Nampak Limited (NPK) Earnings Call Transcript & Summary

Okay. Good morning, ladies and gentlemen. A very hearty welcome to our results presentation of our interim results for the first half of 2021 financial year. Yes, welcome to every one of you, and let's get started. I think, first of all, the forward-looking statements, I think that's nothing new. I think, have a look at it. We're not going to spend time on that, but it's very important to take notice of what it says. So let's get into the highlights. I think, first of all, I think you'll notice that revenue was stable at ZAR 6.5 billion. HEPS was up significantly, 151%, which we're quite happy with. Of course, underlying that, most important measure for us there is trading income, up 11% to ZAR 706 million. And then at the bottom line, operating income, up 89%, and we'll unpack that a bit later. All group funding covenants complied with, which, of course, our bankers are very happy with. And then I guess the most important thing is what happened to cash, and our cash is up ZAR 852 million, which is very pleasing. That's up 19% from what it was this time last year. Okay. Next -- sorry, let me just wait for my presentation to move. Okay. So just very briefly, if we look at our strategy, now remember, this is not the detail of our strategy. I think at the top there, you're seeing the 2 objectives that we're moving towards and at the bottom, the 4 enablers that is -- will assist us to get to these strategic objectives. And we'll spend a bit of time on that later on, but I think that's nothing new at this stage. So let's see how we've done against those objectives. I think, first of all, if you look at the group, of course, as mentioned, all our covenants, we complied to. And very importantly, the composition of our debt has improved dramatically. You will see a bit later on to what extent we managed to improve the level of U.S. dollar debt that's in there. Obviously, a lot lower U.S. dollar debt, which is improving our risk profile quite dramatically. On -- if we look at Metals, Bevcan specifically, some key contracts that we managed to extend. We also got some new export contract on top of the can body contract that we already had. And then I think there's a good reason that the next one is at the center of the page, and that's really -- if we look at our DivFood division, exceptional performance. This division made a very significant loss in the prior year 6 months, where in this 6 months, they actually made a trading profit. It's not yet where we wanted to be. I think there's still more to come from further -- the conclusion of Project [ LEGO ], but at the moment, very pleasing and a big contribution to the upside in our profits. If we move on to the Plastics division, they're in the process of consolidating some of the inland plants and also rationalizing their product portfolio, also a good improvement there, and we're quite proud of that. Our Paper side, it was a lot tougher, and we'll look at that a bit now. But in Zambia, we specifically improved the situation by diversifying our customer base. We used to be reliant more on one big customer for certain products. We now managed to diversify that base, which led to some growth for that. And then, of course, the exciting one is our newly sort of concluded joint venture with Elopak. Before, we couldn't start trading. We had to get all the regulatory approvals for that. That is now in place, and we can now finally start trading. So if we look at the operational review, maybe before we get to the individual bits, I think let's just stand back and say, well, what do we as management think of this set of results? So before we look at the details, like I say, if you actually consider the trading conditions in virtually all the territories where we operate, the conditions were tough. I mean other than Nigeria, I think Nigeria is probably the one exception where you'll see we've had very good trading conditions. In all the other territories, these were tough conditions. And keep in mind that the set of results that we currently look at had a huge impact from COVID-19, where the comparable results from the prior year, other than the last couple of days from March, didn't have any impact of COVID. And despite that, I think you'll see that we've managed to improve our results quite dramatically. So from our side, it's very pleasing. The improvements did not come from the trading conditions. It actually came from the projects, the restructuring, the simplification projects that we ran within the divisions. And we're very happy with that. And therefore, once we start looking forward for the next 6 months, we're very optimistic for the simple reason that I think for the next 6 months, it's more going to be a like-for-like comparison where we will look at a period that has got a lot of impact from COVID-19 still around, and of course, to last year where we had a terrible impact from COVID-19. But maybe back to the current 6 months under review. So if I can start with the Metals side, I think that's where we've seen the big success. And as I said, most of that came from the DivFood turnaround, up 28% trading profit. If you then look at the Plastics side and Paper, both are down, okay, obviously, much smaller profit contributors. So Plastics, down 1%; Paper, down 39%, and we'll unpack it just now. But most of that actually came from outside of South Africa, mostly in the Rest of Africa where trading conditions were really hugely impacted by COVID-19. So if we start with the Metals division, as I mentioned, trading profit up a very pleasing 28%. If we look at the individual components, the first one is Bevcan South Africa. As mentioned, we -- revenue growth there was driven by these export contracts, so that assisted us. Local demand was still lagging. So local demand has not recovered to the seasonal volumes that we had the year before. So certainly, those export contracts assisted. As we mentioned, the exports to North America really started going from December 2020. It was slow in the first 6 months. Availability of vessels for those exports hampered those exports. That is now starting to go, but the availability of vessels and containers still our biggest constraint. But at least all of that's now going, and we expect some good results from the second half as well. Then I've mentioned the local demand that was a bit softer. And of course, the contract renewal is very important. At end of last year, we already reported that we managed to extend our single biggest customer contract by another 2 years. This time around, we can mention that our second biggest customer, which is our biggest soft drink customer, we also managed to extend that contract by another 2 years with no loss of allocation, which, of course, is very good for our market share. DivFood, I think I've mentioned that before, very big turnaround there. And our cost savings from restructuring project is now really starting to come through, and it's