know, and we'll read them out as well as, you know, answer the questions as you type them. Dominic, if we could just wait a little while for participants to type out their questions and send them through. Okay, thank you. Dominic, as it stands, there are no questions currently. If we could, just give it maybe another 30 seconds. I guess, you know, I see you. Thanks, Mark. I can see your question. The question reads as, could you comment on parts and service demands and idle clients' fleets coming back in service? You know, you know, Andronica, can you see that question? I'll, c an you answer that? Because I think it's mainly specific to South Africa. Thanks, Dominic. As indicated in the trading update, our parts activity is in line with the prior year, despite the fact that we've seen a significant slowdown in the Southern Africa Region, and we are still seeing equipment that is parked. We did indicate in the previous update that we're looking at roughly about 200 units of mining equipment that are parked, and that is still the case. The biggest contributor really being Seriti. You probably have seen in the papers that they've also announced that they will be going through a restructuring program. In our engagement with Seriti, you know, they're looking at moving from owner mining to contract mining. So it looks like that fleet will be parked for some time as we pursue the contractors that will be onboarded. Thanks. Thanks, Andronicca. You know, the next question? So the next question is from Dumisani Ndlovu, All Weather, and the question reads as follows: Hello, thank you for the update. Can you please further unpack the Ingrain recovery for us, volume recovery or stability, along with cost containment? Hey, Chris. Yeah, thank you, Dominic. Thanks, KG. Good afternoon to Sandile. I think on the Ingrain side, we did give some color at the half year around the restructure that we'd undertaken in the business. At this particular point, we concluded our 189 restructure in the third quarter of our financial year. We've managed to reduce our salary bill in the business through that restructure. We've also been able to reorganize our shifts in the plants and are lowering our overtime bill as well. So I think we're seeing our fixed cost base come down quite pleasing or quite pleasingly compared to the same five months in the prior year. I think the biggest improvement that we have seen, though, is on the plant efficiency losses. If you recall, in March 2023, we had a ZAR 23 million loss. That was a further, That was exacerbated in the second half of last year, moving up to ZAR 77 million, which took us to a ZAR 100 million loss in the first, April 2023. For the first half of this year, we were at a ZAR 62 million loss, and we've been able to run to standard from April onwards. I think there's a small gain of around ZAR 1 million, on those, in this 5-month period. So I think that's been a large part of the margin expansion that's come through in the business. I think on the volume side, we've seen, volumes stabilize in the business. We've seen good demand from the beverages sector, particularly the alcoholic beverages sector, as we're building volumes and stock levels in the supply chain for peak. We've also seen some good offtake in the creamer segment during this particular year. Confectionery feeding the finish, I think, as Dominic indicated, as we're seeing you know, pressure in the SA consumer on discretionary spend. I think overall, though, we're comfortable with where the volumes are at and our ability to meet those. And then also, we've been able to push through price increases in line with the rising cost of maize and the pass-through on that into our customer base as well. So I think overall in Ingrain, we're quite comfy that we've dealt with many of the issues that we'd had up to the you know, let's call it up in the first half, and that recovery seems to be on track going into the second half and should bode well going forward. Thank you. Yeah, I guess that answers Marc Ter Mors question, you know, Brent. So the next question is from Brent, Absa. Afternoon, could you please provide some detail on the potential export control violation? And I'll move on to the next question, which is: could you please also provide some reasons behind the provisions raised at VT? Okay, great. Brent, maybe let me start with your last question first, then I get back to the first one. I think we disclosed that there's about ZAR 30 million of parts and solutions, you know, and about ZAR 5 million of that would relate to us, you know, being, you know, basically negotiating contract terminations. Because, I mean, customers would have provided their components and, you know, because of us being not able to now import other parts, you know, we would then have to have some of those parts being obsolete, you know, and against that backdrop, you know, that's what we are, you know, able to do. I'll give Sandile Langa, our head of legal, just to give the high level, you know, in terms of, you know, the issue around export control. And I can, Emmy or myself can talk about in the operational side of it. Sandile? Thank you, Dominic. Good afternoon. I see some of the questions are talking about potential sanctions violations. If I could just correct that, please, and confirm that what we are currently investigating are potential export control violations, and in particular, U.S. Export Control Violations. This relates to the importation of principally U.S.