Q2 2026 Metair Investments Ltd Earnings Call
Speaker #1: Good morning. welcome to the results presentation of META Investments Limited for the 6-month ended 30 June 2026. My name is Paul O. Flaherty. I'm the CEO of META, and I'm joined today by Alistair Walker, the CFO.
Speaker #1: I'll provide you with a bit of an operational update for the 6 months, hand over to Alistair for the financial review, and then, talk about some prospects for the next 6 months and hand over for Q&A.
Speaker #1: So, just a reminder of who we are: as META, we are in the auto component manufacturing as well as the aftermarket parts and retail.
Speaker #1: Comprising of a number of subsidiaries in South Africa, supplying to major OEMs—you can see that on the left of the screen—Toyota, Ford primarily, but also Isuzu, Volkswagen, and Mahindra.
Speaker #1: And then in the aftermarket division, we have a number of subsidiaries all working under a cluster but separate from a management point of view to make sure we have channel protection.
Speaker #1: Our products go into vehicles that are exported around the world, as well as for local production. And our aftermarket presence is primarily South Africa, but also with footprints elsewhere in Africa.
Speaker #1: If I talk about the results for the 6 months, our underlying earnings are stable and are as a result of our operational reset. Orders only is recovering, and our cash conversion is a key-term priority.
Speaker #1: So we spoke a lot about to the market over the last 2 and a half years about a strategic reset. We went through the hard yards in 2024, then really looked at our operations in 2025 and made sure we had stability, made sure we closed down operations that were not profitable, looked at our profitable operations, and made sure that they were running to the full of their potential.
Speaker #1: And that is substantially complete, but always subject to market conditions. And now we really are in the growth phase for META. Very good performance from our OEM manufacturing companies.
Speaker #1: We had a seamless model changeover with our customer, without any issues. As I've been told, happens, has happened in the past at META. So very, very good performance from our manufacturing units.
Speaker #1: Our OEM production levels are stabilizing, but they're at lower levels, and we'll go into the production for the first 6 months. Aftermarket, as we try and recover through auto zone, challenging market conditions, but definitely signs of improvement, particularly towards the end of the first half.
Speaker #1: And overall for the first 6 months, auto zone is growing ahead of the market and is returning to profitability. In terms of our ROMBAT competition commission, fine.
Speaker #1: For ROMBAT, we have appealed that fine. And ROMBAT have paid the first installment of the fine of 4.2 million euro in August of 2026.
Speaker #1: So very solid half-one performance from us. In terms of lower production, from our OEMs, but we still managed to keep our revenue stable in this challenging environment.
Speaker #1: Our EBIT increased by 1% with our EBIT margin in line with the prior period. And sustainable margin improvements in all of our OEM businesses, other than Hesto, which had the biggest effect of the lower volumes, but excellent performance in the rest of our OEM manufacturing.
Speaker #1: And our HEPS from continuing operations increased by 4% to 71 cents per share from 68 cents per share in the prior period. Our earnings per share from continuing operations improved from a loss of 90 cents per share in the prior period to a profit of 70 cents per share.
Speaker #1: Alistair will unpack that a little bit more. Really focused on our debt, really focused on EBITDA, and cash flow. Cash flow generation. And our net debt is down from 5 billion to 4.3 billion.
Speaker #1: And we successfully concluded a total refinance of our SA obligor finance package and extended it for another 5 years during this period. Our cash at the end of the period up from 143 million to 620 million.
Speaker #1: And all of our debt covenants were complied with. On the right-hand side, just we talk about the aftermarket, and we talk about the potential of the aftermarket, and recently there was a survey done by the localization support fund.
Speaker #1: They did present it to the market. They were supported by EY. And you can see the size of the prize. The market size today in South Africa estimated at 100 billion rand.
Speaker #1: And growing. And with an aging car park, that's where we see the potential for growth in our aftermarket parts and retail. If I look at vehicle volumes, mainly let's look at sales.
Speaker #1: Let's start with sales. So sales of passenger and light commercial vehicles in the first 6 months of the year was very robust. Up by 12% or 12.9% year on year.
