Nampak Limited (NPK) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Nampak interim results presentation and webcast. [Operator Instructions] Please also note that this call is being recorded. I would now like to turn the conference over to the CEO, Mr. Erik Smuts. Please go ahead, sir.

Good morning, ladies and gentlemen. I think in the very abnormal conditions, we're meeting this morning, I guess, for the first time in a completely sort of online video call instead of the normal where we meet face-to-face. But I guess for all of us, the old abnormal has become the new normal. So I hope this will work well. And if there's any questions, we will take that later on. So I'm going to move on. First of all, our forward-looking statements disclaimer. I think there's nothing new on that. So please have a look at that at your leisure. I'm going to go straight into the salient features of our results. I think it's very clear that due to the economic slowdown and the weak trading conditions in our key markets, the results were really not pleasing. First of all, our turnover was down about 17%, resulting in trading profit down 39%, operating profit down 68%. And as a result, HEPS were heavily down. Our headline earnings per share were down 95% or down to ZAR 0.07 per share. And of course, our earnings per share is down more than 100% down to a loss of our ZAR 4.089 per share, and that, of course, has been heavily impacted by the impairments that we will touch on later. I think on the pleasing side, the money we received, the proceeds from the sale of our Glass and Nigerian Cartons operations, was in the order of about ZAR 2 billion. Of course, we will use these proceeds to settle U.S. dollar debt, and we will touch on that in more detail later on as well. I think one of the key elements of these results, of course, is the impairment we've done in Nigeria as well as the impairment in Angola. So a very sizable impairment in Nigeria, goodwill of ZAR 2.2 billion; and in Angola, asset impairment of just over ZAR 800 million. I think we'll touch on the portfolio optimization on the next slide. So clearly, we've disposed of our European operation, a loss-making operation we had before. And in the process there, we properly avoided more than ZAR 600 million of future CapEx. And then one of the other pleasing sides of the results is the strong cash transfer that we got from both Angola and Nigeria of roughly about ZAR 1.6 billion. As we mentioned, during the bigger portion of this period, we did not have liquidity constraints out of Nigeria or Angola. But we have to caution that towards the end of the period, the liquidity did become constrained in both these territories and more so in Nigeria. If we go to the next slide. So if we look at the work we've done on optimizing our portfolio, and let me be clear that there's further work to be done. Obviously, the proceeds that we received there, as we mentioned, will be used to settle U.S.-denominated debt. So if we look at what we've completed, as mentioned, the sale of our Glass operation, we had net proceeds of ZAR 1.4 billion, and that was the net proceeds after some of the true-up costs. So the gross proceeds was about ZAR 1.6 billion at the end of March. And then, of course, we also had the sale of Nigeria Cartons for EUR 28 million. Both of those, we've received Competition Board approvals, and they were completed during the period. Also, a bit earlier during December, actually, last year, we disposed of our Plastics business in Europe. That was for a nominal value. So the value itself was not disclosed, but clearly, it was for a very low cash value. The bigger issue in that disposal was, as you know, that this was a business that had a massive pension fund liability. So during the disposal, the pension fund liability went with the business, and that is an amount of ZAR 538 million or that was roughly about GBP 25 million. So that made a huge difference to our balance sheet. And as mentioned before, we also avoided CapEx of roughly about ZAR 600 million of future CapEx expenditure. Then there's a small business we also sold. It doesn't really feature in the results that much, but we sold our intermediate bulk containers business for ZAR 27 million. But I think then more importantly, if we look at going forward, what is still in process? So we are in the process of restructuring both Divfood operation and our Plastics operation. We've made significant progress in these restructurings, and some of the restructuring costs are already built into these results. So our Vanderbiljpark operation, we've had a 17% headcount reduction. We have exited some of the unprofitable SKUs. And also in our Plastics operation, we are going through the consolidation of a number of sites, also exiting some of the unprofitable SKUs. And the results we'll be showing in our next set of results. But on the Plastics side, I think we've already in some results. As we mentioned, this business has already returned to profitability, but I'll touch on that a little bit later. The other side is -- what we're busy focusing on is improving competitiveness. We're having a very focused look at our labor costs. There's quite a bit of labor savings that's already come through, through a reduction in the number of staff. We're making sure that we improve the overall ability of our labor to produce profits for us. So in other words, labor productivity is the word I'm looking for. So overall, I think we're looking at aligning our employment cost structures to the market. You will see that we've had some successes that I'll touch on later in terms of some of the cost reductions that we've already implemented. And then also a significant portion of the focus is on simplifying the portfolio. This is something I'll touch on later as well. But the theme of simplification is something that is driving a lot of cost out of our business. So we will not only be looking at business units but also SKUs. We're exiting a lot of our complex products, and with that, there's some cost that's leaving the business. And we will also be focusing on some of our shift patterns and overall productivity levels. As I mentioned already, we're looking at site consolidations and further optimization of the portfolio. Then for the -- probably the biggest feature in these results, the impairments. So I think, first of all, let's look at Nigeria. It's a massive impairment of ZAR 2.2 billion of the goodwill. And the main reason for that is really the deteriorating market conditions. Like we said, we had positive growth still in the first quarter. That growth started deteriorating since January onwards, but the main reason for this impairment is actually the conditions going forward. So clearly, with overcapacity in that market where there's 3 lines but only work for 2, that is putting pressure on pricing. And due to the impact of COVID-19 and the low oil price, we assess the future potential of that market, and we were looking at what the likely rate of growth is going to be going forward. Clearly, with the oil price down, liquidity is now under pressure, and we do expect that market will go through a rough patch for some time. And as a result, we really looked at the potential. We had to look at the increased country risk that's obviously reflected in the weighted average cost of capital for that country. And as a result, we had to impair the goodwill to the extent of ZAR 2.2 billion. On the positive side, we did manage to increase the capacity on that first line to up to roughly about 1 billion cans from probably just over 700 million cans before. So on that side at least, as the market grow, the throughput on that line will improve. Then I have to say, with the liquidity crunch that we foresee in the short term, I want to give you the assurance that we will only fund that business to the extent that they generate their own revenue. So we will not fund that business offshore and allow big debt to build up on our balance sheet again. We will keep -- make sure that trading levels are in line with the ForEx available internally from the market, and the same applies to Angola as well. If we move on to Angola, there we've had an asset impairment of ZAR 800 million. The reasons are similar, other than, of course, there's not an overcapacity issue that's driving down pricing there. I think it's more the affordability and the availability of funds for local consumers. And that's really been a function of the big devaluation of the Angola kwanza against the dollar and the fact that you still have wage rates that has lagging inflation. Similarly, the oil price is coupled with COVID 19, and that will depress that market even further in the short term. We are still -- or already starting to see some positive signs, but the contraction in the economy, I suspect, will be with us for a while. And as a result, we had to look at the prospects of that investment for the future. So looking at prospects for the next 24 months -- 12 months to 24 months, clearly, it's going to be weakened by the impact of COVID-19. And similarly, the weighted average cost of capital for that country has been increased, and all of that has contributed to the asset impairment that we've put through. On the positive side, the line conversion that we started last year before all of this bad news came through is almost complete, but we had to halt it because of the COVID-19 pandemic. That would not have any impact on our operating results going forward. The capacity of that line is not needed at the moment. And the moment that demand starts increasing, we can finish the conversion of that line quite quickly. But again, once we talk about that CapEx spend during the last period, in fact, more than half of that money was related to that -- the line conversion. So therefore, you will note that the remainder of our CapEx spend was actually quite low. The -- on the ground, our team in Angola has responded very positively to this pressure. They've actually reduced their headcount already by more than 50%. So they've responded very well. On the other side, of course, with the lower demand, they have quite a lot of raw materials in country. In fact, they don't need to procure any raw materials until the end of September. So at least from a working capital point of view, that will only improve as we head towards September. Then, of course, the other big feature, not really of these results, but the question is how will COVID-19 impact our results going forward. Clearly, there's going to be a slow economic recovery. In the short term, there's a massive contraction of our key markets expected, and it will clearly have a significant impact on our results going forward. I think on the upside, Nampak is a provider of essential services or products -- or essential products, so we were able to operate during the lockdown, but of course, only to the extent that there is demand. So there's been quite a significant shift in consumer demand during the lockdown. First of all, on the beverage can side, as you can imagine, a beverage can generally is not a bulk pack. It's a product for immediate consumption. And as a result, with a lack of consumers out there in the market, the demand for those packs has been severely impacted. Clearly, there's been a shift away from the single-serve products to bulk products like, for instance, a 2-liter PET bottle for home consumption. Yes, so clearly, volume is affected. On the upside, as we mentioned before in our trading update, our Divfood operation has seen stronger demand for food cans. That's been positive. And on the Plastics side, initially there was quite uptake in containers, especially for sanitizers, et cetera. But as we went deeper into the lockdown period, I think we went back to the normal demand patterns or the normal product demand patterns, and then the demand came off quite dramatically. So clearly, one of the big impacts we had was the ban on the sale of alcoholic products for the last 2 months. That is now being lifted as we head into Level 3. But I have to caution