not all of it yet. We are still in the process of restructuring that division. A lot of the equipment sort of relocations are in process at the moment. Most of that should be completed during the second half of this year. And therefore, there's more profitability gains to be expected into the new year, but very proud of that team and what they've achieved to date. If we look at the demand in there, we had strong demand from 3 categories: a smaller one is the meat category, then a much bigger one is the vegetable side as well as our fruit that has done particularly well over the last 6 months and, yes, contributed to profitability. The one that was lagging and a very important segment for us as well for our DivFood operation is fish. Unfortunately, too, in the first 6 months, the availability of fish was very low. And therefore, our customers that is packing and canning fish didn't have the raw material available. I'm being told that that's now turned around. They've started to get some fish in, a lot of frozen fish imported from Morocco. So the fish is now arriving. And again, we've seen already in May that the volumes for fish has started to improve, and it also suggests that we should have a good second half of the year as far as the fish side is concerned. Nigeria, as I mentioned, this was a very good market for us, probably our strongest market during the last 6 months. On the beverage side, we had double-digit volume increases. This came not just from higher allocation by customers, but also from some of the shortages that other packaging mediums experienced. So a little bit of this is short term, but overall, the market is growing and it is gaining momentum. And we've not only seen this on our beverage can side, also, our general metal packaging operation, they performed very well. So overall, the Nigerian market performed well. Of course, the availability of ForEx is still constrained. It got tougher during this period. But so far, it has not hampered us operationally. I think we are a bit concerned about the port congestion, raw materials. So in the second half of the year, we have experienced some very small raw material shortages for periods of time. But at the moment, I think we -- that is sort of standard in the market. We're doing better than, I think, most of the other packs that we're competing with there, hence, the volume growth. Then Angola, unfortunately, still very tough. We have not seen an improvement in Angola. So Angola, we don't expect a recovery for the rest of this year. We still managed to stay posh -- sorry, cash positive. So very happy with the cost reductions that the team in Angola has implemented, but Angola is certainly a tough market. So the conversion that we're busy with on Line 1, that is going ahead as planned at the moment in order to prepare us for those export contracts; the same for the conversion on the second line in terms of the sizes that we need to do for the export contracts. Those contracts will only start towards the latter quarter of our financial year. So nothing there yet, but everything on track. Moving on to our Plastics division. Unfortunately, as I mentioned, 11% reduction in trading profit. That did not come from South Africa. South Africa has actually done particularly well. So in South Africa, the -- again, the simplification of the portfolio as well as the consolidation of some of these operations yielded some very positive results, a massive improvement in South Africa, although that's obviously a smaller profit contributor. So some of the factors that impacted them, there was a milk shortage, so that certainly sort of held us back a little bit. Stronger crate volumes, which we were very happy with. Overall, bid cost increase is starting to come through in that business. There is a concern around the availability of raw material. So we're doing everything in our ability to make sure we develop alternative sources for raw materials, but that's something that's generally across the industry a problem. Cartons South Africa also performed well despite the alcohol bans. As mentioned before, with a huge portion of their products from conical cartons going for traditional beer, they were heavily impacted by the alcohol bans. But overall, I think the business did well. Again, very big cost pressure coming through there, so some margins were impacted. But they managed to get through all the alcohol bans and the rest of it. So again, I think it's looking good on that side. Rest of Africa, it was tough. If we look -- and maybe this is a general comment, the same also on the Paper side, the biggest portion of our Rest of Africa business, if you ignore the Metals side of Angola, Nigeria, actually comes from Zimbabwe. Generally, in Zimbabwe, demand was strong. So we were very happy with the operational results of that -- those businesses. In fact, it's more than one business. But if you look at the weakness in the Zimbabwean currency, on translation, unfortunately, it had a huge impact on our results, a lot lesser impact this time around coming from hyperinflation. But the weakness in the currency had quite a bit impact on our results. So a big contributor to the lower profitability from this division overall coming from Zimbabwe. So like I say, not from operational performance side, but literally as a translation of results. If we then, the last one, we move on to our Paper division. Sorry, let me just wait for my slide to move. Okay. So if we look at our Paper division, so optically, it looks like a big reduction in profit, so 39% reduction in trading profits. Keep in mind that included in the first 6 months of last year was the results from our Nigerian Carton business. Of course, we've sold that last year. So only the results from the first 3 months in the prior year were included. But overall, that did contribute quite significantly to the -- both the reduction in revenue and, of course, trading profit. So Paper is probably the area, and most of this comes from the Rest of Africa, where it was tough. Like I mentioned, most of this, again, comes from Zimbabwe. We've got the smaller businesses there in Malawi and Kenya. Zambia, a bit of a mixed bag. Like I say, we -- again, very strong or strict lockdown restriction, COVID-related restrictions on trading. But what we managed to do during very tough times is actually to grow some of our conical carton business volumes by diversifying our customer base, even despite the alcohol bans that went in place. So I think from Zambia, a good performance. And then, of course, the last one, I've already mentioned, the joint venture with Elopak. Nothing included in these results yet, but we now have the go ahead to start trading. So that should start contributing as we move into the future. So I think that sort of concludes the operational review. I'm now going to hand over to our Chief Financial Officer, Glenn Fullerton, and he's going to take you through the more detailed analysis of our financial results. Glenn?

