Nampak Limited (NPK) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Nampak's Annual Results Presentation for the Financial Year ended September '21. Hopefully, this time around is a very different set of results that we're going to present to you. As you know, last year was a particularly tough year, and I'm very happy to say this time around, I think we've got much better news to share with you. Please excuse my voice; I've got a bit of a throat infection. But hopefully, that won't hold back anything today. So let's get straight into it. You know all the forward-looking statements. I'm not going to spend time on that. So let's get straight into the highlights, the overview. As I said, I think, overall, a much better performance. Obviously, I think if you look at the last year, yes, we still had COVID in it, probably more so than the year before, but at least we didn't have the hard lockdowns. And as a result, trading looked a lot better. So group revenue, up a full 24%, and we'll get into the details of that later, where it came from. HEPS, up 171%. Trading profit up 109%, up to ZAR 1.4 billion. And then operating profit up more than 100%. Of course, we don't try and express that to an exact percentage. The mathematicians tell us when you go from a loss to a positive number, technically, you can't calculate the percentage. So I'll take their word for it. But overall, it's about a ZAR 1.5 billion jump in operating profit. So overall, I think very pleasing. Cash generation, of course, this is the number we watched quite carefully, up 133% to ZAR 1.7 billion. And of course, that's before working capital changes, and Glenn will expand on that a little bit later. Overall, group -- all our group funding covenants we've complied with. Our net debt to EBITDA, we had to get to 3.5. We came in at 2.74, very pleasing. And of course, then our interest cover covenant, we came in at 4.79 against a minimum of 4. So let's take one step back before we get into the detailed results, and let's see what did we try and achieve this year and how did we do. So from a very high level, we had two very specific objectives. The first was to reduce risk and then to grow profits. And I think if you stand back, I would say we've been very successful at most of them, not all of them. From a risk point of view, I think the income statement for that, if I can call it that, is really our share price. So I think we've seen a very good recovery from our share price, indicating that the market feels we're not risky -- not less risky than we used to be. If you look at our lenders, I think the fact that we could negotiate relaxed covenants and all the other agreements is testimony to that. Where on the growing profit side, the income statement will speak for itself. So if we dive a little bit into the detail, not too deep, the first point that we tried to do is strength in our capital structure. You'll see our covenants are looking a lot better. The mix between our U.S. dollar debt and ZAR funding, I think, is also looking a lot better. And of course, very importantly, the trade finance facility that we secured is taking away a lot of risks. So given that we can use that to sell some of these assets to pay down debt, that significantly reduces the need for a forced rights issue or something like that. So the next step: simplification. We've reported -- we completed the restructuring of DivFood, and the results from that, I must say, is really pleasing. You can see it in the income statement coming through. So we consolidated some of our lines in Vanderbilj. We sent it down to Epping and Paarl. We'll look at that a little bit later. And then at a much smaller scale, consolidations of our Plastics footprint in South Africa. First of all, we closed a couple of operations, but we also sold our Tubes business. We rationalized our Gqeberha plant, and I've mentioned some of the others. Of course, the one thing that we did not do as successful as intended, we were meant to sell ZAR 1 billion worth of assets. We were not successful in doing that. As we've reported before, we had to withdraw some of the big assets from the market. But standing and looking back at this point in time, it's a mixed feelings I have about this. Some of these assets we didn't want to sell in the first place. Some of these assets -- some of the offers we got was less than what we felt was a good value for it. And hence, we actually decided not to proceed with some of those sales. But given the improved results overall, I think the requirement for having to sell all these assets are also very different at this point in time, and hence, the positive discussions we've had with the banks. If we move on to the second side, which is more the -- more operational of nature, the growing profits side of our strategy. I think on the optimization side, we certainly continued to optimize some of our footprint, our operational excellence, et cetera. Nampak R&D played a huge role assisting us with a lot of the processes. And then, of course, we concluded the conversion of our aluminum line in Angola. So that's done, and we installed a new crate line in Zambia. That's also already operational and supporting our profits. On the innovation and growth leg of it, you all know about the export contract into North America that we've completed. We've also exported some ends into North America, and quite frankly, we also managed to get a new export contract for ends for the F '22 year. We've spoken about the Elopak JV. That's still very early days, and I think a little bit more detail about that later. So let's get into the operational review. I'm going to start with just an overall highlight. I'm not going to spend too much time on that. We'll have a look at that. Obviously, Metals, our biggest business then, in fact, Plastics and Paper. So to get, first of all, into the Metals side, as you can see, from a revenue point of view, it contributes about 71% of our revenue and 77% of trading profit. So at a revenue level, 26% growth, very pleasing, and trading profits, up a full 159%. This is, of course, where the bulk of the improvement is coming from. So you can see profits there more than doubled and so did margin. So from a margin of only 5.4% last year, we managed to get that back into double digits and at a very pleasing 11%. Of course, where did it all come from? I think it's fair to say that the easing of the restrictions on trading in South Africa contributed quite a bit to that. And of course, that North American export contract. We've now -- we service that. It's completed. I have to say, in the end, we did a lot less volumes to North America than originally anticipated. We probably did less than half the volumes that we were hoping for. That has now concluded. But even despite those lower volumes, obviously, our profitability benefited significantly. And as a result, maybe that's going to leave a smaller hole to fall for next year. Some of the demand, of course, came from improved pack shares in the local market. There's a very strong demand at the moment for the larger pack cans, the 500 ml cans, in both the beer and the energy sector. And of course, there's also been shortages of other packaging substrates, where we have benefited from. The restriction on trading and specifically bigger group gatherings has solidly impacted our volumes during the current year but not that much from an alcohol point of view. I think, overall, every time after the alcohol ban has been lifted, I think we properly recovered most of those volumes. But for the bigger events, that is still not allowed. And of course, that is something that we're looking forward to as things start opening up in the new year. We also are very happy that we renewed some key contracts, some big contracts with some major customers. That, of course, will secure our volumes into the next couple of years. And that new ends export contract we're very pleased about, that will assist us to push our utilization on our ends plant very close to full capacity. The success story, of course, although it's a smaller division, DivFood, this is the one that had a dramatic improvement. They made a significant loss in the last year. They made a nice profit this year. We're very happy with that restructuring. It's been successful, now basically completed. So yes, all the benefits from that has not flown through yet given that we only completed some of that exercise close to the end of the year. So we are hoping that we're going to see more benefits from that restructuring coming through in the next year. Overall, [indiscernible] volume has been stable despite some very disappointing volumes from the fish market, the fish raw material, the frozen fish that's being imported. It appears it's now starting to come through a lot stronger. So we do hope that's going to give us a much better start to the new financial year on that side. Overall, higher demand for diversified cans despite the impact of the riots in the last quarter. But overall, we were quite happy with the diversified demands, and even for Metals closures, strong demand coming through. So overall, in the metal sector in South Africa, very pleasing growth. Of course, the other very nice success story came from Nigeria, not only our beverage can factory but also our general Metals line. On the beverage can side, we had double-digit volume growth, and that came from two areas. The one is, of course, the higher allocation from some of our key customers. But overall, the beverage can market has increased quite nicely. And some of that has also been on the back of shortages in other substrates. Angola, of course, has been fairly disappointing from a volume point of view. Yes, we did drive volumes slightly but, overall, demand still very weak. But the success in Angola actually came from cost savings. So we did increase our profitability in Angola also quite a bit. Very pleasing result from our local management team there. And of course, part of that was also a completion of the conversion of that line from steel to aluminum. So that line is in the process of commissioning. Moving on to the second one is our Plastics sector. Obviously, not as big as the Metals side, contributing by 22% to revenue and about 20% to trading profit. So overall growth still, very good growth, 21% growth in revenue. Trading profit more than doubled with 101% increase. And as you can see, trading margins also increased quite -- respectively from 5.7% to 9.6%. And that's been on the back of reasonable growth in South Africa while reason is probably very significant for us. And some of that increase in profitability has been on the back of the restructuring I mentioned in the Plastics side. Overall, higher grade enclosures volumes. And some of that, we believe, is due to increased home consumption of staples. Also, we had an increase in our contracts for Tubes, but the disappointing