that we do not expect demand to normalize quickly. Clearly, the consumption of alcohol is done in a social environment. And as long as social gatherings are still prohibited, we can expect even demand for alcoholic products to remain fairly low for some time to come. One of the biggest risk, of course, coming from COVID-19 is just the fact that, overall, consumers do not have money. A lot of consumers had to stay at home with no income. So that loss of income, whether it's temporary or permanent, will have a massive impact on people's disposable income going forward. A lot of companies implemented salary sacrifices, like ourselves. And it is expected that there will be many job losses in the markets over the next couple of months. I think generally, everybody is in a mode of cash preservation, and we do expect that the South African economy and the other major economies where we operate will contract quite significantly over the next couple of months. We've seen forecasts from economists ranging from anywhere between a 7% contraction in GDP to 10% or more. So only time will tell. Then I think if we look at our response. I think one of the big benefits that Nampak has got is that we have been operating in very tough markets for quite some time. So although COVID-19 was quite a challenge to the whole economy, I think we are quite used to operating in challenging conditions, and therefore, I think we were able to respond quite well. Of course, there's huge uncertainty in demand, but what we've done is we have immediately shortened all our decision-making cycles. We have immediately put unutilized staff on annual leave. And as a result, we had quite a saving in employee costs. Although clearly, overall, we still -- it had a big impact on our profitability given that our revenue has gone down. So we have implemented salary sacrifices on a sliding scale. So all our executive directors, executive and non-executive directors took a 30% salary cut for the next 3 months, and that worked down on a sliding scale for up to 15% for by junior management. Of course, the question is to what extent will the COVID-19 impact on our results going forward. I'm not going to speculate on that too much now. I think there's quite a lot of detail in our trading update. But clearly, it's going to have a significant impact this year and in all likelihood will impact demand still into next year. As a result, we've put a CapEx freeze on all capital expenditure, with the exception of those capital items where we've already got a legal commitment and we could not back out of it, or to the extent where it's got a very quick payback and it simply would not make sense not to do so. But you can expect capital expenditure going forward to be very -- I want to say a fraction of what it is today. If you -- if I remind you of the just over ZAR 400 million we spent on CapEx during this last period, more than half of it related to the Angolan conversion, which was committed more than a year ago already. So even within the period, the CapEx spent on the rest of the business was already significantly down, and we intend to have even reduced CapEx going into next year. There's a massive increased focus on working capital. But as you can imagine, at the rate at which demand came down, it takes quite a while to work that through your systems. All your orders are still coming in as previously planned. So you would not have seen the full impact of the capital -- or working capital reduction in these results, but we do expect that to improve as we go into the year in sight. As a result, we are rightsizing our operations. We're making sure that we only have the labor on-site to be in line with the reduced demand. Clearly, we don't want to have people on site. First of all, that's not utilized. But also in terms of the risk of COVID-19, we are trying to limit the number of people we have in our factories at any given point in time. And with that, there's also some savings coming through. So at the moment, we're looking at all different options of how we can improve profitability. I'll spend a bit more on that towards the end. But I can assure you that there's increased scrutiny on all expenditure at the moment, and I'm sure that it's no different from what you will see in other corporates at the moment. If we look at the operational side. On the Metals side, clearly, that's where we had quite a big contraction of our trading profits. In fact, the biggest results that -- or impact on our results came from a reduction in profitability out of our Metals side, and most of that actually came out of Angola. So if we look at Bevcan South Africa, as I mentioned before, the total beverage can markets actually declined over this period, and all of that came from the poor trading environment in South Africa. Volumes has been negatively impacted. And because of the drop in volume in Angola, our South African operation also sold less can ends to Angola. So even the Angola drop in volume had some impact on our South African operation. Our second competitor on the beverage cans started up, as you know, about a year ago. They had a very slow ramp-up. I'm not going to spend more detail on that. But clearly, I think the results there are, for us, at least, a lot better than what the market expected. But overall, I think we managed to maintain a substantial market share. I would say that it's -- in all likelihood, we have more or a bigger market share still left than what many people thought was a realistic position at that point in time. So overall, Bevcan South Africa, very pleasing operational results other than demand. So efficiencies increased. Our costs came down. So we're very pleased with how we've reacted to the competition, but unfortunately, in a very weak overall trading environment. Our Divfood operation was still not satisfactory. We made a significant loss, mainly as a result of the loss of a key customer in the first half of last year. So clearly, the first half of this year did not have those volume losses built in yet. But going forward, that would already be built into our numbers. But overall, that had quite an impact. The overall demand for fish was low, meat and food cans. So unfortunately, not great results from the demand side. But as I mentioned, going into the second half of the year, as a result of COVID, we did have some positive growth on the food cans side itself. If we look at the Rest of Africa, Bevcan Angola, clearly very hard hit by the currency devaluation and the impact on consumer purchasing power. And as mentioned before, that resulted in a very significant impairment. The business reacted well. They have reduced their fixed costs dramatically. As I mentioned, by now they've actually got more than 50% head count reduction. So very good reaction on that side. On the liquidity side, both Angola and Nigeria, we had very good flow of cash from those countries. So as you'll see later on when Glenn puts up these numbers, we extracted a lot more than the overall trading in those environments. So our kwanza bond program, as mentioned before, has shielded us from about ZAR 1.9 billion of devaluation losses. There is, in fact, not too much cash left in those countries. So although we still have some kwanza bonds left, at the moment, it is more just what is required for normal trading. So essentially, all the historic debt are now out of both Angola and Nigeria. So it is now -- the cash flow requirements are now more for normal trading. And as mentioned before, we will not be funding those businesses. So you should not have to worry that again we're going to have a big negative on our offshore balance sheet. We will allow those businesses to trade to the extent that they do have access to in-country ForEx. If I look at Nigeria, as we mentioned, overall, we still had volume growth in that period. And in fact, the growth in the first quarter was very strong. The second quarter, it did start declining. So overall, we still had growth. But this was a period of 2 halves: the first part of the period, we had, like I said, both good volume growth and access to liquidity; but that did change towards the end of the period, and it is clear that liquidity will be problematic for a number of months to come. So we're keeping a very close watch on the funding of that side of the business. Something we have to mention in Nigeria, a very good operational improvement. Like I said, that increased the effective capacity of that line to over 1 billion cans. And from a safety record point of view, they have the best safety record in the group at the moment and have more than 3.5 million injury-free hours at the moment. We've mentioned the ZAR 2.2 billion goodwill impairment. I'm not going to spend more detail on that right now other than saying, clearly, it is as a result of the lower oil price and the higher weighted average cost of capital that impacted on those valuation models. Then if we move on to general metals packaging in Nigeria, that was weak in both Nigeria and Kenya. It's not a significant impact on the overall results, but demand there was certainly not as strong as we would have hoped. Then if we go on to our Plastics business. That's actually been very pleasing. Our Plastics business that in South Africa made quite a significant loss before has a return to profitability. The Plastics team has managed to implement many cost-saving measures. That's part of our whole optimization drive, the reduction in number of sites, the reduction in unprofitable SKUs, overall productivity improvements. So certainly very pleasing, but still, in a very tough market. So one of the downsides was the fire that we had at one of our key customers about a year ago. So clearly, those volumes have not come back yet. We're in the process of rebuilding that facility. So at least going forward, those volumes will come back. But overall, like I say, weak demand on the Plastics side, but despite that, quite a significant improvement in margins. In the Rest of Africa, very challenging economic conditions in Zimbabwe, clearly impacted by hyperinflation, limited supply of raw materials. And as I mentioned before, that operation also, we're not putting any cash into that country. They trade at the -- to the extent that they can have access to ForEx, and they get those from either assistance from customers or export of products. If we go on to our Paper business. A very good performance in Zimbabwe. Healthy demand for tobacco cases, and that certainly has not been impacted by the disposable income shift in country. And keep in mind, this is the period before all the lockdowns. So we will see what the impact is going forward. But overall, our Paper business, they actually had very good results. It's essentially used as an export hub for tobacco cases, so yes. But on the liquidity side, clearly, this is a very difficult region to operate in. Luckily, the team on the ground there is very used to this. They know how to operate in these conditions, and they've done an exceptionally good job. But clearly, because of the overall restrictions there, it is not possible to expatriate money out of those territories. And as a result, they also have been self-funding since April 2019. If I move on to Nigeria Cartons. Clearly, that's a business we divested from. That was effective 31st of December 2019. So only in our results for the first quarter. And it's been classified as continuing operations in both periods, but it was asset held for sale at 30th of September. We've received the proceeds. I think Glenn will talk about that later on. If I move on to Zambia and Malawi, improved profitability from both those operations after a successful restructuring, again, in a very tough market. I think there, the team has done well. And Zambia is now our hub for our conical cartons. The restructuring strategy that we had in Zimbabwe is also -- sorry, in Zambia is also yielding good results, and we are pleased with the progress made on that side. I'm now going to hand over to Glenn that will take you through the financial results.