Speaker #1: And in June, it's the strongest SA vehicle sales performance in 19 years. However, impacted significantly by Chinese and Indian imports. And most of that growth is as a result of that.
Speaker #1: In addition, the SA vehicle exports declined 7.8% year on year. Impacting local OEM manufacturers. And therefore you can see the pressure on our local OEMs, and it's depicted in those production volumes.
Speaker #1: Where period on period, half-year last year to half-year this year, basically the stable 3,000-odd vehicles up. But for META, where we predominantly serve, our net vehicles are down.
Speaker #1: If you look at Toyota and Ford. Despite that, we had strong resilient results. So just a little bit on the import surge. From all the various studies done through NAMSA and various other bodies, you can see from 2021 to 2025, the imports into the South African market, going from 56% to 69% in 2025.
Speaker #1: And this isn't stopping. And continues through the first 6 months of the year. So a lot of. Again, a lot of pressure on the OEMs in South Africa, which ultimately is a lot of pressure on META.
Speaker #1: And again, just talks to the resilience of this company and the good results that we've had in half-one. If I look at the automotive component, division specifically, as I said, local production subdued due to the import penetration.
Speaker #1: And our localization targets as per the South African auto master plan are below the industry targets, putting a lot of pressure on the industry.
Speaker #1: Logistics, energy, and infrastructure constraints still hamper exports. Yes, we've seen improvements in certain parts of the infrastructure, but there's still significant issues to be dealt with.
Speaker #1: In terms of Hesto specifically, which is our flagship harness wiring operation, it's a remarkable turnaround when you think of it from 2022, 2023, and even into early parts of 2024.
Speaker #1: And that turnaround continues. And significant effort that we've put into Hesto. But very exposed to those OEM volumes. And probably more exposed than others, particularly to the volumes from Ford that have gone down.
Speaker #1: And its revenue is down 17% year on year. And the EBIT down by 36% year on year, but still a very good performance. In the other OEMs, which are more agile, more flexible, even though they've had lower revenues of 3%, their EBIT growth is 30% year on year.
Speaker #1: And that shows the adaptability and the flexibility and the focus on cost-cutting that we have introduced into the other operations. From a META aftermarket parts and retail, and it's integral to our diversification strategy.
Speaker #1: It's currently around the third of our revenue, and we've always spoken about a medium-term strategy of getting the aftermarket parts. Retail to 50% of our total revenue.
Speaker #1: Because of the pressure on the local OEMs. And order zones, as I reported at the year-end, was trailing about 6 months behind the expectations.
Speaker #1: And that continues. So they haven't fallen further behind, but to the original business plan that we had when we purchased order zone at the beginning of 2024, we're trailing 6 months behind that.
Speaker #1: Total new management team in place, as we announced to the market. And it started to return to profits from May of this year. So good signs, but a tough market.
Speaker #1: First battery, we've spoken about that. Challenging market conditions, particularly with imported cheap batteries. And there's a market preference for those more affordable batteries. But again, stable performance from first battery.
Speaker #1: And we continue to monitor that operation. We did announce. As you've seen in our results, post the period end, we did have a strike.
Speaker #1: In our first battery business, as we downsize, as we make sure we have the right footprint. But we've managed to settle that strike. And everything is back in operation.
Speaker #1: Our Africa growth strategy continues, particularly focusing on the aftermarket parts and retail. We've appointed a permanent team in the period. And that growing aging vehicle park still represents a very good opportunity for META.
Speaker #1: If I look specifically at our operational performance from a segmental point of view, in the Hesto numbers, I'm not going to get into the accounting confusion for the first 3 months of the prior period.
Speaker #1: But if we look at Hesto, total revenue of 2.6 billion, down 17% from half-one 2025. And that's the low volumes. You've seen in one of those previous slides, very exposed to Toyota and Ford.
Speaker #1: And with the net of those two the volume is down. EBIT at 136 million, again down to 36%. But if you look at it at the EBIT margin, at 5.3% versus the half-one of 6.9%.
Speaker #1: That's the challenge we have for the next period. And that's where we are really focusing on to get those EBIT margins back where we need it to be.
Speaker #1: And it's about footprint. This is about footprint. As those volumes come down, remember this is the most people that are employed in META, around 7,000 people.