Thank you, Erik. Good morning to everybody. Thank you to Erik for that introduction. I'm going to take you through a relatively detailed review of the financial position and the results for the 6 months ended 31st of March 2021. I think a key feature of the results, undoubtedly, is the lower and substantially lower impairments in the period, which have boosted profitability in a time where we have done quite significant reviews of any impairments and found that there's no further impairments required. So I think that's the key point to note right upfront. Revenue is stable at ZAR 6.5 billion. We've got an EBITDA uplift of 32% to ZAR 783 million. Trading profit has increased by 11% to ZAR 706 million. And I think, pleasingly, within that number, the trading margin has increased from 9.7% to 10.8%. Our operating profit has increased by 89% to ZAR 543 million. And really, there's a combination of issues happening within that number. There are lower once-off items that we had in the prior year that we classified under capital and other items as well as a lower depreciation charge from -- as a consequence of the impairments that happened in the previous year. So quite a pleasing uplift in the operating profit of 89%. The profit before impairments is up greater than 100%, from ZAR 117 million to ZAR 287 million. And the key feature, as I indicated upfront, is the reduction in the impairments. There's only a ZAR 14 million impairment in the current period compared to an impairment of ZAR 3 billion at the first half in the previous year. Very encouraging improvement in the cash generated from operations where we've generated ZAR 852 million, up 19% from the previous year. And the cash flow from operations at ZAR 489 million, up 62%. Our gross interest-bearing debt has reduced by 34% to ZAR 5.8 billion and the net interest-bearing debt by 11% to ZAR 4.3 billion. And I'll unpack that for you a bit later. And we've utilized significant cash that we had at 31st of March last year from the proceeds on the disposal of the Cartons Nigeria business and the Glass business to reduce the net debt position. We do not have any discontinued operations in the current period despite there being 2 assets that have been classified for sale, and I'll take you through that in a moment. Pleasingly, the earnings per share from continuing operations, we've converted that from a loss of ZAR 4.089 per share to an earnings per share of ZAR 0.17. And the headline earnings for continuing and total operations is posted at 17.6% (sic) [ ZAR 0.176 ], an increase of 151% on continuing operations. So we're pleased with that. We have a little bit of more detailed income statement. There's no discontinued operation. You'll see in the prior period, there was a profit on disposal of 2 particular businesses, being the Nampak Plastics Europe business in England and the Cartons business in Nigeria. Both the assets that we've got classified for sale at the moment are neither large enough from a substrate or geographic perspective to be classified as discontinued operations, but the assets are grouped as asset held for sale on the balance sheet. We've gone through the majority of these numbers in the earlier presentation, but the key feature, I really think, is the reduction in the net impairments. The financing costs are significantly up. In terms of the renegotiated financing arrangement with the lenders, it does include a ratchet interest cost of ZAR 65 million in the period, which has driven the interest cost number. And we've also had a reduction in the finance income where that has reduced quite substantially by 81% to ZAR 16 million, and that's really primarily due to the maturing of the U.S. dollar-linked kwanza bonds in Angola. They have acted as an extremely good hedging mechanism for us over the last 3 years. In Angola, those have been matured. There's only one small portion that is due in the following year, and those have been particularly successful in the mix this year. So really, a profit before tax of ZAR 272 million. A significantly higher tax rate. The tax rate in the prior year was 2.2%, distorted significantly by the impairment charge in the income statement. And I'll unpack why the tax rate is sitting at 37% in the current period. But pleasing improvements on the earnings per share. The feature of our results is always the movement in our foreign exchange rates. And I think the mix of the debt has benefited from a stronger rand in the period where we've seen closing rates compared to the first half of last year with the rand 17% stronger at ZAR 14.76 and 12% stronger than the closing position in September last year. The balance sheet mix has been the key focus area for us in the period where we have tried to reduce the dependence in dollar-denominated debt, and I'll unpack that for you later. The covenants have benefited from the stronger currency. What we have seen is a weakening in the naira, not substantially though, where the closing rate is 5% weaker. What we have been a marked feature of these results is the kwanza being 34% weaker on an average basis and 13% on a closing basis. The Zimbabwean currency has caused some challenges to our numbers over the last couple of reporting periods. Remembering that this is a hyperinflation economy where the results are cumulatively translated to the closing spot rate of the period and not the average spot rate. That's a requirement in terms of the International Financial Reporting Standards. And you'll see that the closing rate is 238% weaker in the first half of last year. And as Erik alluded to earlier, that has impacted the contributions from those businesses out of Zimbabwe. The currency availability in Zimbabwe remains challenging. We have not advanced any funding to those businesses since April 2018. And they operate in their own funding capacity, and they fund all the imports and the operations on a stand-alone basis. The currency has, however, stabilized since the closing position at the end of last year, but there's only been a 4% decline in the currency since that period, closing at ZWL 84.40 to the dollar. The tax rate remains a complex calculation within our environment, with the prior year tax computation being significantly impacted by the impairments and the loss on disposals. We -- in the current period, clearly, the statutory tax rate has remained consistent at 28%. The foreign tax rate differential position has reduced from 12.4% to 2.1%. But what we have managed to do is utilize certain tax losses in our Angolan business, and that has provided a shield of 11.8% in the period. So on a normalized basis, the effective tax rate has increased from 20.8% to 21.6% before we take into account certain of the other factors that, I think, are relevant. What we have seen is with the reduced trading levels in the Rest of Africa, Isle of Man treasury and procurement company has had lower funding and procurement activities and, accordingly, has made a trading loss in that particular period against which we are not able to get a tax shield. So that has elevated the tax rate by 7.8%. And then there's a further increase in the tax rate of 5.3% due to certain tax effects and hyperinflation issues within Zimbabwe, and that brings you back to the effective tax rate of 37%. The feature of the balance sheet is the reduction of the dollar and offshore component of our debt to 45% of net debt. We've certainly set out to achieve this. It was really a position that had caused some volatility in our covenant calculations for some years, and we do hope that, that will reduce the volatility in those particular numbers going forward. The assets of -- from a property, plant and equipment comparison, when you do that, you need to take into account the stronger rand component when we're translating our foreign operations. There were certain impairments in the prior year and quite significantly so. And then we've also classified certain of the assets that are related to the assets held for sale into a separate category on the balance sheet, put assets held for sale. So that will be part of that reconciliation. The right-of-use assets relate to the IFRS 16 leases, bearing in mind that in the second half of last year, we impaired ZAR 56 million related to DivFood and ZAR 153 million to the Plastics division. The goodwill is essentially a dollar-denominated goodwill, and that's the residual position related to the beverage can business in Nigeria, and that is really only moving in line with the strengthening in the rand in that period. Liquid bonds, as I've discussed, are nearing maturity. There's only one tranche that's due for the following year. And our total equity has stabilized around the ZAR 4.1 billion level, remembering the quite significant impacts that we had from last year in terms of the impairments. We have added to that from a net profit this year of ZAR 171 million. But because of the stronger rand, the foreign translation of the assets has caused the foreign currency translation reserve debit in other comprehensive income of ZAR 322 million. So