side was due to a malt shortage. There's been limited sales into the malt sector, and that unfortunately did have a negative impact on overall revenue. Of course, we mentioned that we disposed of our Tubes business for a total of ZAR 49 million, which was very pleasing. And then unfortunately, we had to take a further impairment of ZAR 391 million on our Plastics business. And that's really -- we took a long and hard look at this business. It is a business that requires significant capital investment. And as a result of those future capital outflows, we had a look at it and decided to put this additional impairment through. Very pleasing recovery also from our Cartons business in South Africa, where the less stringent alcohol restrictions they certainly benefited from that. And also, they exported some volumes into Sub-Sahara Africa. Then, of course, from the Paper side -- sorry, the Plastics side, one of the big contributors in this sector comes from Zimbabwe, where we had double-digit volume growth in Megapak and CMB. So overall, very good performance in Zimbabwe despite the normal problems of getting ForEx and raw materials, et cetera. But overall, very pleased with that performance. Our last sectors are our Paper business, of course, much smaller contributing 7% of revenue, 13% to trading profit. And I think something to -- just to note in the comparison is that last year's results still included the results from Cartons Nigeria for 3 months. And of course, with that falling away, it had a bit of an impact. But despite that, we still managed to grow the comparable numbers by 9% and very pleasing to get trading profit up by 18%. And as you can see, most of this business is outside of South Africa. They're trading on fairly high margins, so very pleasing margins there at 18.1%. So the bulk of this volume is coming from Zimbabwe, where we had very robust demand. In fact, one of the things that was holding us back there is not necessarily just ForEx but, actually, sourcing raw material. There's a shortage of paper supply at the moment. And whatever paper we can get our hands on, we were able to convert. Malawi and Kenya, unfortunately, very disappointing, overall, weak trading conditions, so not -- not as such our own business. It's just the overall environment was not conducive for good growth, where for Zambia, it was the exact opposite in Zambia. We had a very good recovery of local demand. And I think we also managed to diversify our customer base there, which allowed us to increase our overall market share. So I'm very happy with that. The JV with Elopak, very slow start, so that did not contribute any profits yet in the current year. We're in the process of signing up new customers and getting that business off the ground. So it's still very early days. We hope this is going to start contributing in the next year. But in the current year, still no positive impact from that yet. So that leads us to the financial review. This is where I'm going to hand over to Glenn, and he's going to take you through the financial review. Over to you, Glenn.

Thank you, Erik. Good morning to everybody. I will take you through financial review. And as Erik has said, the results are pleasing for the period. In summary, I think if we have a look at the statement of comprehensive income, we've delivered a pleasing turnaround, and the key focus of the year has been to ensure that we complied with the covenants, which we have successfully done. The 24% growth in revenue, just short of ZAR 14 billion has been driven by a strong recovery in the Metals division, as Erik has alluded to. Our trading profit has increased by 109% from ZAR 682 million to ZAR 1.4 billion. Now operating profit has increased to ZAR 1.2 billion from a loss of ZAR 283 million in the previous year. We've managed to deliver an operating profit of ZAR 931 million compared to ZAR 4.3 billion last year, and I'll take you through the more detailed analysis of that as we progress. And the profit for the year of ZAR 377 million compares favorably to the ZAR 4 billion loss in the prior year. The very pleasing 133% increase in the cash generated from operations before working capital changes, we have had to invest in working capital in the period, remembering that we had to contract last year as a consequence of lower demand. And as I go through the cash flow presentation, I will unpack those [indiscernible] for you. It has resulted in cash from operations of ZAR 1.1 billion, being marginally down from the previous year of 3%. The EBITDA for covenant purposes is up 61% to ZAR 1.7 billion. And as Erik has indicated, comfortable compliance with the covenants with the net debt-to-EBITDA ratio of 2.74x, significantly down from the 4.9 from last year and comfortably within 3.5x cover limit. EBITDA interest cover at 4.79x ahead of the threshold over 4x and nicely up through the previous year. Both earnings and headline earnings per share were up more than 100% from last year with a headline earnings for the year at ZAR 0.623. What's driven this turnaround is improved trading conditions, successful restructuring and lower impairments, all of which have contributed towards an improved profitability. What we have seen is strong recoveries in our revenue, in our Bevcan South African business, a very strong performance in Bevcan Nigeria and our Zimbabwean operations as well as the new customers in Zambia contributing to our results. Our trading profit has