Speaker #1: And how do you reduce that footprint for the lower volumes? So the reaction to do that is a little bit slower. But we're confident that we can get those EBIT margins back up to where they have been previously.
Speaker #1: And certainly in the second part of the year. If you look at the rest of the OEMs, Smiths, Lumitech, Automoles, Supreme, and Unitrade, again, revenue down because of the net down in the volumes.
Speaker #1: To 3.5 billion. From the previous year of 3.6. But a great performance in our EBIT, up 30% to 297 million from 228 at a margin of 8.5%.
Speaker #1: And the half-year last year at 6.4%. We believe those are sustainable, significant work done in those factories to get the footprint right. And significant work in how they flex and are agile to market conditions.
Speaker #1: So great performance from that collective. In the aftermarket parts and retail, if we talk to Africa aftermarket parts and retail, which would be first battery, order zone.
Speaker #1: ATE, and QSE QSV and Move. Revenue up 6% overall to 1.9 billion from 1.8 billion. But the EBIT remained unchanged. So there was a loss in order zone, which we've disclosed.
Speaker #1: But the last 2 months returning to profitability. And the EBIT margin at 2.9% period on period versus 3.1% last year. Rombat, which we now completely separately report, and Alistair will go through that in the segmental.
Speaker #1: Revenue down by 21% to 955 million. Tough conditions in the European market. They've been more affected by the Middle Eastern issues than. Possibly we have done here.
Speaker #1: So revenue down. And EBIT slightly down, but their margins significant improvement in their margins to 5.4%. So very strong performance by Rombat. In very trying conditions.
Speaker #1: As they go forward. I'll now hand over to Alistair.
Speaker #2: Thanks, Paul. Good morning, ladies and gentlemen. Give me great pleasure to present the results for the first half of FY26. As Paul mentioned, overall a pleasing performance in a challenging period, which was evidenced by lower volumes in one key customer.
Speaker #2: And the model changeover in another key customer, but which was seamlessly executed on. So despite these challenges, the group delivered a solid performance due to the right sizing and restructuring initiatives, which commenced in 2024, to ensure that the business remains agile and adaptable to the market conditions and customer shifts.
Speaker #2: When reviewing these results, it is worth noting the change in accounting treatment and the consolidation of Hesto harnesses with effect from the 1st of April 2025, which impacts a comparable period and should be born in mind when reviewing the results.
Speaker #2: The group delivered a slight increase in revenue of 1% to 8.5 billion for the 6 months. EBITDA was up 8% to 760 million. And EBIT was up 1% to 444 million, versus 439 million in the prior period.
Speaker #2: Group net debt was 4.3 billion a period end, versus 5 billion. For the comparable. Net debt comprises 4.9 billion of gross debt, less net cash of 620 million at the period end.
Speaker #2: The group's cash flow is fairly cyclical, with significant outflows in the first half and liberation of cash in the second half due to the working capital cycle mainly in the OEM businesses.
Speaker #2: We're pleased with the cash balance at the half, as this compares to 143 million at June 2025, which remains a significant improvement versus a comparable period.
Speaker #2: Headline earnings per share from continuing operations rose to 71 cents per share, which compares to 68 cents per share in the prior period, which again demonstrates the operational stability in the business being a key feature as the benefits of the right sizing and restructuring, which commenced in 2024, continued to buffer the volume volatility.
Speaker #2: Rowick, which is our key performance metric, increased to 11.2% from 11.1 at the end of FY25, which again reflects the stable operational performance in the period.
Speaker #2: Our reporting segments are the OEM segment, which supplies components directly to the original equipment manufacturers, and the aftermarket parts and retail, or AFM, segment, which primarily serves the independent aftermarket and retail distribution channels.
Speaker #2: This period, we've also elected to split out Rombat within aftermarket to show its results separately from the rest of AFM Africa. Rombat is a separate debt obligo and is managed independently from the rest of the business.
Speaker #2: The OEM segment highlights. OEM production volumes were stable in the period, up 1% versus a comparable period. And despite the stable volume growth, the EBIT increased 12%, resulting from the benefits of those restructuring initiatives, which we've spoken about.