that's pulled back the equity slightly. Our gearing still remains high. Inclusive of the IFRS 16 lease liabilities, it is at 142%, slightly down from the 149% at the end of the last reporting period. If you strip out the lease effect of -- in those numbers, it's sitting at 105%. The loans and current liabilities at the end of March last year, it included $115 million that was due to be settled on the 28th of May for the U.S. private placement funding. That was settled in the second half of last year, and that reduced that position by ZAR 1.7 billion. The stronger rand has benefited us, and the short-term portion now also includes the ZAR 1 billion of group funding that we're required to settle by the 30th of September 2021. The short-term liquidity still remains strong. We have a current ratio of 1.6x, marginally down from the 1.7x in the previous year. Our acid test ratio is pleasing at 1x, so we can settle all current liabilities without having to sell any of the inventories. And those short-term positions do include that ZAR 1 billion that is due by September on the funding requirements. If we unpack the reported net debt position, and I hope you find this slide useful, if we look at September 2020, the net debt position was ZAR 4.857 billion, and it's moved downwards by ZAR 572 million to ZAR 4.284 billion. Now on the right-hand side of the slide, we unpack how that has happened. We have generated cash -- positive cash in the period of 832 -- ZAR 831 million. We have released ZAR 21 million from the working capital cycle. And then as indicated in the foreign currency side of things, there's been a net foreign exchange impact of ZAR 248 million. And part of that is a benefit on the debt leg of ZAR 394 million, where the rand has strengthened in our favor. But then where we have foreign positive positions in both the cash and the liquid bonds, because of the rand building stronger, those have offset the positive position of ZAR 394 million. So you get a net ZAR 248 million there. We've paid interest of ZAR 272 million. There's been strong management of the capital expenditure at ZAR 153 million. We've paid tax and post-retirement medical aid contributions. And then there have been a small position of ZAR 25 million from asset disposals in the current period. I think the rand strength has clearly assisted in the numbers, but good strong cash generation in the period has been pleasing. If we have a look at the mix of the debt, and this is from a covenant computation perspective, going back to the first half of last year, we were very heavily dependent on dollar-denominated funding with 92% of the net debt represented by dollar-denominated funding. What we did do is utilize the proceeds from the Glass division and the Cartons Nigeria disposals to reduce that dollar-denominated debt, and that happened in the second half of 2020. We also swapped out ZAR 1 billion worth of U.S. dollar debt for a rand facility. And you can clearly see, as the positions move, it's moved from the 92% dollar debt down to 45%. And that, if you translate on the right-hand side of the graph, we're sitting with offshore debt of ZAR 2.1 billion and local debt of ZAR 2.5 billion to get you back to the ZAR 4.6 billion. There have been positive trends in our EBITDA. And this calculation, for covenant purposes, is based on a rolling 12-month position. And clearly, with the lockdown happening in April last year, the second half of our financial period last year was significantly impacted by very, very tough trading months. As those tough trading months are replaced by stronger trading months, there's a significant improvement in the rolling 12 months. In terms of the refinancing arrangement with the bank or in terms of the new covenants, we do measure these covenants quarterly. We do report on them to the funders monthly. And what we are seeing is we are tracking very strongly the internal budget for FY '21. And with the proceeds of the identified asset sales, expected to reduce the debt by the year-end and further benefit the covenants. There is still a requirement to reduce the overall debt by ZAR 1 billion by September. The funders will reassess that position by the 30th of June. So we'll have another 3 months to look at how the trading has gone. And we did secure ZAR 1 billion in offers by the 31st of March, that -- sorry, that requirement was reduced from ZAR 1 billion to ZAR 400 million. We will take you through the more detailed corporate finance slide in a moment. But the trend within those numbers, you can see the green line is the net debt-to-EBITDA required level that we have to be below. And the blue line is showing how well we're tracking with the 3.7x net debt-to-EBITDA being achieved at March 2021. And then the EBITDA interest cover, we are tracking positively there. And that, I would remind you, is inclusive of the ratchet interest cost of ZAR 65 million. So if you strip out the ratchet interest cost, that line would be elevating at a far greater rate on a sustainable basis going forward. There have been very clear deleveraging milestones that we've had to comply with, and there's a clear plan to deleverage the group by the 30th of September this year. We were required to appoint independent advisers and to perform valuations on our potential target disposals. That was required by the 15th of October, and that's been achieved. The independent valuations were put in place, and those supported an identified position of ZAR 1 billion. We received nonbinding offers for those businesses by the 1st of December. And now we're in a position where we're looking at binding offers and converting those into actual sale and purchase agreements. What is clear is that milestones 1 to 4 were achieved. We have requested the lenders to reduce the requirement from ZAR 1 billion to ZAR 400 million. And given the strong trading conditions and pleasing trends in the covenants, and we have received binding offers of ZAR 400 million at March. The lenders are reassessing this position, and the requirement for a capital raise will be determined at the 30th of June after we've seen another quarter of results. Sorry, the slide -- there. Moving to the cash flow statement. Very pleasingly, our cash generated from operations are up 62% with cash before working capital of ZAR 831 million, up 5%. A pleasing release from working capital, elevating the number to ZAR 852 million. Interest -- cash interest paid of ZAR 272 million, 3% ahead of last year. Remembering this is for combined operations now and not just continuing operations, and a pleasing uplift to ZAR 62 million -- 62% to ZAR 489 million at the operating level. Capital expenditure has been very nicely controlled with a reduction of 62% to ZAR 153 million. And then the bonds that have matured have added to our cash by ZAR 271 million. And on a comparative position, before proceeds from disposal, our net cash generated is elevated by 38% to ZAR 638 million, which is a pleasing position. And then what we did with that ZAR 638 million, we used ZAR 601 million to reduce debt, and there was ZAR 37 million net reduction in the lease liabilities. If we unpack the working capital position, there was a very strong focus on operating and sales plans to inform our procurement decisions, and those have certainly yielded very good benefits in the period. There is a decrease in inventories of ZAR 80 million, and that's been a focus to match those to new demand levels. There's quite a significant funding requirement in the trade receivables bucket, and that's really in pockets because of improved trading conditions. We've had to fund the export debtors that Erik has referred to for the contracts that we've won there. And there was also a change in terms of one of our major customers, which has required that funding. What we have done is try to fund quite a significant portion of that with increased utilization of trade payables where we've secured ZAR 318 million in additional funding. And that leaves us with a net working capital inflow of ZAR 21 million, resulting in a positive swing of ZAR 97 million compared to the prior year. And finally, if we look at the capital program, over the period of time, on the screen, you can see quite a significant tightening of our working capital expenditure program. The Capital Assurance Committee has certainly played its role in this regard. It continues to be effective. There's a very prudent allocation of capital without compromising the integrity of our asset base. At this stage, the majority of our spend relates to replacement capital expenditure, and we expect this to be tightly controlled going forward in the region of between ZAR 360 million and ZAR 410 million for this current year. We don't have any one major single CapEx project within those numbers, so it's across quite a diversified base. And the numbers will also include those specific additional capital expenditures that were required to meet the export contracts. So I hope that gives you a good perspective of the finances for the first 6 months. Back to Erik.