-origin parts into the Russian territory. We have appointed an independent forensic investigator who is currently undertaking that investigation process. As you would have noted, in the SENS announcement that the company issued on the 30th of September, we have also filed an initial notification of voluntary self-disclosure to the Bureau of Industry and Security in the U.S. In terms of that process, we have up to 180 days to complete the investigation and file a final investigation report with the BIS, and as indicated, that process is underway. Okay. Thanks, Dom. All right. Great start. I think there's a question from Shane. Shane's question is around the debt levels. I think the comment it says the comments around the share is poorly rated and low PE. Your debt is coming down quickly. When will you resume the share buyback? And there's another one there. Just, just read all of Shane's questions. Give me one second. Are you able to continue with the business? Yes. So in keeping with the question around Russia, the question is: Are you able to continue with the business in Russia for the foreseeable future? What is the nature of your relationship with Caterpillar? Is it healthy or is it strained? Was it negatively impacted by the potential, you said sanctions, but export control violations? Yeah. I guess, you know, on the first one, you know, Shane, you know, thanks for the questions. You know, because of the addressable market, you know, our view is that we should be able to trade with the inventory that's there up until next year, December. You know, that is if we are trading at this current level with the inventory that's allowable for us to be able to trade in that area. As I said on the call, you know, on last week, Monday, that managing stakeholders in this environment was very important. And hence, you know, the delay in talking to the market. You know, there were many other stakeholders that we had to talk to, including governments, you know. You know, therefore, Caterpillar was one of those stakeholders. You know, they have been working with us and assisting us in terms of the BIS notification, you know. So because of the approach, this is voluntary. You know, we decided to voluntarily report ourselves, and because there are clear, you know, procedures and controls in place, you know, Caterpillar, you know, is happy with that. I mean, you know, I do talk to them on an ongoing basis. So I think from that point of view, there are no issues. And once again, you know, as Sandile said, this is about export control. This is not about sanction violations. Thanks. I think, was there other questions? Can we maybe go also then to Marc Ter Mors question? I think he's sought clarity in terms of, what is the process that will be followed with regards to the self-reporting? What is the timeframe expected to report and resolve? Okay. Sandile, you wanna take that? Thanks, Dom. In terms of the BIS regulations, we have the 180 days to complete the investigation and file our final submission. There are no prescribed time periods beyond that, so we will really be in the hands of the BIS once we file that. Okay. The next question from Shane, just to complete the question, Dom. It was, the debt is coming down quite quickly, when will you resume a share buyback program? I think, you know, Shane, on this issue, we did say specifically, our focus is really on reducing the debt level. I think currently, you know, our view is that we still have a couple of more months to go, and because currently you're seeing the debt level for the 11- months. What's gonna be very important is to see us getting below this, you know, one month that's left, and we'll make a call once again from a capital allocation, you know, in terms of saying, you know, do we buy back shares or do we basically declare a dividend? Okay. I'm going to move on to then Mongolia. If you just give me one minute, please. One second. This question comes from Brent Madel, Absa: Can you detail the reasons for the strong revenue growth at Equipment Mongolia? Emmy, do you wanna comment on Mongolia? Yeah, thank you, and good afternoon, everyone. On Mongolia, we've seen that steep increase in terms of the top line, 61%, mainly driven by equipment sales, as we've seen a very good boom in coal exports increasing close to about 38%. Most of the machines that we sold to MAK were basically for a mining operation in Mongolia. However, when we look at the aftermarket, particularly parts, we've seen a double-digit growth, close to about 31%, but also from a service growth, we've seen about 28%. Overall, because of the commodity demands, as indicated earlier on by Dominic, it has been a good 11- months. Thank you. Thank you. I'm moving on then to, still on Mongolia. Why is the Mongolian income out of ZAR 10 million in profits? Surely it's cash payment from post-Caterpillar in bank. The accounting for the Mongolian income out of ZAR 10 million. The provision. Emmy, you want to just comment on the earn-out? Yeah. The earn-out in terms of where we've provided for the earn-out, as we did in terms of not achieving the targets in 2021, we had a reversal in terms of fair value adjustment and Ingrain as well now, because at the end of August, we hit the top line of that actually we had to provide to include the ZAR 10 million in terms of the fair value adjustment. And if I may add, the fair value adjustment was as a result of the fact that we had created a financial liability at the time of the transaction or date of the transaction. And in 2022, it was clear that the numbers were not going to be met, therefore, that amount had to be reclassified under fair value. So that is where, that is where and why you are seeing that amount or the earn-out coming through on value, fair value line. In fact, fair value adjustment line. Thank you. Thanks, Nopasika. The next question is from AJ Snyman, from Peregrine Capital. The question says: In the last call last week, you updated the market on the export control violations. You voluntarily disclosed that you mentioned that certain parts might have made their way into Russia via Mongolia. What percentage of your Mongolia subsidiary revenue might be attributed to sales to Russia in this regard? I think it's about, you