Speaker #2: Hesto, as Paul mentioned, was adversely impacted by the lower volumes at one of the key customers, and Hesto's revenue and EBIT is down 17% and 36% respectively, versus the prior period.
Speaker #2: The remaining OEM businesses grew EBIT by 30% period on period and improving that EBIT margin from 6.4 to 8.5% due to the effect of those operational improvement initiatives.
Speaker #2: On the AFM side, we've split it into AFM Africa and Rombat, as I mentioned. AFM Africa reflected revenue up by 6%, mainly auto zone, but flat EBIT period on period.
Speaker #2: As Paul mentioned, auto zone incurred losses, but which were reduced modestly from 24 million in the prior period to 21 million in this half.
Speaker #2: Auto zone is trailing about 6 months behind its original recovery plan. Within AFM Africa, first battery delivered a solid performance with EBIT increasing about 4% to 82 million rand, with battery volumes increasing about 5,000 units period on period.
Speaker #2: Which is a good performance in a very challenged market. Rombat had a solid first half, despite the lower revenue due to input cost containment.
Speaker #2: Turning to the cash flow bridge for the half, please note again, like we did in the segmental report, we've separated Rombat out from all figures and shown it separately.
Speaker #2: So the group X Rombat generated 697 million rand from cash from operations, and invested 493 million. Into working capital for the period. As I've mentioned, the group is quite cyclical in terms of its working capital cycle, with an investment in working capital in the first half of each fiscal, as the factory startup at the beginning of the year, but a liberation of working capital which turns to cash in the second half as the factory's close in early December.
Speaker #2: This is evidenced by the group's cash balance of 1.2 billion at the end of 2025, compared to 620 million at the end of June 2026.
Speaker #2: We remain very focused on the inventory levels. And in the first half, and this focus is evidenced by modest investments of 39 million rand into inventory in the first half, despite the volatility from the US-Iran conflict, which is impacting global supply chains.
Speaker #2: The investment into receivables is higher due to higher volumes in June. April and May were slower months, with a model changeover, but June was a very strong month, reflecting higher sales volumes and higher receivables as a result.
Speaker #2: Trade and other payables increased by 339 million, partially offsetting the receivables billed as production volumes ramped up in June. During the period, the group paid interest of 307 rand and tax of 50 million rand.
Speaker #2: Investing activities comprises capex of 232 million rand, offset by interest received of 25 million rand. The capex for FY25 and FY26 remains elevated due to the required investment to prepare for the model changeover that happened in the first half of the year.
Speaker #2: Finally, the group had a net outflow of 167 million rand from the financing activities, which reflects debt repayments, and lease payments of 102 million for the period.
Speaker #2: Rombat cash flow, which is separately shown on the right-hand side, reflects cash generated from operations of 68 million rand, less investments into working capital of 85 million rand, and capex of 12 million, with outflows for tax and debt-related repayments of 40 million rand in aggregate.
Speaker #2: Turning to the debt structure slides, as we've mentioned before, the group has managed in three separate ring-fenced debt obligos. SA obligo, which comprises all the South African assets except Hesto, Hesto as a separate obligo, and Rombat.
Speaker #2: Just to note, there's no link between the South African obligo groups and Rombat. During the period under review, the group successfully executed a refinance of the group's SA obligo borrowings of 3.3 billion and consolidated the debt with one lender being Standard Bank.
Speaker #2: The objective of the SA obligo refinance was to align the term of the debt with the forecast earnings and cash flow generation, and to remove the 1.6 billion facility C repayment previously due in June 2027.
Speaker #2: Important to note, the EBITDA trigger per the previous debt construct, which required the group to meet cumulative EBITDA targets, failing which an asset sale or rights offer was required, has also been removed as part of this refinance.
Speaker #2: The new debt terms include a ratchet down of interest rate as the SA obligo delivers, so we remain principally focused on deleveraging to reduce the interest payments.
Speaker #2: Through a reduced debt quantum and also lower rates as the leverage ratio improves. Separately, we are renegotiating the Hesto debt package to consolidate the debt with Standard Bank.
Speaker #2: We are in the final stages of the Hesto refinance and expect completion shortly. As Paul has mentioned, all covenant and debt requirements were met in the period.