Thank you, Glenn. So I think let's briefly look at the outlook for the second 6 months of the year. So I think, first of all, the Metals division, of course, it's all about -- we've started those export contracts. It's now about delivering on them. A question that I know is going to come up is, how are those contracts looking for after our financial year? I have to say, unfortunately, it's unlikely that there's going to be high volumes after this year. I think as a result of the success of some of the vaccination drives in the U.S., people are already returning back to pubs, et cetera, less home consumption. So we are seeing those -- the demand dropping off. And as a result, I think it's unlikely that we'll see significant volumes into the next year. And I think, as we've cautioned before, this is a once-off opportunity, and we need to make sure that we find enough volumes locally to keep our operations going. In Nigeria, we expect the demand to be strong, to continue to be strong. The biggest problem, as I mentioned there before, is the congestion in the port. There's a lot of metal that we've ordered that's sitting in the port. It's just all about getting that out to make sure that we can keep our operations going. Angola, unfortunately, if the economy do start picking up, I think that would be very nice. We're not banking on that. I think we expect that position to remain weak for the rest of the year. So there, really, it will be on cost containment. And of course, the execution of the conversion of that line to complete that and to start the export contracts. At DivFood, big part of the restructuring already behind us, a lot of the equipments are being moved as we speak. So we hope to finalize Project [ LEGO ] by the end of this financial year, and therefore, I think quite significant benefits that we still expect to sort of come through in next year. Of course, there's a lot of people impact on this. Unfortunately, we had to say goodbye to some of our colleagues during the last couple of months, and a big number of people have been sort of moved to the Western Cape where they're busy settling in. And hopefully, they will settle well into that area. On the Plastics side, again, similar. I think they're coming to the end of a lot of the consolidation projects. Again, I think, further cost savings that we hope to achieve for the second 6 months and, hopefully, that puts us in a good position for next year as well. Same thing almost as in Nigeria, the whole industry at the moment is struggling with raw materials on plastics that's driving cost, hence, big cost increases that we have to recover from our customers and quite a tough discussion on that side. And then on the Paper side, I think there, we hope trading condition is starting to improve. The exciting one, as I mentioned this, we can now finally start trading with Elopak in our joint venture. And hopefully, that is going to be good news for the future. So at a very high level, in conclusion, I think we're saying the recovery is on track. If you look at the set of results, as I mentioned, the improvement did not come from easier trading conditions. In fact, they were worse than before, other than Nigeria. So very happy overall that we managed to claw back our profitability, not, like I say, from the underlying conditions, but from the operations themself through improved cost structures, lower fixed costs and improved efficiencies. So overall, I think we've enhanced our position to compete through those. We've also secured some of the contracts going into the future to make sure that we can stabilize our market share for Bevcan specifically in South Africa. I've mentioned the reduced cost base. And of course, we will continue to simplify not only our portfolio, but also the product range. So we mentioned that we've got 2 assets that we've already disclosed as operations held for sale: the first one is our diversified operation in Mobeni, and we hope to have some news about that coming soon; and the other one is our Tubes business that we're also looking at disposing. So overall, I think we're not there yet, but we certainly optimized our footprint. I think there's more work to be done, as I mentioned. But then the big one, of course, is how do we create capacity for future growth? So when we look at our strategy, we -- when we say we want to reduce risk, it's not only about making sure that we can sort of keep the banks happy. We have to keep our shareholders happy as well. So we are reevaluating our capital structure. We need to make sure that we are fit for growth. If you look specifically at the CapEx slides that Glenn put forward, you'll notice that, obviously, we managed to reduce the CapEx spend significantly, with most of it over the last year being spent on the replacement side, very little on the expansion side. So of course, once we have our debt under control, again, it's all about looking to the future, how do we create the enabling environment to make sure that we can grow into the future. So I think that concludes our presentation. We're now going to sort of allow some time for questions. Yes, so please feel free, give us some questions, and we hope to respond to that as best as possible. Thank you.