Good morning, everybody. As Erik has indicated, it's been a relatively tough trading period. If we focus first on continuing operations. Group revenue is down 17% to ZAR 6.5 billion, and that's been impacted by those weak trading conditions. Trading profit, down 39% to ZAR 633 million. As Erik's touched on, there's been a quite a significant trading loss in Divfood. There's been poor demand in Angola, where we've seen lagging wage inflation impact demand, and there's been weak trading conditions in South Africa and Zimbabwe. And I think those results have been partially offset by some good trading in Bevcan Nigeria, albeit that market conditions may be, going forward, could be a bit more challenging. Operating profit is down 68% to ZAR 287 million. Adverse foreign exchange positions in country -- in certain of the countries have impacted results, and we'll unpack that for you as we go through the presentation. There have been certain restructuring costs and a net capital loss that has pulled those numbers down. I think, pleasingly, we've managed to transfer ZAR 1.6 billion from Angola and Nigeria. There's been a cash transfer rate which is at 130% that is measured relative to the opening cash position. So we're pleased with the team's ability there in some challenging markets to transfer cash back to the Isle of Man, which is its funding and procurement partner. There've been gross proceeds of ZAR 2 billion received from the disposals. And I think we committed to dispose of 3 businesses, and we've delivered those. We received the proceeds before half year. And you'll see on the balance sheet, it is reflected where there's a positive cash position at that point of ZAR 3.5 billion. There have been certain contractual true-ups in the agreements and certain selling costs that will result in probably a net proceed of about ZAR 1.6 billion, and the key strategic focus will be to reduce dollar-denominated debt with those proceeds. We've generated ZAR 677 million cash from operations, and that's pleasingly up 277% from the ZAR 177 million in the corresponding period of the prior year. If we look at both the continuing and discontinued operations. We've separately identified further down in the income statement so that it does not cloud the normal trading conditions. The asset impairments of ZAR 3 billion, Erik's touched on those, and they made up of ZAR 2.2 billion in Nigeria and Angola at ZAR 800 million. So they're sizable numbers. And I think there's a lot of effort that's gone into understanding those models, all the variables in them. And dues have been taken off compound growth rates into the future. Certain adjustments have been made to the WACC rates. And there have been margin and pricing issues that have been looked at in competitive landscapes, and we've taken a decision to impair those assets. HEPS from continuing operations is down to ZAR 0.07 from ZAR 1.30 in the prior period. HEPS from total operations is showing a marginal position of ZAR 0.03 from ZAR 1.157 in the prior period. And the profit for the period we've made from discontinued operations results to -- from a profit on the disposal of Nampak Plastics Europe. And essentially, we had a credit in our net position of our foreign currency translation reserves which, in terms of efforts, were required to recycle through the income statement on disposal. And that has assisted in net profit, partially offset by a small loss in the disposal of Glass. The loss per share from continuing operations of ZAR 4.08 compared to earnings per share of ZAR 1.34 in the prior period clearly has been impacted by these challenging trading conditions, certainly of the impairments and the disposals and ForEx devaluations. The movement of total operations really softens that position, albeit still at a ZAR 3.36 loss per share, and that's really because there's a profit on the disposal of the discontinued operations. If we move through to having a look at the continuing operations income statement. Revenue of ZAR 6.5 billion. As we've mentioned, this is down 17%, and we've touched on the reasons for that. The biggest contributor there is really a soft condition in South Africa and primarily Angola and Zimbabwe revenues being challenged. In Angola, I think lagging wage inflation has dented consumers' ability to spend, so that's impacted those numbers. The trading profit of ZAR 633 million, down from ZAR 1 billion in the previous period. Quite a significant loss in Divfood, but there's a lot of work being done there to address the cost structures. There are focused plans in that area. Unfortunately, it has resulted in job losses. As we've indicated, the lagging inflation in Angola has been challenging. And the overall beverage can market in South Africa has impacted the numbers. There have been certain devaluation losses in Angola and Nigeria. They are dollar-functional currency businesses. So where the currency has devalued, the monetary items in-country translated to the dollar have resulted in a foreign exchange loss of ZAR 170 million in the period in Angola, where the kwanza has devalued by 46%. We've also had to have lower hedging in-country because there's a requirement to have cash-backed letters of credits for imports. Whilst that might be a negative, what it has done is confirmed our ability to repay the foreign creditor, being our Isle of Man operation, because of the confirmed letter of credit. So the cash does not get trapped in the country. In Nigeria, it's been less of an extent. The exchange rate has not been as volatile there, but there's still a foreign exchange loss of ZAR 49 million on the monetary items. There has been some devaluation in that currency, which I'll show you a bit later towards the last part of the first half. The capital items in these numbers include a net loss of ZAR 148 million on the disposal of the Cartons Nigeria business. And this is really -- it's probably not reflective of the quality of the deal that we did in that disposal. It's really a reversal of the debit that was sitting in the foreign currency translation reserve in that country on consolidation that has to be recycled through the income statement. There was a good transaction done there with a relatively healthy EBITDA multiple, and we were pleased with the proceeds that we got of ZAR 444 million equivalent in that deal. That's been partially offset by the insurance proceeds from the Plastics fire. Just in terms of the prior year, we've had to restate the prior year numbers. At the end of last year, there was a significant debate around how we -- the agreement with the Reserve Bank of Zimbabwe was treated. And we had at the interim applied IAS 21, which was an accounting standard that one could apply the net investment rule for the loan account. It was subsequently at the year-end determined that because we had, had plan with the Reserve Bank that one could not apply that standard, and that in the year-end numbers, which you've already seen for September 2019, those foreign exchange losses were brought through the income statement. So we've had to restate the prior year. The effect is very negligible on the earnings in the prior year. It actually amounts to ZAR 0.03. And if you have a look at the net asset value change, it would have actually been an increase to the net asset value in the previous year of ZAR 0.49. So overall operating profit of ZAR 287 million, down 68%. The finance costs look like they're up by 12%. But I'd remind you that the application of IFRS 16 requires the right-of-use assets to be -- to capitalize on the balance sheet and the resulting finance lease liability to be raised as well. And embedded in those, net finance costs is a portion of the interest in the lease payments. If you strip out those from a comparative basis, we've actually managed the interest cost well. And on a comparable basis, it's down 21%. The net impairments, we've dealt with, and we've put those at a lower level in the income statement to not cloud the trading result. And from a tax point of view, I'll unpack that particular tax rate for you as we go. But disappointingly, a loss of ZAR 4.089 at an EPS level. And because you add back those capital items for the calculation of headline earnings, the HEPS is at ZAR 0.07. If we just have a look at the breakup of those numbers from a segmental point of view and based on substrates. Revenue for the Metals of ZAR 4.5 billion is down 20%. Trading profit of ZAR 429 million is down 42%, and there's been pressure on margins in that environment. Plastics revenue of ZAR 1.4 billion, down 8%; with trading profit of ZAR 157 million, down 10%. And the Paper division, revenue of ZAR 528 million, down 14%. But very good management of the costs within that business has resulted in the actual trading profit improving to ZAR 133 million and up 41%. A feature of our results, I daresay, over many years, is linked very closely to the foreign exchange rates. And I think what is a feature of the numbers is there's been a significant dislocation in the period and late in the period between the average exchange rates, which are used to translate the income statements where that's -- rates has dislocated quite significantly to the spot rate at the end of the period. What's quite clear is that the exchange rates on average for the rand to the dollar and the rand to the pound have weakened by 6.3% and 5.3%, respectively; and yet the closing rates have weakened by 17.3% and 18.3%, respectively, at the reporting date. Now that has quite a significant impact in terms of the way we translate the dollar-denominated debt at the reporting date. During the period, the earnings are translated at those average rates, and the net $267 million worth of debt in the Isle of Man has translated at a much weaker rate. At September 2019, the closing rate was ZAR 15,17 to the dollar. It closed at ZAR 17.80. So that's a 17.3% weakening. If one had applied the average exchange rate to that debt, the group consolidated rand debt would have been down by about ZAR 740 million. Another feature of the results is that there has been relative stability in the naira in the period. The average rates are pretty similar to the corresponding period. But there has been a deterioration in that closing rate from NGN 362 at the end of the same period last year to NGN 387. And I think that's obviously linked to an oil price that's under pressure. The kwanza has shown significant devaluation. On an average basis, it's 56% weaker, and on a closing spot rate, 46% weaker. The Zimbabwe dollar has been pegged at ZWL 25 to the U.S. dollar. That's 65% weaker than the ZAR 15.20 at the end of last year when the rand and the Zimbabwe dollar were almost paired. So there's a significant, I suppose, potential devaluation in that position going forward. What we have managed to do is settle the dollar-denominated amount due by Nampak Zimbabwe Limited to Nampak International Limited, by effectively, a session of that rights to receive the $67 million under the RBZ agreement will therefore be now received by Nampak International Limited as opposed to Nampak Zimbabwe Limited. And that insulates the Nampak Zimbabwe Limited results going forward from those foreign exchange losses. If we have a look at the statutory tax rate down to the effective tax rate. You can go through the detail in your own time. I think the key thing is that the sustainable, probably, effective tax rate is around about the 20% to 21% level. There's a net about 8% difference between the statutory rate and the -- that kind of ongoing effective rate in both the half year last year and this year. The impacts of the impairment of the goodwill and Angolan asset impairment moves the rates around quite substantially. But I think in terms of modeling going forward, the 20% is about what I'd indicated when we spoke previously, and the numbers suggest that again. If we just touch the disposals. Just again, ZAR 2 billion received from those 2 disposals. The Glass business revenue was slightly up for the period; trading profit about, flat; and we made a very small loss from the operations, a small disposal loss. Part of that was effectively having to commit to certain capital expenditure as part of the deal that we had to immediately actually impair. But pleasingly, we received ZAR 1,57 billion just before the half year end. So that cash sits in our balance sheet. In terms of the actual disposal agreement, one has to finalize the working capital position at the cutoff of 31st of March, and there's certain true-up adjustments that need to be made there. And our expectation is that the net proceeds from that transaction will be ZAR 1.41 billion. The Plastics Europe business, we disposed of that business from the 13th of