Speaker #2: This slide reflects the group's total repayment obligations for the next 5 years. The top table reflects SA obligo and indicates the refinancing has successfully pushed out the majority of the maturities to FY31.
Speaker #2: The facilities contain leverage-based pricing ratchets, as I've mentioned on the previous slide, meaning the interest costs reduce as our debt levels decrease. This creates the double benefit from a debt reduction through both lower debt balances and lower margins, which is why EBITDA free cash generation free cash flow generation and debt reduction remain our number one priority.
Speaker #2: In addition, we have negotiated with Standard Bank to classify the loans as sustainability-linked loans, which subject to meeting certain sustainability KPIs, we'll see further margin benefit.
Speaker #2: This slide sets out our capital allocation and commitments for the second half of the year. The top left part of the slide indicates the capex spent in the first half, which amounted to 244 million rand, split between maintenance of 60 million rand and expansion and project-related capex of 172 million rand, plus Rombat capex of 12 million rand.
Speaker #2: As we have highlighted before, the capex for FY26 will be higher than normal at around 733 million rand for the year, covering maintenance and project capex.
Speaker #2: Project capex relates mainly to the investment for the new. Model changeover. We do expect total capex to moderate to between 400 and 450 million rand per annum from FY27 onwards.
Speaker #2: On the right-hand part of the slide, we reflect the ROIC, which is our key performance metric. ROIC is 11.2% at June 2026, slightly up from December 2025 due to the operational and financial stability in the period.
Speaker #2: Historically, ROIC has tracked volumes as evidenced by the lower ROIC in FY24 following the Toyota engine certification issues in Europe. But the recovery came through in the ROIC in FY25.
Speaker #2: We do expect the ROIC volatility to be less going forward as we diversify our revenues and our earnings through the increased exposure to the aftermarket segment.
Speaker #2: We remain intensely focused on disciplined capital allocation for investments in capex as well as working capital. ROIC is our key metric for all opex, working capital, and capex deployment.
Speaker #2: We also analyze return on assets IOR and payback to ensure that investments meet the appropriate return requirements. Thank you.
Speaker #1: Thanks, Alistair. So what do we expect over the next 6 months as Mate? Obviously, as reported previously, as you would read in the media, and is highlighted on a regular basis, the automotive sector is at a critical crossroads.
Speaker #1: And strategic government decisions are pivotable or pivotal, working with the industry. Government is really looking at the APDP2 and the automotive master plan itself.
Speaker #1: And close collaboration is needed by all the industry stakeholders to make sure that we can create the secure platform for the automotive industry going forward.
Speaker #1: Specifically, in the OEM market, you saw the higher volumes from Toyota, and they're expecting a slightly higher increases for the second half. There's been very strong demand for the new Toyota Hilux model.
Speaker #1: Ford volumes are lower as we had indicated at the full year, but we expect them to be stable going forward for the next 6 months.
Speaker #1: And the margins we've reported are we believe are very sustainable in the OEM's in the manufacturing companies for the next 6 months. What is known remains an absolute near-term priority.
Speaker #1: There's definitely signs of improvement in the general aftermarket. And if we look at the trading sales per day, order zone is growing ahead of the market.
Speaker #1: And we continue to focus on that. Yes, 6 months behind new management team in place, and we're confident for the next 6 months that we can show the turnaround at order zone.
Speaker #1: And our diversification strategy continues to grow that aftermarket part components. There's an aging vehicle park in South Africa, but also in the rest of Africa.
Speaker #1: And reduce our dependence on new vehicle production. A lot of stress in that sector doesn't mean we're walking away from that sector. It remains critical to Matei, but we have to diversify.
Speaker #1: And as I said, African aftermarket provides growth opportunities for us beyond South Africa. New team in place, strategy signed off, and opportunities identified. Thank you very much.
Speaker #1: I'll now hand over for the Q&A.
Speaker #3: Thank you very much, Paul. We will go to the questions on the webcast. And the first question is from Isaion@profitworks. The question is for Alistair.
Speaker #3: Despite strong cash generation before working capital, receivables absorbed 779 million in H1. How much of this is timing related, and expected to unwind in H2?