improved to ZAR 1.4 billion, 109%, really a very, very credible performance at DivFood with a very significant turnaround. Strong recoveries in Bevcan South Africa and Bevcan Nigeria, and very pleasing contributions from our Plastics and Paper division. Our operating profit for the period -- there are a couple of key items that one needs to understand between the trading and operating profit on numbers. There have been lower depreciation charges in the current year because of asset impairments in the prior year. There has been a reduction in the devaluation losses arising from Angola and Nigeria, where those losses have reduced to ZAR 324 million down to ZAR 246 million. In the previous year, we had a retrenchment and restructuring cost of ZAR 135 million. That's not completed itself in the current year. There's a nonrecurrence of capital items, which was primarily a loss on disposal of the business last year, which is partially offset by some insurance proceeds. And then in terms of restructuring the financing arrangements last year, we had to expense a cost of ZAR 136 million, which we have not had to do in the current year. And then there's been a significant reduction in the devaluation from the Zimbabwe perspective from ZAR 264 million last year down to the ZAR 5 million gain impact in the current. So very pleasing key feature of this income statement is the reduction in the net impairments from ZAR 4 billion in the prior year to only ZAR 264 million in the current year. What we have seen is in all our detailed testing is that there have been certain impairments, and the largest of which relates to our Plastics division, where there's been an impairment of ZAR 391 million. There's also been an impairment of ZAR 27 million for assets held for sale of the DivFood business. And then there have been some reversals, and those largely comprised ZAR 101 million versus the DivFood and ZAR 69 million for Bevcan Angola. Our net finance costs up by 8% to ZAR 485 million. What we have seen is a reduction in our interest received, and that's because we had a maturity of the U.S. dollar-linked kwanza bonds, all of which now have matured. And therefore, there's a lower interest received number, and our finance costs have reduced [ finally ] by 3% to ZAR 506 million. What we have got embedded in that number is a record interest cost of ZAR 88 million as a consequence of the relaxed covenants in the period. In the current year, the income tax has been an expense of ZAR 68 million compared to an income tax credits of ZAR 401 million in the prior year, resulting in an effective tax rate of 15.2% compared to 8.5% in the previous year. That's all translated into a profit for the year of ZAR 377 million and an earnings per share number of ZAR 0.321 and a headline earnings number of ZAR 0.623. One of the key determinants of our numbers is often the foreign exchange rates, and I published the key rates that affect the numbers. What we have seen is the strengthening in the rand on both an average rate and a closing rate of 9% in the period. Remembering that our income statements are the dollar-denominated that translate into the average rate, that has held back earnings slightly with the average rate being stronger than the previous year. But the debt components in the balance sheet has benefited as the exchange rate at a closing position has strengthened from ZAR 16.61 down to ZAR 15.11. What we have seen is a weakening in both the average and the closing rates for the Naira and an interesting trend in the Angolan numbers where the average rate devalued by 19% in the period and yet towards the back end of the year, we've seen a strengthening of 4%. We do not publish an average rate for the Zimbabwe entities because it is in a hyperinflation environment. And consequently, the results have to be translated at the closing rate. And you can see there that that's devalued by 8% in the period. U.S. dollar availability within Zimbabwe still remains a challenge, but I would remind everybody that these businesses are self-funding and have not required funding from Nampak since April of 2018. The Reserve Bank of Zimbabwe has resumed payments in historic debt. To date, we have received $4 million, which equates to ZAR 57 million in the period. There was a contract for them to repay the $67 million in the initial 2-year payment holiday and then payment of $5.6 million for the quarter for 3 years commencing in March 2021. Given the dollar shortages in the country, there's been a reduction in that payment to $1 million per month, which effectively translates into 54% of the originally contracted position per quarter. That was being honored until September, and unfortunately we've had to, therefore, increase our expected credit loss ratio from 85% to 90%. Key feature of our stake in the financial position is that we have focused on reducing our dollar debt exposure during the period, utilizing proceeds from our Glass disposal and our Cartons Nigeria disposal last year to reduce that component of our debt. Our property, plants and equipment of ZAR 5.4 billion has been impacted by a stronger rand, where we're translating foreign assets at 9% stronger rate. And then there's also been impairments in the current year of net ZAR 264 million. Our right-of-use assets have been affected by certain impairments and also the classification of certain of those right-of-use assets to assets held for sale to identify disposal targets. The