December 2019. It was consuming a considerable amount of cash every month. So that's been avoided going forward. And as Erik has indicated, the capital expenditure program was ZAR 600 million that, that business was requiring will be avoided. And we've made a net profit on disposal of ZAR 552 million as a consequence of reversing a foreign currency translation reserve of ZAR 378 million. One of the key issues is we've been able to dispose of the business with that contractual net defined benefit pension fund liability of GBP 25 million or ZAR 538 million. It had been an Achilles heel of a disposal process for many years, and we're pleased that we've been able to, in a very responsible way, negotiate with the pension fund regulator in the U.K. as well as the buyers to take over that liability. And that drops the non -- the long-term liabilities for post-retirement medical aid liabilities and pension fund liabilities on the group balance sheet from around about ZAR 1.5 billion down to just under ZAR 1 billion. So that's a pleasing move in the right direction. From a balance sheet perspective, total noncurrent assets of ZAR 11 billion made up primarily of property, plant equipment. There's been ZAR 407 million spent in that regard in the period. Quite a lot of that increase in the assets from the ZAR 7.7 billion in the previous year is a consequence of having to translate the foreign assets at a weaker dollar exchange rate. And I'll just remind you that the capitalization of the right-of-use assets in terms of IFRS 16 has increased that balance by ZAR 1.4 billion with a corresponding increase in the noncurrent liabilities as well. The goodwill number has clearly been reduced as a consequence of the impairment. But if I could remind you, that's a dollar-denominated goodwill, which has to be translated at that 17% weaker exchange rates, so in rand terms, still has effect there. The liquid bond program is done very well. Complements to the Angolan government for honoring all those bonds on time, in full, where we've wanted to early mature any of those bonds. It's been at a marginal discount of 2.8%. But it's been a very, very worthwhile program, and as Erik has indicated, has shielded losses of ZAR 1.9 billion. The assets held for sale in the previous periods have been converted into cash. The only remaining asset held for sale is a small bit of property, plant and equipment in the Divfood Botswana business. Total equity is clearly being impacted by the Zimbabwe dollar impact from last year, where we took a foreign exchange loss there, and the -- clearly, the net impairments in the current year. So total equity sits at ZAR 5.9 billion. Included in the noncurrent liabilities is the IFRS lease. And then the current liabilities, we had to include the $115 million, which is due to the U.S. Private Placement noteholders. That was settled in full yesterday. And that number actually will now switch up into the long-term liability section because it's been funded in terms of Facility E, which is a long-term banking facility. So that will further strengthen our short-term liquidity ratios. If we quickly touch on the cash balances in the 3 jurisdictions of Angola, Nigeria and Zimbabwe. We've had a very good cash transfer rate in Angola of 81%. We still have 56% hedged. We've transferred ZAR 842 million from that country in the 6 months. We have ZAR 477 million cash on hand in-country. A fair portion of that is linked to the in-country bonds that we still have and certain cash that we still need to operate the business. Nigeria, we've had a very good cash transfer out of that jurisdiction with portion of the loan accounts, on an historic basis, also paid back in that period. So if you combine Angola and Nigeria, ZAR 1.6 billion transferred at a cash transfer rate of 130%. So we're pleased with that. Clearly, the position in Zimbabwe remains challenging. No further funding is being provided and we haven't got any cash out of that business. Where we've traded, it's all traded from dollar proceeds, from export sales and dollars provided from customers in-country, and it's quite amazing how resource for the management team is there to continue trading as well as they are. If we have a look at the cash flow statement. Very pleased that we've generated cash of ZAR 667 million. Whilst it's been tough from an operational perspective, where that's down by 33% to ZAR 743 million, there's been a significant change in the net absorption of working capital, where ZAR 924 million was absorbed last year, only ZAR 76 million has been absorbed this year. And as Erik mentioned, it's quite difficult to slow down long lead times from foreign markets quickly enough, but we are doing that, and we hope that by September, we should have an inflow on that particular line. Interest paid in terms of cash perspective is slightly down. We've generated cash this period of ZAR 369 million compared to an absorption of ZAR 121 million in the previous year. I think the key feature of the cash flow statement is what we've generated from -- in investing activities, where we've, in 2 consecutive periods, generated ZAR 1.2 billion and ZAR 1.8 billion, respectively. In this particular period, it's primarily due to the proceeds on disposal. And in the previous period, a lot of the bonds matured in that period. So cash-generating before financing activities of ZAR 2.1 billion, up from ZAR 1.1 billion in the previous year. And pleasingly, cash for the period has increased by ZAR 1.7 billion. If we look at the working capital. We've contracted the inventories by ZAR 353 million. We've had to fund some additional receivables of ZAR 148 million. One of the particular larger customer changed its terms. We have responded to it subsequent to the half year and potentially neutralized that particular period. And we've had a slight decrease in trade payables. That leaves us with a net working capital change of ZAR 76 million absorption compared to ZAR 924 million. So the teams are working very well at addressing that level. From a covenant perspective, we understood very clearly that the rand was potentially exposed to the Moody's downgrade that was planned for around about the 27th of March. We proactively engaged with all our funders to request a relaxation to -- on the net debt-to-EBITDA from the 3x to the 3.5x in anticipation of a potential dislocation between the average and the spot rate. We were granted that relaxation to 3.5x. We've come out at 3.3x. The point I'd like to make is if the dollar-denominated debt was translated at the average exchange rate, that net debt-to-EBITDA would have come out at 2.8x, still below the 3x level. So we are significantly exposed and affected by the dollar exchange rate at a particular point in time. If the exchange rate remained at ZAR 17.80, that would become the new average, and the foreign earnings would be translated at that. So sometimes there's a bit of a timing issue here, but we're thankful for the relaxation that was provided. On a net debt-to-EBITDA interest cover, the relaxation was requested to 3,25x. As it turns out, we didn't particularly need that relaxation. We managed to come in at 4.1x, above the threshold requirement of 4x. So we would expect that ratio to benefit somewhat in the second half from lower debt levels. Remember, we only got the majority of these proceeds in towards the end of the first half, and they are lower interest rates as a consequence of the Reserve Bank reducing their interest rates in the second half. From a gearing perspective, gearing at 68% last year has gone up to 82% this year. On the face of it, it looks like it's gone up to 109%, but IFRS 16 has had to be applied where we've included the ZAR 1.4 billion as capitalized leased assets. That is excluded for covenant purposes. So when we look at the business from a borrowing perspective, the 82% is comparable to the 68% at the end of September 2019. The net debt to EBITDA at 3.3x, the EBITDA interest cover at 4.1x, and then very good short-term liquidity ratios at 1.7x. And remembering that those numbers will have improved as of today because $115 million has been settled, will become long-term liabilities again, and the short-term liquidity ratios will improve. If we have a look at the impact on the gearing. This is just a graphic that we've prepared to show the impact of the capitalized leases. And I guess, a weakening rand or exchange rate has translated into net higher borrowings. Capital expenditure over -- from September 2015 has shown a significant decline from ZAR 2.2 billion down to around about the ZAR 700 million level for the last couple of years. We've spent ZAR 407 million. It's been a very prudent allocation of capital without compromising the asset base. And we expect regions of around ZAR 650 million to ZAR 750 million for the period. And as Erik has indicated, of the ZAR 407 million, more than half of that is for the line 1 conversion in Angola, and we would anticipate going forward, capital expenditure far lower. There were ZAR 63 million spent for Glass, and there have been certain replacement capital expenditure in Plastics, but the majority of the ZAR 407 million relates to replacement capital expenditure. In terms of reports -- events after the reporting date. Clearly, the impact of COVID has been something we've had to consider. In terms of the trading period up to 31st of March, it hasn't had that much of an effect because it happened very late in the month of March. But we've had to consider Nigeria and Angola, where those markets have been adversely impacted by oil price, the pricing and volume pressures from customers, volatile exchange rates. And really, the impairments take into account uncertain timing of recovery in those markets, and so that's how we've developed those scenarios. We are and have been looking at the liquidity position, and we've assessed those through various scenario planning initiatives. We have got significant headroom in our banking facilities, albeit that, that headroom is limited in use because of a declining EBITDA. So we monitor that very closely. But we have got very good short-term liquidity at the moment, particularly boosted from the disposals, and we are actively managing the funding covenants with the banking partners and the U.S. noteholders. In the process of evaluating the capital structure, significant management of the working capital, we've placed restrictions on further capital expenditure, and there's been very aggressive cost management. And all of those are key priorities. As Erik has indicated, Lockdown 3 now allows for the sale of alcohol from the 1st of June, and we'd expect that to improve volumes. And the strengthening of the rand, I think, will benefit on the translation of the U.S. dollar-denominated debt. From a -- our plan going forward, we've looked at certain operational initiatives. We've looked at certain corporate finance initiatives. I think the theme behind our approach is that it's not a single-based approach. It's a multifaceted approach that we're adopting. At the base of the plan is a very strong management of working capital. The operations are looking at that in a lot of detail. There are some very experienced people there doing demand planning. We're looking at further focuses on customer and supplier terms. We're looking at further utilizing our trade finance platforms. The operational cost management has received a lot of attention, and very nimble approaches have been taken there. The CapEx management, looking at the prudent allocation, operational excellence and also looking at the improvement in quality of our maintenance to maybe slow down the rate at which we spend CapEx on new projects. Human resources optimization, there's been very, very close management of the overtime by the JSE members. And we've looked at headcount operation. There are structural reviews that were taking place. And then from a corporate finance perspective, we've got a strong team that run our corporate finance and managing the funding costs where we'll have lower average debt going into the second half of the year. We're going to utilize the proceeds from the disposals to reduce dollar-dominated debt. Erik is strongly looking at the portfolio optimization. And final piece of the digital puzzle is to consider the appropriate funding and then capital structure for the group going forward. So I think there's a lot of work being done. We're at the advanced stages of compiling a very detailed 24-month running forecast ahead of our normal budgeting process. And that will inform our long-term decisions without reactions to short-term market conditions. So thank you for allowing me to give you that insight into the numbers, and over to you, Erik.