The first question comes from Errol Shear from Sasfin Asset Managers. Can you expand on ratchet interest costs? How long will these persist?

So the ratchet interest costs are a feature of the funding arrangement to the end of this financial year. And once we're back within our covenant levels, they'll reduce. There are sliding scales within those ratchet interest costs depending on where we finish each quarter. And for the half year, as I indicated, there is a number of ZAR 65 million in the interest cost.

The next question is from Glen Heinrich from Perpetua. Thanks for the continued good work in tough conditions. Given current strength of the rand below -- putting rands to the dollar, are you not working to swap more USD debt into ZAR?

It certainly may be a focus area. We have got the capacity to do that, and it is quite attractive at the current rates. So we are targeting stronger ratios than we've even got to date. But the split where we're sitting at 45% is in line with our strategic intent. And if we can improve on that, we will.

The next question is from Mark Narramore. And his question is, with the weaker second half of the 2020 EBITDA falling out of the base and the stronger second half guidance, it seems you will be below the 3x covenant requirement. Will you still need to pay the permanent repayment of senior debt despite being below the 3x covenant?

In terms of the current funding arrangement, the requirement is to reduce the net interest-bearing debt by ZAR 1 billion by September this year, even if we are within the covenant levels.

I think maybe just one thing. Just one thing to mention there that the moment we -- or within the covenants, of course, it's got a big impact on the ratchet interest. So yes, we do believe we will be within the covenant soon. And as a result, hopefully, we can show some savings on the interest side.

The next question is from Rowan Goeller from Chronux Research. Please, can you comment on the Bevcan industry now that the new competitors are established, market shares and pricing, in particular, over the past few years?

Okay. So first of all, I think we're certainly not going to get into a pricing discussion. I think that would be quite sensitive. So yes, we have lost market share over the last number of years, as you've seen. We stopped disclosing the exact market share that we have. But I think what we can mention, of course, you've seen the long-term contracts that we managed to renew. We've mentioned the bigger one where we used to have 100% of the market share that was renewed at just over 80% at the end of last year. So of course, that will have a slight impact on our market share. Of course, the more recent one with a big soft drink customer, there, we renewed it without any loss of market share. I think the only thing to mention there is that our one competitor battled to supply all their allocation in previous periods. So yes, in the current period, there was a small reduction in our market share there, but that was literally just because of volumes that was not allocated to us that we picked up in the past where some of those volumes, unfortunately, were lost during the current period.

The next question is from James Twyman. The question is, could you give the reason for the large minority cost and whether this is recurring? Secondly, any export contracts in 2012 (sic) [ 2022 ] other than for Angola?

In terms of the minority cost, it relates to 48.57% minority interest in the Zimbabwe operation. There's a 30% interest in the Angolan operation. What we have done during the period is we have stopped charging interest on our funding from the treasury business overseas into the Angolan business. And hence, the profitability of the Angolan business has improved and, hence, the bigger charge in income statement for the Angolan business minorities.

I think I can maybe just talk about the export contracts, the second part of that question. So at the moment, no, we don't have any export contracts in 2022 outside of Angola. I just want to clarify, that's into North America or Europe. Of course, we still have export contracts that we've been doing for years into other territories. One significant one is into South America. So yes, those will continue, but let's call it the once-off or abnormal export contracts that we enjoyed during the current year that's unlikely to persist into next year.

Are there any questions from Chorus Call?

We do have a question. We have a question from James Twyman of Prescient Securities.

No, it was the question that I've already asked. But just in terms of the minority, so Angola is not really making much money or any from what I can see. So why is there a large minority cost? And is this large minority cost going to be continuing?

James, historically, the Angolan business was almost exclusively funded on debt, and it was funded by Nampak. The minority put in a notional 30%, and there was this very heavy funding cost coming from the center. We've decided that that's no longer appropriate. We are in the process of looking to actually recapitalize that business, and we've switched off the interest cost for the moment. And hence, the profitability, when you get that to a group level, clearly, the interest paid and interest received eliminate. But when you get to the share of the parent shareholders, share of that income, it goes up and hence the debit. And that will be a feature going forward. We are looking to recapitalize that business because the capital structure within that subsidiary is not appropriate.

Okay. Recapitalize, what does that mean?

It would not result in any cash cost. It would essentially be looking at converting a portion of our loan account into equity within that operation.

The next question is from Mark Narramore. Are all the cost savings from DivFood in the current base? Or are you expecting margins to further improve?

I do believe that there's further savings still to come through. So yes, we still believe there's further margin improvements on the DivFood side, so yes, absolutely. I think you've missed the question there -- not.

Okay. The next question is from Nhlakanipho Mncwabe. Thank you for the presentation and well done on the good trading performance. To clarify, can you unpack in further detail what you mean by evaluating your capital structure? Is this more equity into your capital structure? Can you just clarify, would you need to conclude another ZAR 600 million in disposals by September? If you don't have binding offers for this additional ZAR 600 million at June, is that the point where you need to implement a capital raise?

Okay. So I knew this question was going to come up. So let me maybe unpack it in very carefully. So first of all, there was a requirement to raise at least ZAR 1 billion by 30th of September. We then had to get binding offers by 31st of March this year. One of the assets, and it's a significant asset, and you can see there it's worth more than ZAR 600 million, we had to withdraw from the process because the licensor was not happy for this asset to leave Nampak. They're very happy with it to trade with Nampak, but they did not want to let this license fall into anybody else's hand at this point in time. And as a result, we had to withdraw that asset from the market. So it should be quite clear that there's a gap of at least ZAR 600 million at this point in time to get to that ZAR 1 billion. We've had discussions with our lenders on that. They then looked at it and say, hang on, before they give us any relaxation on the total amount required, they will, first of all, give us relaxation on the milestone, in other words, that we don't trigger anything at the end of March. But that gap of ZAR 600 million still remains. So at the moment, our trading is going well. As you can see, we're well ahead of, I think, where we even believe ourselves to be at this point in time. And our lenders are taking that into account and they said, well, hang on, it's still early days. Let's give it another 3 months and see where does that leave you, and then they can take a decision whether they're going to relieve us of that requirement for the additional ZAR 600 million. If not, then, of course, it is highly likely that they might ask us to do a capital raise. So that's the one side of the equation. The other side is to say, well, if we can come in just below the covenant, is that good enough? And that's the point I tried to make earlier is that we also need to look at the future and say, well, hang on. Is it all about just staying within your covenant or do we actually need capital to look at future growth? So if you look at what we've done to date, yes, we've operated in places where we went into big investments on the back of debt. So into the future, I think we need to look at our risk profile and say, what is our appropriate covenant level that we want to operate at or a gearing level? And it's that evaluation that we're currently being -- that's currently being done. And yes, so that might require a capital raise, but that's not a decision that anybody has taken at this point in time, the discussions that we have with our Board as well of our lenders at this point in time.