only movement in the goodwill and material moving to the goodwill is the movement in the rand-dollar exchange rate, remembering that the majority of that goodwill arose on the acquisition of the Bevcan Nigeria business. And of that movement, approximately ZAR 360 million relates to exchange rates. Our loans and receivables have been impacted slightly because of the increase in the expected credit loss ratio but more materially because of the successful maturity of all the bonds, which start in Angola. Those have acted as an incredibly successful hedge for us over a period of time. They've all matured, and all have been converted back into dollars and sent back to the [indiscernible]. What we have had to do in the period is invest heavily in our working capital. Of the 24% revenue growth, you can see the inventories have only increased by about 3%. We've managed to fund more than the inventory growth by our trade payables, but we've had to fund significant increases in our trade and other receivables, and I'll unpack that for you as we go through the cash flows. These liabilities relate to the IFRS 16: Leases, which we recognized in FY '20, and they are higher than the right-of-use assets due to certain impairments that have taken place from those assets. Our loan and current liabilities, those have benefited from a stronger rand in the period. We've also utilized the proceeds from our Glass division and our Cartons Nigeria business asset with the cash that we generated to [ pay some of ] those loans. In our short-term portion, that ZAR 1.6 billion, we've got ZAR 1 billion of those banking facilities in short term because those are going to be repaid by the 30th September 2022. And it also includes ZAR 450 million for a particular banking facility with the maturity date on the 25th of September 2022. That maturity date was renegotiated to the 1st of April 2023, but that was only post year-end, so we cannot classify it as a long-term liability at that date but in our next reporting period. Short-term liquidity ratios remained strong, although they have been impacted by the ZAR 1.4 billion in those two banking facilities that have been classified as short term. But the current ratio and acid test ratio is at 1.5x and 0.9x, respectively, showing the short-term increase. From a covenant perspective, we focused very clearly on reducing the component of our offshore debt, and we reduced that from 65% to 41% and, as I've indicated, utilizing the proceeds from Glass division and the Nigerian business. We also swapped out the equivalent of ZAR 1 billion worth of dollar-denominated debt in October into rand facility. And then we sort of paid another $60 million during FY 2021. The component has also been impacted by the improved rand-dollar exchange rate. What you can see on the left-hand side of that graph is positive trend downwards, which reduces the volatility in the covenants at reporting dates, where we have found the move to be all exposed as is if there's a disconnect between the average rate and the spot rate at reporting dates. And importantly, the strategy has been to reduce. You can see the components of offshore debt has reduced from ZAR 3.4 billion down to ZAR 1.9 billion in the period. From a statutory point of view, is a net debt position of ZAR 4.9 billion at the end of September 2020. It has reduced to ZAR 4.7 billion at the end of 2021. So net way, we did ZAR 166 million. And then I've tied this back to the cash flow statement where you can see a very strong cash generation from the business, ZAR 1.7 billion. We have invested ZAR 621 million in working capital. Embedded in this movement is a net ZAR 202 million foreign exchange impact, primarily due to a ZAR 332 million benefit on the debt leg, and then we've got foreign dollar-denominated cash and bond positions that moves then in the opposite direction. We've paid ZAR 523 million in interest. ZAR 313 million has been spent in capital expenditure in the period. We've paid ZAR 152 million in tax, postretirement medical late contributions in line with the prior year at ZAR 78 million. And then certain finance leases are being repaid, consuming ZAR 71 million in cash, and there's certainly other positive benefits with ZAR 42 million. This is a very key graph that we've been using all year in managing the group and reporting to the funders monthly. In the prior year, the second half of 2020 was materially impacted by the COVID lockdowns. And the key thing here is that the covenants of the period based on the rolling 12 months EBITDA, so it takes some time for those tough months to actually work their way out of the average. What we have seen is significantly improved profitability FY 2021, given the eased restrictions, [ cure ] that ratio and then improve the EBITDA position, and therefore, we've managed to comply. If you have a look at the reading of this graph, that light blue dotted line at the top is the threshold for the net debt to EBITDA that we had to be within in each reporting period. We'll clearly see from the dark blue line how we've significantly performed ahead of that requirement. And then from an EBITDA interest cover, the dotted green line at the bottom is the threshold, above which we had to perform. And clearly, the dark green line shows the performance in excess of that requirement. So we've met all of those requirements. And for FY '22, we have negotiated with the funders a relaxed net debt-to-EBITDA