Thank you, Glenn. So I'm going to take a bit of time to look at so what is going to change going forward. Clearly, I think the Nampak results over a number of years has not been to the level that we expected, and I'm sure, disappointing for many investors. So how are we going to change the business going forward? Glenn talked about our capital structure, how we're going to make sure that the concerns around our capital structure is addressed. And I think one of the big benefits of this crisis was that it allowed us to crystallize our minds. And actually, I think it's been beneficial. The whole term, "Don't waste a good crisis," I think many people have used that over the last couple of weeks and months. And certainly, it's been applicable to Nampak as well. If I look back, at the time when I took over as CEO, I thought to a large extent that a lot of our troubles were behind us. Clearly, we did not see the COVID problem coming. And when we came back from our December leave, I think it's only then that we realized how poor the trading environment was building up to that point in time. And I think for our whole team, we had to question ourselves and look again and say, "Well, what has changed? What can we do?" We had to look at the initiatives that we were already implementing and question whether that those were the right things to do or not. Now clearly, you've seen from some of our operational initiatives has really started, resulting in positive change. You've seen on our Paper side the big increase in profitability on that side. The Plastics side, although not where we want to be yet, really made a big difference. And then, of course, there's the restructuring in the food that is in progress and has not resulted in the positive change yet, but I can assure you that, that will make a big difference. So on the theme of not -- let's not waste a good crisis, we had a proper look at our strategy going forward, and I would like to share some of that with you now. And then, of course, I'm very happy to take questions afterwards. So what we had a look at is what is our current strategy and which portions of that still applies and which might not? So if I look at the first section, which was about unlocking further value from base business, I think it's fair to say that, that will always apply. I think at no point in time will we ever turn our back on our base business, and certainly, that is something that we need to keep on doing. And -- but I think the focus on that would be slightly different. So before, I think we had a lot less competition in the market. That has changed dramatically. So clearly, a big portion of that is about defending our market share, and in doing so, we got to look and say, "Well, how are we going to do that? How are we going to offer value to our customers?" Now our customers demand high-quality products. They want to see innovation. But most important, they want to see competitive pricing. So the other things are sort of things that get you into the room. It's a foot in the door. But in order to stay in the room, you got to have competitive pricing. And of course, you can only do that if you have competitive cost structures and efficient operations. And that is what we are busy focusing on. It's not that we did not do that before, I think we've done so, but we're certainly going to do that a lot more aggressively going forward. There are no holy cows in this business, and we will turn around every stone to see if there is any [ hares ] running around below and we are busy making good progress on that. But I want to assure you that it's going to be a ruthless process, and there will be some portions of the business that will not be with us going forward. I think we want to retain as many jobs as possible, but we can only retain jobs in businesses where it's justified. And therefore, the retention of jobs is linked to competitive businesses. We will only have jobs where the business is competitive, and it justifies the need for those positions. If we look at Africa next, accelerate African growth. I think immediately, the first word will tell you there's something wrong. So this is something we're going to stop. This does not mean we're going to exit Africa, but certainly we're not going to accelerate it going forward. If we look at our African portfolio, we've built exceptionally strong market positions in all the major economies. So clearly, talking other than South Africa and Zimbabwe, we have a very strong position in Nigeria. We have a very strong position in Angola. And we are very well capitalized. And when I talk about capitalized, I'm referring to the asset base in those countries. In Nigeria, I think we've created spare capacity on that line without spending more capital on it. So there's no need for further investments in those countries for the moment. In Angola, we probably overcapitalized. We've got 2 lines, hence, we stopped the conversion of the second line from steel to aluminum for the moment. We don't need that capacity right now. But should that market rebound, and we are very confident that it will come back as it's done before -- but for the moment, there's no need for further capital investment. We already have a good presence in these markets. It is literally now to see how do we make sure that we get through the next couple of months, and it's probably more than a couple of months, I suspect it's more than a year, where we do expect tough trading conditions in both these markets. We've been through a liquidity crunch before. I think we've learned a lot of lessons in terms of how we can hedge some of the risks. But I think we've also learned that to keep on funding those businesses when conditions become really tough is probably a questionable strategy. We have learned new ways how we can fund these businesses under those conditions. And for that reason, we're going to make sure that those businesses have to rely on their own ForEx that they generate in-country, and therefore, not put further strain on the overall group balance sheet. So during this period, do expect trading levels in Nigeria to contract. I think the whole market will be under strain. But I do not believe that, that is a long-term problem. The demographics in those markets, the potential remains intact. I think that those are very good investments. In fact, from an operational point of view, the operations we have in both Angola and Nigeria are world-class. They are our most efficient operations. Their cost structures are lean. And in Angola, we had much higher cost base. But as we've said before, we've contracted that cost base dramatically, so when the economy turns, we are now in a much better position to leverage off that. So certainly, it's going to be muted growth for a while, but we remain committed to our investments in Africa. But like I said, I can give you the assurance we're not going to sink further funding into those. The only one is, like I said, where we've got an existing commitment is the conversion of the line in Angola. So we'll complete that when the time comes, but there's no immediate pressure on that. But we are really ready to benefit from future growth. So the opportunity remains. Okay. So then moving on. So what is our strategic objectives going forward? And there are 4 themes, if I can call it that. And I want to put that to you today that you can see exactly how we're going to change the business. The overall theme is we want to make sure we lower business risk and we build trust. In the end, the whole business is about risk versus returns. And I think the portfolio to date has not given us that balance, and that's what we would like to look at. So the main theme is going to be about simplification, first of all, on the portfolio. So we're going to rationalize the portfolio further. And there's a couple of things that we're specifically going to look at in deciding which businesses we're going to retain and which of those that is not part of the core businesses going forward. And the first thing is going to be around sustainability. So we will look at where is the market going from a not only economic side but also the environment. So that is something we will consider. The other side is, at the moment, in our portfolio, we have businesses that's actually competing with each other. And we want to make sure that we've got a lower overlap of businesses that are competing with each other. And maybe if I can use the example, at the moment, it's almost like we're playing roulette. And I'm not saying we're gambling, but the example I want to show is where we are betting on red and black or blue. Now if you put a chip on both, you can never win. You will not lose, but you will