know, 14% of the parts that are, you know, we're referring to. Yeah. Maybe let me just, can I just come in, Group CEO? Yeah. Yeah, sure. Yeah. If you look at the revenue, particularly for Mongolia, because it's an intercompany transaction, we didn't recognize that revenue. And then how it works for that period is that when Russia sells on sales to a customer, that's when we recognize a percentage of the commission. And then off that, during that period for 2024 financial year, the recognition for the commission was only about 2.5 million. So there's still more that's lying in there that hasn't been yet sold. So that's how we account for it. Yeah. Okay. Thanks, Sivi, for that. There's a couple more questions that come through on Ingrain, and this one comes from Tinashe, from Laurium. So the question is, w ith the operational improvements that you have delivered, Chris, the price increases taken and the outlook for volumes, can you please remind us again what the medium-term margin targets are? I think, Tinashe, we've been quite consistent in that we see through the cycle operating margins of between 11% and 13% in the business. And I think as things stand, we should be set to getting to those particular margins within the medium term, and I'm not expecting to see those in next year. But certainly, just beyond that time horizon, we should see our margins stabilize back at those particular levels. Thanks. That's good. Sandile Mbolompo, First Avenue Investment Management. Question reads as follows. Can you please comment on whether the cautionary statement relates to the BIS investigation? I think there's another one from Fraser. Mm-hmm. Last week. Yes. Oh, there we go. So this is from David Fraser, Peregrine Capital. Last week, you alluded to giving some clarity on the cautionary. Today, I see there was no mention of this in the update. Yeah, I guess, you know, the reason why I wanted to look at those two questions together. The BIS investigation is not related to the cautionary, you know, and the cautionary, you know, will be updated, you know, so, you know, we can wait for the update. Okay. Next, we've got Roy Campbell from RMB Morgan Stanley on the line. If you can unmute for him, please, Roy, go ahead. Thank you. Good afternoon. My apologies. I'm still a little unclear as to what the circumstances were that led you to commissioning this investigation. So what is the exact transaction that has happened? If you can just clear that up for me, please. And then secondly is, on the inventory, or on the obsolescence provision, Dominic, you said earlier, I didn't quite get the value of what the split is between your restructuring and your inventory obsolescence, please. Okay. Thanks, Roy. I said, you know, 25, you know, relates to the parts obsolescence, and five, you know, relates to restructuring. You know, and I guess, you know, just on your, on your first question, like, you know, just to give you context, remember, I've been saying this, you know, Roy, you know, every time we meet, that obviously we'll be reviewing the sanctions regime in Russia on an ongoing basis. And the guidance I gave from the get-go when this war started, that, you know, for us, is to run this business for breakeven. And the reason why I said that, that back then, was that obviously we need to watch the sanctions, you know, because they will make the trading environment very difficult. And we started seeing voluminous, you know, sort of restrictions coming through in terms of export control, you know, in terms of the, you know, sort of parts that we could not import into the territory. And, as part of our controls, we then asked the team in territory to say, "You know, could you confirm that you are following the process?" And we went through, you know, we took our compliance team, just go through that process. That's when we picked up that, you know, in effect, you know, there were parts, you know, that were now impacted by the export control regimes that have come through, that the team shouldn't have brought through. And I guess it arose out of that, you know. Because it's our own investigation, we also did look at sanctions, and, as Sandile said, we didn't pick up anything on sanctions, you know. Therefore, we felt it is important that first and foremost, you know, self-reporting to mitigate, you know, any punitive issues, you know, with BIS, you know, can be mitigated. We said, you know, that's the route that we're choosing to go. We didn't have to go that route, but we said we have to go that route. We didn't have to go to OFAC because, in our view, there was nothing, you know, relating to sanctions. But notwithstanding, you know, we said, you know, when we appointed, you know, an independent investigator, you know, in this particular instance, the board chose to appoint ENS. You know, they would have to look not only just at, you know, exchange controls. They should look if, in fact, you know, there would have been any sanctions, you know, that could have been violated. In our view, as I said, I don't think so, but notwithstanding, it's important that those becomes verified. I think that is the background against which this had been. And to give you a sense, in April, when the war started, we're talking about six schedules. You know, as of July, we are talking about, you know, well over 2,400 schedule, you know, and, and, that's, that was quite voluminous, and that doesn't excuse the team to have not gone through the rigor. And that's how we just said, you know, let's, let's test, you know, our controls, and that, that's how we picked it up. I hope that helps, right? Thanks, yeah. Thank you, yeah. Now, if you are found, if your internal investigation is found to have then violated these export control regulations, what is the potential penalty or fines? You know, what is the structure in which it has to go