Speaker #3: And what level of free cash flow and net debt reduction should be expected by year-end?
Speaker #1: So what was the last part, Ray?
Speaker #3: What level of free cash flow and net debt reduction should be expected by year-end?
Speaker #1: Okay. Perhaps if I can just answer the second part. So as reflected in last year, if you look at FY25, there was a substantial investment in working capital in the first half of 843 million rand.
Speaker #1: And our cash balance at the end of June 2025 was 143 million rand. The cash balance at the end of the year was 1.2 billion rand.
Speaker #1: So there's a substantial increase in the cash in the second half. That is due to the natural working capital cycle. To answer the first part of the question, the significant investment in receivables in the first half at the end of the period, part of that is a large part of that is timing related because the volumes in June were high after slower volumes in April and May.
Speaker #1: So due to the model changeover, there was a bit of a slowdown in volumes, but there was a significant volume pickup in June. And that's really resulted in a large part of that trade receivables.
Speaker #1: Just to note that the trade receivables includes contract assets. So the IFRS 15 adjustment comes through there as well. But we do expect the working capital as a whole to moderate in the second half.
Speaker #1: And the categorization between it will largely be timing related between receivables, between payables, and inventory. I think what's notable is our focus on inventory, which you can also see through the moderate investment in inventory.
Speaker #1: So we track inventory quite cautiously. But we expect a liberation from the working capital in the second half of the year.
Speaker #3: Okay. Thanks, Alistair. The second question is also from Isaion@profitworks. This question is for Paul. With a falling share of locally produced vehicles, what opportunities are Matei pursuing to become a localization partner to the new OEM entrance?
Speaker #3: And when can these customers become material contributors to revenue?
Speaker #1: Yeah. So there's substantial talk in the markets and activity in the market for new entrants. We've seen Mahindra a number of years back into the markets, and we already service Mahindra through Supreme Springs.
Speaker #1: But there's additional activity going on with all of our other manufacturers to see if we could supply to Mahindra and its requirements. We did a couple of years back, or 18 months back, have a lot of engagements with Stellantis, but those have kind of petered out a little bit.
Speaker #1: And we're not seeing a lot of movement. The most active at the moment in looking at the market and dealing with our manufacturing and looking for RFQs is Chery.
Speaker #1: And we continue to engage with them. Trying to understand what their levels of investment are they going CKD, SKD, where they're going. So we're very active.
Speaker #1: I mean, our OEM manufacturers know that they've got spare capacity and they continue to engage with any new entrants in our market. Key decisions required from government, we believe, going forward, like the rest of the industry in how companies are incentivized to set up for full CKD in South Africa because that improves the localization opportunity.
Speaker #3: Thank you, Paul. A question from Mihai@searchitectura. When will Matei engage in lithium-ion batteries and/or when will Matei produce an EV?
Speaker #1: So lithium-ion is not in the strategy for Matei at this stage. It was a previous strategy that unfolded through 2018, 2019 with Mutlu and Rombat and the others.
Speaker #1: So it's not part of the strategy at the moment. Matei doesn't produce EVs. We produce the parts for EVs. And so we totally dependent on our OEM manufacturing companies to do that transition.
Speaker #1: And they prefer to use it as NEVs and not just EVs specifically. And we've seen movements like Ford producing the PHEV for the Ranger.
Speaker #1: So we supply the parts to that. And as and when the OEMs in the country evolve, Matei is ready and able to supply the parts that are required for NEV vehicles.
Speaker #1: Yeah.
Speaker #3: Question from Rowan Guller@kronexresearch. What are your expectations for Toyota volumes, and could they make up for the Ford decline?
Speaker #1: So as we indicated, I mean, the Hilux has been a very successful launch. You've seen the volumes of Toyota in the first six months.
Speaker #1: We think that they can at least match that in the second six months with maybe a little bit more. And as I said, the Ford volume decrease that you've seen we expect that now to stabilize.
Speaker #1: So year on year, there will be that decrease overall that we spoke about at the year-end.
Speaker #3: Another question from Rowan Guller. What margin expectations do you now have for AutoZone now that you have operated for a while?