The next question is from Patrice Moyal from Visio. Well done in a tough environment. Is the impact of the early 2021 lockdown on can revenues material or not? And the next question is, 30th June 2021 is the next measurement deadline. On the assumptions that you meet covenants then, when is the next measure and what debt requirements take effect thereafter?

Okay. So from lockdown impact on volumes, I think it's debatable to what extent the alcohol bans had an impact on volume. We've certainly seen initially during those lockdowns that it had a very small impact. Generally, we find that people have smarten up to these alcohol bans. There's a lot of pre-stocking happening. So if these bans keeps on going for too long, it did start having impact on volume. In fact, we saw more of a delayed impact of the alcohol bans itself. However, I think the bigger impact that we have from lockdowns, as mentioned before, is the fact that big sporting events and big social gatherings are not allowed at this point in time. So as I said before, all those small rural school events, the sporting occasions happens -- happening at schools, et cetera, that did not happen. And as a result, we have seen quite a significant shift away from smaller packs, convenience packs like cans and the smaller PET bottles into the bulk packs. So I would say, yes, so that did have quite a material impact on volumes overall. Volume -- total volumes were fairly flat for the period. But of course, that was boosted by the exports. So yes, local volumes, as we said, did not recover yet on a seasonal basis. We do believe that there should be some growth into the second 6 months given the very low volumes last year. But to date, I think it did still have quite a material impact. Okay, second, I think there was a second half of that question. We'll just try and think what was it. Oh, the covenant measurement period, so maybe...

The covenants are measured on a quarterly basis, so then the next period is June. Then we've got to meet the -- get back to the 3x net debt-to-EBITDA position by September and be in excess of 4x cover for the EBITDA interest cover period. The current arrangement in terms of the legal agreements is that we reduce the net interest-bearing debt by ZAR 1 billion by September. We are in discussions with the funders to discuss that because the funding has been very well supported by a recovery in the trading. You can clearly see from the numbers the significant impact that the second half of last year had on the rolling 12 months in EBITDA calculation. And as that calculation benefits now from a much stronger second half, we do believe that we can get within that covenant level by that stage. But the requirement still remains legally to reduce the debt by ZAR 1 billion by September.

The next question is from Rajay Ambekar from Excelsia. Can you elaborate on why one of the businesses could not have been sold due to the license owner not approving? What business is it? What are the plans for this going forward? Was it the buyer that was not acceptable?

So if I can -- I can't give you too much detail on that. It was our Cartons business. This is a business I just have to mention that strategically, we want to keep in the portfolio. In order to get to the ZAR 1 billion, we had to include it. So at this point in time, it's mixed. In terms of, what does this mean? Of course, it means that through normal asset sales, it's unlikely we can get to the ZAR 1 billion at this point in time. So -- and I think that might address one of the other questions as well. But yes, it was not about a specific buyer. I think it was more a principal decision that we found that the licensor said that they are not happy to take this business out of Nampak. You would have seen that we also have a joint venture with this licensor in the Rest of Africa. And therefore, I think it would probably not have been the best strategic decision to sell this asset. So from our side, we're actually very happy to keep this asset in the business, but it does create quite a hold to get us to the ZAR 1 billion. So therefore, in order to get to the ZAR 1 billion, we either have to find another asset somewhere else, and that will take time. That will definitely not happen before the end of September. Or, as we said, based on improved trading results, the lenders might decide to reduce that amount or, of course, we might need to consider a capital raise.

Next question is from Siphelele Mdudu from Excelsia. How should we think about replacement CapEx going forward given that it is tightly managed going forward?

If you have a look at the slides we've put up, we've guided for capital expenditure for this year of around ZAR 360 million to ZAR 410 million. I think, going forward, it will even be lower than that and the majority of which will be replacement. Historically, it's been probably 2/3 replacement, 1/3 expansion. But I think we're in a holding pattern at the moment where the current plans are really sustenance capital.

The next question is from Mbasa from Mazi Asset Management. Question is, what is the run rate of SA Bevcan volumes relative to 2019, excluding the export contracts?

So as I mentioned before, I think overall volumes were basically flat, even including those volumes. So yes, the run rate was lower, and we won't disclose exactly at what level it is. But like I said, that was -- when comparing it on the much stricter trading conditions or weaker trading conditions, so - but the actual run rate, we unfortunately can't disclose.

The next question is from Daniel Isaacs from 36ONE. How do you plan to fund the ZAR 1 billion repayment coming up?

I think I've just answered that question before. So like I said, there's a significant asset that we're not allowed to sell or we couldn't sell. So yes, we are looking at other options. And let me maybe be upfront about it, we have core divisions in Africa that's not performing well, and that includes Angola and Nigeria. So it doesn't mean we want to sell these operations. But if we can find an equity partner in one of them to reduce our overall exposure, that is something we are willing to consider. But there's nothing specifically on the table at this point in time. So at the moment, the options are either a reduced amount from our lenders or otherwise, we might consider a rights issue.

The next question is from [ Hilton Kanovsky ]. What is the expected contribution of the Elopak JV in the coming half?

That's very difficult to say. I think the potential is massive. So we can't say at this stage what the contribution will be in this half. I think you can expect a very small contribution. I think these type of things tend to start slow and then gain momentum. So we haven't built in any big numbers for the current 6 months. And keep in mind, it's a joint venture, so the accounting treatment of that result -- those results is a different matter. But into the future, we do believe this is a very exciting opportunity. And I think, over time, it will become a significant portion of the overall portfolio.