not win. And what we want to do is to make sure that we back those businesses where we believe they've got better prospects and potentially exit some of the businesses where we believe it is not giving us the right mix in terms of diversification or lowering our risk. So we will clearly look at the market potential of specific businesses, specific substrates, and we will look at what is the capital required in those businesses and what is the likely returns that it will give us. So we are quite far progressed down that cycle. So we're busy doing the analysis. And clearly, based on that, we will take some decisions going forward. And it does have a potential to move towards a single substrate business, but I want to make it clear, it does not mean that our strategy is only to move to a single substrate business. We will look at all the different businesses and look at what's the opportunities that they represent, and we will certainly look at the timing of how we exit these businesses or some of them because for some of them, there's quite a level of optimization that we can still do before we dispose of them. But the portfolio will certainly look very different, I would say, 18 months from now. But the overall focus, like I say, will be simplification, how do we reduce complexity and how do we take out the related risk and cost that's going with that complexity. So leading from that, the second theme is optimization. So like I say, we will look not only at the portfolio itself but even the products within. There's a lot of products that we're doing at the moment where we are trying to be all things to all customers. We're not going to be doing that going forward. Where there are products that's really not adding value to our shareholders, we're going to exit those businesses. And we will also look at the trading terms, how we can optimize that to make sure it delivers value not only to our customers but also to our business. There's a massive focus on cost structures, and like I said, a lot of the cost that we have at the moment is linked to the complexity of the business. I think just looking at the financial side, I think all analysts has told us, "These are difficult results to fully understand." And of course, behind that, we've got a whole team that is working on that. But the overall complexity that we have, not only from an operational point of view but in terms of the overall business structure, is adding cost. And we are taking that with a vengeance. And then last but not least, operational efficiency. If you're a manufacturing company, that's always one of your core areas of focus and it should be one of your core competencies. We're doing a lot of work at the moment to improve operational efficiencies even further. We've made very good progress in the businesses over the last couple of years, and we're spending a lot of focus on not just the equipment itself but our people. We have a very strong view that investing in our people is where we're going to get the efficiencies from. And therefore, I think it's fair to say that in this strategy, our people, in the end, they are our most valuable asset because unless they can operate in an efficient way, the assets we have in terms of the equipment will not be properly utilized. The third theme that we want to focus on is really aligning our funding structures. We know that's been a huge concern from the market as the value of our U.S. dollar debt has increased. As we mentioned before, we want to reduce our U.S. dollar debt as far as possible. We're going to use the proceeds from our disposals to reduce debt. And we will also look at any businesses we exit into the future to see how we can reduce that debt. Clearly at the moment, that U.S. dollar debt introduces a lot of risk into our business and it creates huge earnings volatility. And yes, so we're going to look at our overall -- the structure of our balance sheet, and we want to make sure we strengthen that balance sheet by looking at all the components that adds up to it to see how we can change that. One of the other themes, clearly as we exit U.S. dollar-based debt, we want to make sure that our funding structures are more closely aligned to the countries where we operate and where we create economic value. Now in some of these countries, clearly, the capital markets are not deep. They're not necessarily as sophisticated as in other areas. So -- but directionally, we want to fund more businesses in-country. And where we can't, we want to consolidate the debt in South Africa, more of it in rands, that it's not U.S. dollar-linked. So that's an overall theme. We're going to be looking at the overall structure of that. We want to see to what extent we can fund all our businesses from the operations itself, how much we can fund from reducing debt through the exit of some of these businesses. But I want to assure both our shareholders and our lending partners that there's a lot of focus on that, and we will not compromise the market, as Glenn pointed out, by taking short-term decisions on what's happening right now today. Clearly, everybody is very worried about the impact of COVID-19 on the business. We're not denying that it's going to have a massive impact on our results for the next 6 months. But we can't structure the entire business on a panic. So we're going to be looking at this in a very responsible way to make sure that we do not cause harm to our shareholders where it's simply not needed and there's other ways how we can do it. So in other words, we're not just going to hold out our hands to our shareholders and their banks for more money. We first want to see what we can do internally through self-help measures. And therefore, through the overall portfolio restructuring, we will make sure that we get our capital structure to a point where it's sustainable, and it gives us a base from which we can grow into the future. So then the last point I want to touch on is growth through geographical diversification. Now clearly, our venture into Africa was based off the slow growth we had in the South African economy. And the potential that Africa offered at that point in time, the Rest of Africa, was what our strategy was based on. Clearly, we've done that now. We went through a patch where we had fantastic results in the Rest of Africa, but because of the high dependency on commodity cycles, I think, at the moment, clearly we're in a difficult area. That does not mean the potential going forward is suddenly now permanently low. I think the potential is still there. But as I mentioned, we are very well invested there already. We've paid our school fees, and I'm sure there might still be some further school fees to be paid, but the focus is now moving elsewhere. So we want to make sure that we also have some exposure to growth markets outside of Africa. As you know, historically, we've been limited to some of our business only to operate in Sub-Saharan Africa, mainly as a result of some of the limitations in our technical agreements. Since we've terminated some of those agreements, that limitation does not exist anymore, and we now have opportunity to expand into other growth markets. We will not be doing that immediately. Clearly, we need to strengthen our balance sheet first. We are already looking at the opportunities, but I want to give you the assurance that until such time as we have our balance sheet strengthened, we will hold back on some of those initiatives. So that brings us to the end of the formal presentation. I think that should give you some idea as to how we want to look at the opportunities going forward. I want to say, initially, as I said, when I took over as CEO, it was a difficult period. We went through a very difficult 6 months. The trading was tough. But I think it is a huge opportunity for us to restructure our business, and I think we are now very clear as to where we want to head. The plans are starting to fall into place. A lot of the actions that we've already taken is starting to show results. So it's actually quite an exciting period to go forward. I'm sure all businessmen and women will look at 2020 as a very tough year, but I think you're going to have winners and you're going to have losers after this. And from the Nampak's side, we're actually quite excited. We actually believe we're going to exit out of this whole period as a stronger competitor, and yes, I'm actually looking forward to the next couple of months. There are some very big challenges ahead, but we've got a team that's actually reinvigorated through all of it. So we're very happy to take on this challenge. And I'm now going to allow you guys to ask any questions where we can give further clarification.