covenant of 3.5x compared to 3x and really that just accommodates any seasonal trends and fluctuations in currencies for the following year. So we're very comfortable with the performance in that regard. What this slide is trying to demonstrate is the picture of the last period from FY '17 through to '21 on a net debt-to-EBITDA and EBITDA covenants. And you can see, for all periods, compliance with the ratios, albeit in certain periods, we've had to ask for certain relaxations. The net debt-to-EBITDA covenant in FY '19, there was a weakening in the rand-dollar exchange rate. And we asked funders for that to be lifted to 3.5x. Despite that, we came in at 2.9x, which would have been below the original covenant limit of 3x. In the significant relaxation, including FY '20 as a consequence of COVID, we came in with the net number of 4.9x, a bit of 5.25. And then you can clearly see at the 3.5x with significant headroom where we've come in at 2.7x. And the same trends are similar on the right-hand side of that graph where we've been able to beat the targets in that period. The net debt-to-EBITDA target will, however -- threshold, rather, will have reduced to 3x effective 1 October 2022. During the current ensuing financial year, we will report monthly to the funders. The covenants will be measured quarterly. We are still required to repay ZAR 1 billion of the debt by September 2022. And that ability to do that will be assessed by the funders on the 30th of June 2022. A meaningful change in the banking arrangement has been the additional inclusions of sources of funding to repay the debt. We are now able to use cash generated from normal trading operations to augment our payment of that debt. We are able to use proceeds from the repayment from the Reserve Bank of Zimbabwe. And then we've negotiated a ZAR 1 billion nonrecourse trade finance facility. The proceeds from which will be also allowed to reduce the debt position and count towards that ZAR 1 billion. So essentially, what that does is significantly reduce the risk of the required rights issue. We are still targeting, obviously, the assets that are unlocked to sale to be disposed of within the period. There's a strong drive to generate internal cash to be augmented by the proceeds from the RBZ and then the trade plan in specific. If we have a look at the cash flow statement, the key feature is the ZAR 1.7 billion cash generated from operations before working capital investments, and that's up 133%. We have had to invest ZAR 621 million in the working capital cycle. That leaves us virtually neutral that the cash generated from operations in line with last year marginally down, slight improvement in the cash interest paid to the retirement benefit numbers, which was the same as the prior year, increased taxes paid as a consequence of higher profitability. The marginal dividends than those only relate to the preference dividend, we continue to use our own resources to address debt issues, and no dividend has been paid. And then cash generated from investing activities the prior year was clearly elevated significantly as a consequence of the proceeds from the disposal primarily of Glass. You can see a significant reduction in the capital expenditure from ZAR 666 million to ZAR 313 million, and I will unpack that for you a little later. The proceeds from the liquid bonds. The final portion has been received in the period of the 14th of September 2021, with ZAR 268 million received. And then you can see the proceeds of ZAR 57 million from the Reserve Bank of Zimbabwe. We have repaid ZAR 577 million in financing activities. And if you have a look at that, it's ZAR 499 million in debt and then ZAR 71 million in lease liabilities. These numbers don't include the proceeds of ZAR 206 million that we received on the nonrecourse trade finance facility on the 26th of October 2021, and those will be used to repay debt. If we unpack the working capital, the increase in inventories was always going to be required given the return to high levels of trading, but you can clearly see that we've more than funded that by an increase in our trade and other payables. What we have seen is a need to increase our inventories given the new demand patterns and higher-than-normal stock levels for certain territories that we operate in due to global supply chain issues. So we've tried to combat those maybe slightly higher stocks in those areas. The increase in the trade receivables is clearly due to the 24% uplift in the revenue. We've also had to fund extended terms on export debtors, and then there's been quite a material change with one of the major customers in its terms that required us to fund that position. So in essence, the release of ZAR 367 million last year was in response to a contraction in working capital given the lower demand from COVID. This year has been year of investment. When we look forward, we probably will be at a more stable balance sheet going forward and mark such a meaningful investment in the future. In the capital program, we've remained very, very tightly controlled in this area. You can see, since FY '17, a very strong downward trend in our capital expenditure. It's declined by 53% in the year. It's been very prudent allocation of capital without compromising the integrity base of our assets, with about 87% of that expenditure being replacement in nature. There's been no major single CapEx spend in FY '21. And our future capital expenditure is expected to remain tightly controlled as we manage the cash flows going forward. So I hope that gives you a good view of the finances, and I'll hand back to Erik. Erik, you're on mute.