Speaker #1: I think, you know, if we look at the competitors of AutoZone, if we look at the intent and the reason for buying AutoZone, ultimately, when we complete this turnover, when we get AutoZone back to the revenues that we spoke about, we expect five and a half percent pivot margins from AutoZone.
Speaker #1: And that's what the competitors are doing. So that's definitely something in the medium term that we need to push AutoZone for.
Speaker #3: Thanks. A question from Irma Fenter@engineeringnews. Do you get a sense that the OEMs have a workable plan to counter the drop in production volumes?
Speaker #3: Will a cut in Advalorum tax aid locally made vehicle sales?
Speaker #1: Yeah. They certainly have a plan. I mean, a lot of the OEMs are very outspoken in the market, rightfully so. Giving indications of what's required.
Speaker #1: I don't believe they just sit back and accept the status quo. Obviously, they're very dependent. They have motherships overseas that own them, with many production facilities around the world.
Speaker #1: The point for this industry is to remain really relevant in global terms. You know, the 1% of total global production remains a goal. For South Africa and we all need to work together to be cost competitive.
Speaker #1: To unlock all of the infrastructure issues that may be hamper what we try and do. And so we're in this together with the OEMs.
Speaker #1: And we're very confident that certainly over the medium term, we can get back to the position where South Africa intended.
Speaker #3: Thanks. Question from Naila Ibrahim@news24. What is the outlook for Ford in terms of production going forward, and how will Hesta respond to this?
Speaker #1: Yeah. I think we've said there that Ford, you've seen that volume decrease. We expect their volumes now to remain stable for the second six months.
Speaker #1: We had predicted that. We called that out at the year-end. And Hesta is just about productivity. Big labor force. Making sure that, you know, we built a very large factory for Ford, as you all know.
Speaker #1: For a lot of volumes. And so making sure that we can reduce the labor force, get more productivity out of the labor force, that's what Hesta is about.
Speaker #1: And we're confident in the second six months. With a real focus on the Ford part of the factory. We run Hesta in three factories.
Speaker #1: That we can see a good turnaround in the Ford part of the factory for Hesta.
Speaker #3: Thanks. And just a follow-up question on some questions I think have been addressed already and answered, but there's an additional angle here. Also from Naila Ibrahim.
Speaker #3: With OEM volumes, decreasing, what does the plan look like for Matei to consolidate its component manufacturing operations? Will there be a decrease in headcount or other forms of consolidation?
Speaker #1: So we have done a, you know, over the two and a half years I've since I've been here, we've done a lot, right? We've closed loss-making factories.
Speaker #1: We've closed loss-making divisions of certain of our OEM manufacturers. We've consolidated in terms of, as an example, our injection molding capabilities between auto mold and Lumitech.
Speaker #1: We've consolidated the management of our wiring divisions, which is the Hesta and the Unitrade. We've put shared services across the group. We look at group procurement to reduce that.
Speaker #1: So all the levers that you would do in a turnaround and a restructuring are well underway or completed. So we'll continue to squeeze that cost base.
Speaker #1: We did have the strike as I announced at first battery. And fortunately, we had to release 120 people. Through that, but that's about the footprint reduction.
Speaker #1: So we're not scared to adapt to the market conditions and do what we need to do because the whole needs to survive. And we need to generate the EBITDA and the cash flow to pay the debt.
Speaker #1: So we've done a lot. As market conditions change, hopefully improve, but as they change, we will continue to look at how we restructure our operations.
Speaker #3: A question from Rajay Ambekar@excelsiorcapital. On Hesta, why were costs not flexed down as the Ford volume drop was expected?
Speaker #1: So the Ford volumes, we announced that conversations with Ford were happening in October and November last year. I would suggest not facetiously to anybody who's in business to reduce from a 7,000 workforce down to another type of level takes time.
Speaker #1: Okay? You don't just switch buttons on and off. And a lot of attention around that. We think we've got a bit more to go.
Speaker #1: So we've done a lot of in certainly through April, through June. In the reduction in the Ford specifically. And remember, we've had good movement in Toyota.
Speaker #1: So moving people across and training them up in the Toyota way is also part of the plan. But we will continue to really look at that cost base in Ford over the next six months.