[Operator Instructions] Our first question is from James Twyman of Prescient Securities.

Can you hear me? Just checking.

Yes.

Okay. Good. Yes, just 2 questions from me. The first one is just since the period end, can you give us some indication of what the volume declines have been in Nigeria and Angola especially given that in Angola, if you're not profitable, whether these declines mean that it's worth stopping trading for a period? And then secondly, you mentioned your debt in dollars of $267 million. I'm just checking whether that is post or before the Cartons sale and what your plans are for whether you have or whether you will convert the Glass proceeds into dollars.

Okay. So I'm going to respond first on the more operational side, then I'm going to ask Glenn to respond on the specific issues around the debt. So I think the -- let's look at the different areas where we operate. So first of all, trading levels in South Africa were down more than 50% in the months since our results. So we expect that to improve now quite a bit, but the COVID-19 had a significant impact on our operating levels. Like I said, in most of our businesses, we were allowed to produce products, but our constraint has actually not been a legal constraint. It was actually more the demand in the market. So they're more than 50% down. In Angola, the volumes contracted also quite significantly, and it came almost to a complete stop. And the reason for that is not because of sales but because of stock levels in the trade. So when they implemented their own lockdown for a period, there was no demand on our factory for the simple reasons that customers still had full product, and they had to keep on selling that. So luckily, the team in Angola, as I mentioned before, reacted very quickly. The labor environment there is very different from South Africa, and we could we could reduce our labor force very quickly. And as a result, that business is not bleeding cash at the moment. Like we said, they are very close to breakeven levels at the moment, but they've been quite flexible in handling the reduced demand. So they can operate without any volume in a particular month. At the moment, they do still have volumes. But like I say, the volumes are starting to increase again, and we're quite confident that we'll be through the worst of it in the next month or so. In Nigeria, volumes has come -- also come off quite dramatically. And I'm also talking in the order of about 40% to 50% initially because of their own lockdown. We expect that, that would be a similar trend as in South Africa that as the market -- sorry, the country starts unlocking from the hard lockdown, that things will start improving. But -- yes, so no territory that we operate in has been completely, what shall I say, immune to the lockdown regulations. But at the same time, I wouldn't see that as a structural change. In certain industries, certainly, it is likely that there will be a structural change in the economy and that demand will only come back much later. And as an example, for instance, tourism and these things, I think we all expect only to improve towards the end of the normalization cycle, where most of our products being essential goods, it is likely to return to the new levels of normality, I think, a lot sooner. But yes, so overall, we've certainly seen that impact, but we've been quite flexible in making sure we contain costs as aggressively as possible. Then I'm going to hand over to Glenn for the -- how we're going to use the funds.

James, thank you for your question. That $267 million is a net dollar position at a group level. That includes certain dollars that are in-country as well as the proceeds from the Cartons disposal, the Glass proceeds. They are currently sitting in rand. There's an application process in process with the South African Reserve Bank, and we'll be looking to address that reduction in dollar debt through that process.

Thank you very much. And we have no further questions on the conference call. Do we have any questions from the webcast?

There's a couple of -- a number of questions from the webcast. The first one is from Rowan Goeller. And he's asking, can you give me some detail on Bevcan operational curtailments due to COVID in March, April and May as well as inventory levels, please?

Okay. So the first thing we've done is we've got normal shift structures. But where we find that we did not need to operate a line, we've actually cut back on the labor immediately. So first of all, if I can even address all our staff that are not operational, so the first thing we did is to make sure we contain costs, was that all non-production staff that could not work remotely was immediately put on annual leave. And although we were quite lenient in allowing people to even go into negative leave of up to 13 days, anybody thereafter would be on unpaid leave. We have done a deal with our unions and our employees to still pay them a living wage of roughly about 30% of their salaries. But essentially, anybody that does not have enough leave has gone unto unpaid leave for the simple reason that we could not fund the business going forward if we do not have revenue. When we go back to the operations itself, where we did not have demand, people were immediately put on leave themselves, so we did not just keep on paying people for coming into the operation without any demand. And effectively, what we've done is we cut back our labor to the extent that there is demand. And as a result, we could make sure that we contain a significant portion of the cost. Of course, that was a necessary invention. It is very tough on our employees. Other than the salary sacrifice that they've made, they also had to dig into their leave. And then the other thing we've done, we also reached an agreement with our major unions that all unionized staff, which is more than 80% of the cost -- employee cost of the business, there will be no salary increases on the 1st of July. So that's already a significant saving. As we pointed out, that will not be the end of it for all our staff. We will make sure going forward that we're going to align the -- our salary cost with market rights. That's irrespective of level. That's everybody from managers to operational staff. Historically, we've always said that we felt that our employee cost is not in line with the rates offered by the market. And we have a huge exercise at the moment to look at that. And I think the current crisis is actually giving us the opportunity to have a hard look at the business and make sure that we align our cost structures with the market. So from an operational point of view, that's the first thing. Clearly, we only run product into stock if it's based on orders. And as a result, the operational levels has been cut down quite -- or cut back quite severely.

Okay. The second question from Rowan is, do you expect customers in Nigeria and Angola to assist with ForEx if liquidity dries up? Have you had discussions with them as Bevcan supply may be impacted?

So yes, we've started with discussions. Clearly, those discussions are still ongoing, so it's difficult to determine the outcome at this point in time. But I think it's only reasonable to say that if we do not have access to ForEx, then we will cut back on trading levels. But those discussions will be ongoing with customers, and we will make sure that we are responsible in how we handle it.

Next questions come from Munira Kharva from Nedbank. She's got 2 questions. If we exclude the Divfood losses from SA Metals, how did the underlying Bevcan operations perform? That's the first question. The second one is to PPE and goodwill. She says that it has reduced by only 400,000 from September despite the ZAR 3 billion write-down. Why is that?