The next 2 questions are from Chris Logan of Opportune. First question is, well done on the recovery, but clearly still a lot of work to do on the debt. Despite being one of the last diversified packaging companies, Nampak has never spun out operations. What about spinning out an operation where shareholders pay for the right to participate in the IPO, reducing your debt and diversity? The second question is, you bid Ball Corp. initially in securing Angola. Why not bring them in as a partner now that you need to recapitalize Angola?

Thanks, Chris. Listen, all those things are being considered, and I don't want to put specific names, whether it's Ball or any other potential partner on the table at this point in time. But all those things are being considered. As I just mentioned, we are quite happy to consider equity partners in some of our African business. At the moment, we are cash strapped. As we mentioned, we need something to allow us to start growing at the moment with -- it's hard to grow with both your hands tied behind your back. So I think we shouldn't be foolish and just hold on to any specific asset for sentimental value. And hence, we are happy to consider anything that will assist us to get that enabler going even if it means equity partner in some of our core businesses.

The next question is from Rajay Ambekar from Excelsia Capital. How do you plan to try and grow 2022 can volumes without the once-off export contract?

I think on the beverage can side in South Africa, we do not expect a massive recovery. I think the first thing is we need to recover some of the pack share loss that the industry has experienced over the last year or 2. It's the bigger packs, so I think we -- on -- from a marketing side, we will be very active there. We will obviously spend time with our customers. In the end, it's their decisions which packs they want to push. But I think it will be tough in South Africa. I think there is a lot of competition in the South African market. So I don't think that we will necessarily expand our market share of beverage cans in South Africa. I think the market will find a new level given all the capacity that is in the market at the moment. I think it will again be about making sure that we can keep our costs down and look for other opportunities outside of South Africa and Africa. And that's why we said before, once we have our capital structure under control, there's huge growth at the moment in the rest of the world. In fact, as you've heard before, in the rest of the world, people cannot keep up with demand. So therefore, I think it would be wrong to only focus on South Africa or even the Rest of Africa. I think at the moment, we're operating under severe constrained trading conditions in South Africa and, hence, what we're saying is the rest of the world is not sleeping. It's moving. And I think we want to be part of that growth, and we need to consider how we can do that.

Next question is from Glen Heinrich from Perpetua, and he wants a clarification on a debt question. Just to be clear, ZAR 1 billion requirement from September 2020 to 2021. But in the first half of 2021, it was reduced to ZAR 600 million. So do you only need another ZAR 200 million in H2 or is it still the full ZAR 1 billion? And does the strong South African rand help in this calculation?

The funding arrangement with the banks, unfortunately, it doesn't take into account internal cash generated. It is a reduction of net debt through massive disposals where they're requiring ZAR 1 billion reduction. So unfortunately, the cash that we're generating is not contributing to that number. If you have a look at the slide that I put together on the net debt position at this stage, there's effectively a net credit in the debt number of around ZAR 248 million that is benefiting our position. The rand at this stage is trading very strongly, I suppose, off dollar weakness. And to the extent that, that helps us in September, it will continue to help the covenants. But the 2 are separate. Internally cash -- internal cash generated is not considered as part of that ZAR 1 billion.

The next question comes from [ Nick Gruha ] from Signal Asset Managers. How material was the loss of sales to the fish canning industry? Do you expect to catch up these volumes?

I think it's a difficult one to answer. So let's start from a demand point of view. So the demand for canned fish in South Africa is still very good. So as a result of the slower packing of the product during the early part of the year, our customers, I would expect, is running very low on their full stock at this time of the year. So traditionally, they will have a fairly short season to pack the fish. And then, of course, they sell it over the rest of the year. So at the moment, the fish catch has started coming in, a lot of frozen fish containers starting to arrive in Cape Town. So yes, we do expect a bit of a catch-up. And then, I think, quite hectic packing sort of over the end of our financial year and early into the next one. I'm not sure if that would mean that it's catch-up, but I think -- or our customers are promising us that they believe they will still be able to get very close to their original target. So I assume that does mean a bit of a catch-up. But yes, there's quite a large volume of cans to be packed over the next 6 months.

The next question is from Paul Sanderson. Kindly elaborate on the ZAR 848 million of cash transferred out of Angola and Nigeria despite a constrained foreign exchange environment. What is the outlook for further transfers look like?

Well, the split of that ZAR 848 million is, I think, around ZAR 300 million from Angola and the balance from Nigeria. The extraction from Angola is clearly much lower than the previous period because the profitability has been much lower. Nigeria, the availability of dollars is quite tight. There is a parallel market there, but that does result in having to accept a weaker exchange rate. So we're watching that closely. There is certainly constraint in extracting the cash.

Next question is from Siphelele Mdudu from Excelsia Capital. Why would shareholders have to provide capital when there's a business that could be sold? In keeping this business, which seems to be one of the best assets you have, why would you not work hard in convincing funders to see the benefits of keeping this business?

So absolutely, the choice is, do we sell a good business or do we convince the funders that it's actually better for the sustainability of the group to keep this asset? These are the discussions that we are having with our lenders and the reason why they've given us another 3 months to prove to them that our trading is on track, and then they can reassess it. But I can't make a call on their behalf at this point in time. I think they've been very reasonable in considering our requests. We've put forward the fact that we would like to keep this asset. And in the end, I think they will make a decision as to whether they agree with us or not.

The next question is from James Twyman, and his question is, could you give an idea of the importance of Zimbabwe to profits and sales, please?

Traditionally, we unfortunately do not disclose that separately. So as I mentioned before, a significant portion of our -- both our Paper and Plastics businesses, the segmental results are coming out of the Rest of Africa, and most of that, in fact, comes from Zimbabwe.

Those are all the questions from the webcast. Are there any questions from Chorus Call? I think those are all the questions.

In that case, I think we probably need to conclude. But thank you to all of you for attending today. Thanks for your support, some of those comments, some good questions. And yes, we're looking forward to a much stronger second 6 months compared to last year. So overall, I think our results for the year, we hope, should satisfy our shareholders and the community out there. So until next time, thank you very much, and have a safe day. Bye-bye.