through? And, you know, now that you've had the voluntary disclosure, does that lessen the potential impact over here? Yeah. So, remember what Sandile said in the beginning, is that, you know, we notified the authority first and foremost, and they give us 180 days to then investigate. And once we've investigated, we submit a report to them. And I guess, during this period, it's very critical and important that we are thorough and, you know, and make sure that we are able to disclose. You know, and the reason why that is the case is that if you've done so. And I mean, you know, just based on some of what we've been told by our legal counsel, is that there's been companies that, you know, have sort of never gotten any penalty of any sort. But I guess, obviously, I can't determine now what that penalty would be, if there's gonna be any. But my hope is that, you know, as a company, having disclosed, we're hoping that, you know, the penalty, you know, is not severe. Okay. But you don't know whether that penalty could be the value of the inventory that's transgressed, or if it's 10% of revenues, or you don't have any kind of structure that we can go on? No, not at the moment. And I guess, you know, we're taking advice from our lawyers out of the U.S., and then, yeah, not at the moment. Yeah. Thank you. Thank you. I think that dispenses of a lot of questions around voluntary disclosure. Just back onto Mongolia. Question from Nick Kruger. What does the order book for new equipment look like in Mongolia? Thank you. Emmy? Yeah. Thank you. Yeah, excuse me, the order book still look very strong. We're sitting at about, close to about $79.6 million. As we reported, close of around September last year, which increased over $100 million, but still very strong, about, as I've indicated, close to $80 million US dollars. Thank you. Okay. Thanks, Emmy. Nopasika, question from Paul Steegers, and it talks to interest costs in the second half. Have these reduced? Yes. Thank you, Paul. So, indeed, the interest costs have reduced in the second part of the year. You'll recall that we had settled most of, well, in fact, a larger component of the debt along, in fact, during the year. So when we get to the end of the year, we're seeing a marginal reduction in interest. Sorry, in the finance cost itself. And the reduction is really as a result of us having paid down the debt, focusing on that. Because, as you would appreciate, the actual interest rate itself has not gone down. So you will be seeing a reduction in finance costs, albeit marginal, and then a bigger portion you'll see coming through early in the next financial year. Thanks, Nopasika. Question from Thakgalo Hlongwane, Oyster Catcher Investments. Please unpack half on half construction equipment, Southern Africa performance, and provide revenue split within Equipment Southern Africa. Andronicca. Andronicca. Thanks, KG, for that question. We will share the full details of the revenue split when we release the final results, but based on the historic performance between SA and the countries outside South Africa, that split ranges between 60 to 65 being SA, and the balance being the rest of Africa. On construction, we have seen some improvement, although, you know, the volumes are not yet at the levels that we are expecting. There is a lot of positive sentiment coming from our customers as we engage with them of late. They are starting to see some movement in the adjudication of some of the tenders that they're waiting for. Our expectation is that in the short term, we'll start seeing some improvement in activity. Thanks. Thanks, Andronicca. Just back onto, I mean, it's clarity sought from, w ith regards to the self-disclosure. What is the difference in sanctions approach versus export controls violation approach? And this question comes from Paul, and I think there's a couple of questions that needed that, that type of clarity, Sandile. Okay. Thanks, KG. Sanctions will typically apply against targeted entities and individuals in restricted territories. And export control, particularly the U.S. export control restrictions, apply to, as I indicated earlier, principally U.S. origin items that in this case were restricted from importation into Russia. But they also apply against items that are manufactured elsewhere but that may contain U.S. componentry or that may have been manufactured using U.S. software or technology. And as Dominic indicated, how the BIS regulates export control restrictions is that from time to time they publish supplements in which they list items that are restricted from importation into the territory. You may apply for a license, and the BIS does grant licenses on application in places where there are restrictions. In terms of sanctions, I think it will be well understood that sanctions are generally regarded as being a much more serious issue than export controls. As Dominic indicated, we are dealing currently, as at July this year, with in excess of 2400 items that we potentially deal with that are restricted in Russia. And the U.S. authorities have been updating their supplements with greater frequency as the war- as the conflict has intensified. Although the investigation is underway, and it will determine whether or not, in fact, these violations have taken place, and if so, the extent to which they have taken place. The investigation will also look at issues such as, are there aggravating factors in place? Are there mitigating factors in place, which will have an impact on whatever the outcome, or how the BIS will view the report that we will submit. And that will all go towards whatever the outcome of the investigation is going to be. Anything more than that at this stage would be speculating. Thanks, Santiago. The next question from Brett. It says, if the risk of breaching export controls in Russia is high, is it in the company's best interest