Okay. Munira, first of all, thanks for the question. So I think the pleasing side for most of our operations during the last 6 months, the operational results were actually quite pleasing. So our efficiencies increase. Our costs came down dramatically. So it was very fair to see how the impact of overall market demand impacted on our results because, as we said, that was almost the main feature of our results. But the cost structures within the business has contracted well. A lot of the initiatives that we already started during last year pay dividends, and we had very good results from that. So like I say, it was not only the Bevcan business itself. As we mentioned before, we did have a further rationalization of the shift structures within Bevcan. We reduced a number of staff that exited the business at the end of March, and there's a second phase that is in progress. So overall, I think the Bevcan operations performed well. They certainly retained more volume than I think what the market expected. But the problem was that the overall market contracted. So I can assure you that it was not a normal market not only for ourselves but also for our competitors, and I think it's been quite hard on the overall beverage industry, not even just the beverage cans itself.

If I can answer Munira's question on the property, plant and equipment, the application of IFRS 16 was not applicable in the September 2019 number, so you have to add to that property, plant and equipment ZAR 1.4 billion for capitalized leases. Then you need to consider the impact on the remaining asset base with the dollar functional currency businesses' assets have been translated at a closing rate of ZAR 17.80 as opposed to what the exchange rate was at September, which was ZAR 15.1715. So that ultimately makes up the difference.

The next questions come from Nhlakanipho Mncwabe from 36ONE Asset Management. He's got 2 questions on debt. His first question is, post the settlement of the U.S. dollar private debt, what percentage of your debt is U.S. dollar denominated? His second question is, to be clear, the covenant relaxation was just for March 2020. Are you confident you will be below the 3x requirement by September? What levels do you have available to pull to ensure that you are below this covenant level?

If I can just stress that the settlement of the U.S. private placement funding has been settled in a dollar-denominated facility that is within our revolving credit facility. So that doesn't change the proportion of dollar-denominated debt. It's just a source of dollar debt from the RCF facility as opposed to the U.S. private placement, so that doesn't change their proportion. What it will do in the second half, the proportion will change as we utilize proceeds from disposal that we've received in both dollar and rand to just settle those positions as far as we can. In terms of the covenant compliance to September, the relaxation that we've had from the funding partners and the U.S. private placement funders has been for the measurement period for the 31st of March 2020. We are in discussions with various of those parties around how we manage going forward to September. But I think there's -- it's very dependent on what the rand-dollar exchange rate outlook is to September 2020. I've indicated in various presentations how sensitive those numbers are. I think when we talk about how confident we are, if they are world events that are beyond our control, it's difficult to handle what the spot rate might be at that point. As the slide that I put up, all our internal self-help programs, there's a very strong focus on management of costs, there's very strong focus on the holding back of certain capital expenditure programs that don't need to be initiated at this point in time and an incredibly strong focus on working capital. So if you add those all together, hopefully, they can provide some relief in that process. But it is certainly a top priority for the management team, and we're looking at all those funding structures and are working on a plan to address it.

The next question comes from Jake Ward from Ashmore. And he has questions on ForEx liquidity in Nigeria. There has been much talk about the ForEx today, but I was hoping you could give some color on your experience with accessing foreign currency in the last month. What have you've been able to do to manage this risk?

I think, first of all, there's no denying that liquidity in Nigeria has become very constrained over the last month. We're no different. We're obviously addressing that through our banks, but there's no magic wand there to suddenly get liquidity. So yes, we are talking to both our customers and the different financial institutions, but we are not immune to what's happening there. And as I said, we're realistic about it. We do have good raw materials on the ground at the moment. But in the end, we will constrain trading to the level of ForEx that's available. But as a result, we will explore all the available opportunities, but it's impossible to say at this point in time exactly how that all pans out.

If I can just add to what Erik said, if we can remind you at the 30th of September 2019, we had built significant inventories in Angola ahead of the Line 1 conversion from tinplate to aluminum because we would have had to have that line down for a period of time. The fact that the volumes have come back in this particular period still allow us to have inventory positions without any further ordering until beyond our year-end. So there's no further kind of requirement to fund any dollar purchases into that environment until after the year-end.

That's why you got Angola picking up. Nigeria, obviously, stock levels are not as high. It is still significant, but we are planning for a constrained environment for the next couple of months.

The next questions come from Mark Narramore from Excelsia. He's got a couple of questions. First one is, as it stands today, what is the cash cost saving with the reduced pension liability? I think you've addressed this one, Erik. How much did the industry volume decline in SA beverage markets on your best estimates? And then the last one talks to when do you plan on paying down the U.S. debt.

In terms of the pension fund liability in the U.K., the business was required to make a contribution to close the actuarial valuation of around GBP 2.9 billion per annum. As part of the settlement in the disposal costs, we've made one contribution for the year to that in terms of the disposal agreement. What the significant portion is, is the GBP 25 million comes off the balance sheet, which is around ZAR 538 million at the closing cost -- or closing exchange rate at the end of the period. The other one was -- what was that?

Yes. The question around the how much has the market declined in South Africa. Unfortunately, that's not a number we're going to disclose from now onwards. That unfortunately would be giving away competitive information. So we're a much bigger or the only player in South Africa, and we were quite happy to discuss and disclose that number, but unfortunately, that would be giving away competitive information to our competitors. And for that reason, we're not going to disclose that number.

Okay. The next question is from Anthony Sedgwick from Abax Investments. And he would like a reconciliation of the balance sheet goodwill from FY 2019 to the first half of 2020.

You're most welcome to e-mail me. I have all the detail, and I can provide it to you.

Okay. We'll get back to you, Anthony. Next question is from Shaun Bruyns from Mazi Asset Management.

If I can maybe just tell you the big movements. So essentially, there was originally $230 million worth of goodwill that was booked on the acquisition of Alucan Investments, and we've essentially impaired $130 million of that. So there's a remaining $100 million that is translated now at ZAR 17.80 as opposed to ZAR 15.17. So those are the big movements in those particular numbers.

Shaun's question is, could you reconsider your divisional disclosure? We get the metal -- so that's the -- the market gets metals, plastics, paper by country, please, as well as revenue, trading profit and operating capital.

Yes. We will totally consider it. And unfortunately, the answer is no, we can't because that would be giving away granular competitive information that is going to be more valuable to our competitors than our shareholders. So unfortunately, in the interest of our shareholders, we have to protect our individual businesses' profitability. And unfortunately, for that reason, we cannot disclose that.

Okay. The last and final question is from Kwame from KOA Capital. He's got 2 questions. You talk about stronger volumes in Divfood but still indicate that it was loss making. Can you please shed some light on this? His second question is for Glenn, that we've restated our divisional numbers for revenues in Metals. He just wanted to find -- to understand why that is.

Okay. So overall on Divfood, keep in mind, well, I think let's not confuse the stronger demand we had during COVID-19 or the lockdown as a result of people buying more -- or canned products. So that's where the stronger volumes came from. But during the period, volumes were down because, as we mentioned during the previous year, we had a loss of a significant customer, and as a result, all that -- when you look at the comparatives, all those volumes were excluded during the current period. And as a result, overall volumes in Divfood would have been significantly down, and that's what's driving the lack of performance on that side. So it's very different. The increased demand refers to only a section of Divfood, specifically food cans in the sort of April, May period. But there was a reduced demand due -- mainly due to the loss of that key customer last year.

All right. And then just to answer your question around the Metals revenue, we've adjusted certain Metals closures that were in the Plastics division in the previous period that have been moved into the Metals division in this particular period. It's not a material amount.

That's all the questions from the webcast.

Okay. Thank you very much, ladies and gentlemen, for attending this session. Obviously, there will be further engagement with some of you on some of the one-on-one discussions and so on, to the extent obviously of what disclosures allows us. But thank you very much for making the time to join us this morning, and all the best for you and your businesses. Stay safe. And yes, we'll talk again into the future. Thank you very much.