Speaker #3: Another question from Rajay@excelsior. Regarding AutoZone. With the 24 million rand loss for the first half, do you think you can reach break even for the full year?
Speaker #3: And please provide some comments on post-period in trading.
Speaker #1: Yeah. So we certainly believe that's our target to reach break even for the first year. The momentum in sales from May and June has continued.
Speaker #1: The team looksing at the profitability of every store, what we need to reduce. We have a concept called Project Boost, which is a renovation behind every one of the retail stores.
Speaker #1: Our QSV is flying, right? But QSV goes at low margins. We now need to continue that momentum through into the retail stores. And it's something on top of all of our minds.
Speaker #1: That new team was started to be appointed from February with the lead and then from April, May. So they've had three, four months added now.
Speaker #1: And so we're very confident in their ability.
Speaker #3: Andrew Bishop@excelsiorcapital. Please, could you talk more about the good margin performance in OEMs? Excluding Hesta and Rombot, despite low revenue.
Speaker #1: Yeah.
Speaker #3: What is the outlook for margins for Hesta? You noted improved margin in half two going forward.
Speaker #1: Yeah. So we certainly want to, for Hesta, get it back to what we did last year at the six and a half. And that's on the cards.
Speaker #1: And we certainly want to sustain the margins. You saw for the rest of the OEMs for the second half that it's just been a tremendous performance.
Speaker #1: They've learned how to flex. They've learned how to be agile. It's been a lot of pressure on their cost base. They've had a lot of pressure on their value streams.
Speaker #1: And man and machine. And just a great performance. And also merging management teams together, doing the same thing with less people. That's helped. So very confident in those management teams and what they actually do.
Speaker #3: Another question from Rowan Villa@Kronux. What are your expectations for finance cost reduction over the next three years?
Speaker #1: Yeah. So as I mentioned, the refinanced package, includes interest rate reductions. So there's leverage levels and the interest rate should reduce as we meet those lower leverage levels, those lower leverage ratios.
Speaker #1: So we'll start to degear. There is a quantum of capital that's required to be paid as well. Before we get into those interest rate resets.
Speaker #1: I think over the next three years, we should see a decent reduction in the overall interest cost by virtue of lower debt quantum as we start to degear, especially from next year, FY26 is the capex moderate.
Speaker #1: As well as then the lower interest rates, which should then also take some pressure off that interest bill.
Speaker #3: Thank you. A question from Thabo@CAP1. VW will start a production of Tengo next year in 2027 at Carija. Is Mette participating in the Tengo program?
Speaker #1: Yes, 100%. We participating for those levels of the component parts that are changing and that we've always been part of the journey. There's obviously some of the parts of those cars that we're not, because we're not with the design partners, but absolutely we participate.
Speaker #3: Thanks, Paul. A question here from Tashia. No company name. It looks like two different questions. Can you comment on the quality of the datas book?
Speaker #3: And can you comment on serving parts market for Chinese cars?
Speaker #1: I'm going to do datas book. Yeah, sure. Thanks. Thanks for the question. Yeah. So the datas book, our customers, a large part of our customer base, as was indicated on the slides, is global OEMs.
Speaker #1: Very, very strong credit ratings. So that reflects in our datas book and the quality of our datas book. We obviously analyze it. We look at the aging, et cetera.
Speaker #1: So we feel very comfortable that the datas book and the quality thereof is strong. To market parts, the win here, the key here in aftermarkets with or without Chinese cars is to understand the cars on the road.
Speaker #1: Just basic as that. What are the VIN numbers? What are the registered vehicles? Where are those registered vehicles? What's the proximity of them? And then analyzing every single vehicle on the road and what are the component parts that are in that vehicle?
Speaker #1: And what are the parts that AutoZone wants to play? And we don't play in all of the parts of the vehicle. So all of that data, all of that research is there.
Speaker #1: As in when the Chinese cars become more of the landscape, we understand where those cars understanding where they are, understanding the component parts that are required.
Speaker #1: So absolutely, we adjust the model accordingly and make sure we can serve as required.
Speaker #3: Thank you, Paul. That concludes the questions from the webcast.