to continue to operate in this region? Yeah, I guess, Brent, in terms of, you know, there are things, you know, since we've picked this up as a mitigation, we've since told the team, you know, not to import any parts into Russia anymore. Remember, there are parts that you can still import legally into Russia, but you've got to go through a fine-tooth comb. In our view is that, you know, the risk is high. I think when I was asked the question, as to how long do we think we could trade based on what we have in inventory, you know, and the addressable market, you know, I said, you know, we could probably trade, you know, if we didn't change anything, you know, till about next year, December. So I think between now and way before then, obviously, we are in discussion with the board to look at various options. And I guess, you know, it's important that as we do that, we deal with this matter of the investigation, you know, properly. You know, and our view is that, you know, we should be able to make a decision. I did say from the get-go that we would look that this business doesn't look lose money. If we lose money, we will. I did say that, you know, we will basically look at various options like, you know, what are your business, and then basically, you know, you know, a t the moment, you know, we're still in discussions with the board, and we're navigating, you know, this investigation properly, and then we'll be able to come up with various options. Thanks, Dominic. Moving to Bartrac. Andronicca, this is for you. Why is Bartrac so weak in the second half from post-year Snapback? Thanks, Paul, for that question. Yes, with Bartrac, we were busy with the big components replacement cycle, and we had already secured the contract, you know, expectations were that activity will continue. Unfortunately, one of our key customers since the beginning of July has been dealing with some issues with the regulator. I won't mention the name at this point because it's not yet public knowledge, and that has resulted in a slowdown in activity. It has become a bit challenging to trade. They really settle assets outside their offshore accounts because their local accounts are not active. But, on the other side, there has been some shortage of some of the key parts, particularly related to the engine components. It is a global shortage that we are experiencing right now, and that also has caused a slowdown. Thanks. Thanks, Andronicca. Next question is from Jauwad Jackson. Can you please provide detail on the earn out matrix? Is the total amount capped, and if so, at what amount? And this relates to the Mongolian earn out. Thank you. Yeah. When we bought the business, you know, from Wagner, you know, we agreed on a total of about $30 million earn-out, you know, over a 4-year period. You know, this was pegged on the, you know, sales or revenue of the business, you know. You know, the first two years, you know, you could roll up. If ever the first earn-out was the first $10 million, if they don't hit that range, you could roll it up to the second year, and, obviously. So far, you know, the business couldn't meet those revenue metrics up until now. So, basically, you know, the $20 million, you know, is not payable. You know, had the business not met its, you know, revenue metric this year, we would not have paid. But as you could, as you can see, the business has performed, and we actually have to pay this earn-out, you know, to the Wagner family. Okay. Thank you, Dominic. There's a question from James Prichard, Prescient Securities. Many thanks for the call. Does the export violation involve the Mongolian jurisdiction? Also, does this information affect the cautionary announcement development? Yeah, I guess, you know, James, we've addressed the issue of the cautionary. But, you know, I did say that, you know, Mongolia, we're talking about, you know, $14 million of parts that $14 million of parts that went through to Russia. There's another question here from Nick Kruger. Can you comment on the news reports in July with regards to illegal trade with Russia? It seems there was a long lag between these reports and your response dealing with the matter. What was the reason for the lag? There was no lag. As I said, I mean, you know, the decision for us to investigate the business was long after, long before that, July, you know, what was it? The article? The Insider. The Insider Article. Yeah. I mean, this was long before that. You know, these two issues are not related. I think a lot of the questions have been addressed. Just going to wait 30 seconds to see if there are other questions that do come up. Here we go. So question from Shane Watkins of All Weather Capital. Are there any additional Cat territories that you could acquire? Would you have appetite to acquire an additional territory? Certainly. I think, you know, within the jurisdiction which you operate, I mean, I did say when we sold, you know, Spain and Portugal, you know, we do have an appetite, you know, to acquire, you know, jurisdictions that are contiguous to our geography. And the reason why we went for Mongolia, it was contiguous, and there are territories that are quite contiguous to our profile of geographies now, currently, yeah. Yeah. No, I think a lot of the questions then, Dominic, that remain have been answered directly or indirectly. I don't see any other new question that. I think in terms of the audio questions, there's no one online. Okay. Thanks. All right. I guess, you know, this will basically bring us to a close. And thanks, everybody. You know, we still have a couple of days. If ever there are more questions, you know, you could send them directly to investor relations, and we'll try and quickly turn those around. And, you know, other than that, you know, we will see most of you in November, when we release the final results. Thanks, everybody.