Sorry, I was still on mute. I'll just get my screen back up. So I think we certainly would like to continue where we left it for the previous year. We're hoping to have another good year. So if we look at the different things that -- what is the environment going to look like? I think, first, in South Africa, we are hoping that the restrictions on large events will be lifted. Of course, with Omicron variant going around, that will probably still be delayed a little bit. But at least we're already seeing some spectators at live events. And hopefully, that will also start easing up as we go further into the year. I've already mentioned the benefits that we still believe should come through from the restructurings, mostly in DivFood, definitely something to look forward to. And of course, then just leveraging the available capacity we have. The one is our ends plant where we secured this export contract for ends, and then also in Nigeria, although we said we are running very close to capacity already, we did add another bodymaker to that line. So we are confident we can squeeze a little bit more volume out of that one. But overall, I think in a global context, certainly, commodity prices remain very high. That resulted in an absorption of working capital, as you've seen. We had to increase prices as a result. And some of that certainly did impact our working capital. We can't predict where commodity prices is going to be, how long it's going to stay. But certainly, once that starts normalizing, that should see a bit of a release from our working capital cycle. On the supply chain side, the metals market at the moment is extremely tight on both aluminum and steel. So we're making sure that we can source aluminum for all the products from all over the world. Luckily, that is the supply chain that we've developed over many years. We try to diversify that as much as possible to reduce the risk. But of course, with all the difficulty in shipping containers around the world, that is certainly putting pressure on timings, et cetera. And as a result, we might have to increase stock holdings to make sure that we don't run out of stock. At the same time, when there are shortages, quite often, you don't get to the stock levels that you intended. And sometimes you, in a perverse way, actually benefit from the lower stock inventories in your system. As far as the Rest of Africa is concerned, we definitely can still see that momentum in Nigeria, it is still there. Like I said, we do believe we can squeeze more out of that line, while in Angola, we don't expect a material change, but we can see things are slowly improving a bit. And hopefully, as they open the borders for exports into the DRC, we should see some benefit. But we -- at the moment, we don't expect huge changes out of Angola. The one thing that we are worried about is the potential ForEx devaluations in both Nigeria and Zimbabwe. Both those currencies have been fairly stable during the last year, and we will not be surprised if there's more weakness coming through from both those economies. In Zambia, certainly, the diversified customer base, we hope we can leverage that even further. And like I already said, we've got that new crate line operating, so very confident that things should look good in Zambia. And then lastly, we are still going through a strategic evaluation of some of the smaller businesses we have in the Rest of Africa. Some of these businesses are not giving us profitability, and we do believe that there are different ways of looking at these businesses. We might look at selling some of them or exiting some of them, but it shouldn't be a big impact overall, but it certainly should simplify the group and allow us to spend more focus on our larger, more profitable businesses. So focus areas for next year. Of course, debt restructuring, the debt structure, the optimization, that will definitely remain a focus area, and we hope you will see some action coming from that. I don't even need to say continued covenant compliance. We've done well this year. We improved it. We certainly plan to do exactly the same for the coming year. And the same goes for tight control of CapEx and working capital. CapEx, there's -- I think we've got it well under control. There are one or two CapExs that's still uncertain. And if we can get the right contracts in place, we will spend the money. Otherwise, we will hold back. But I think the key focus again will be working capital. With all the problems in supply chain at the moment, it is something that we are looking at very carefully and not only on the inventory side but also on the accounts receivable side. So I can assure you that focus will remain. And of course, then we will continue exploring disposal of our nonstrategic assets, as we've already mentioned. I'm going to dive into the one on the bottom there, the increased focus on ESG measures. Obviously, all our shareholders are, these days, very concerned about ESG. It is something we're concerned about. And as a result, we are starting to place more and more focus on these measures. And we will certainly do that also on an increased basis going into the next year. The last one is what we talk about is continuable trust. As I mentioned before, a big part of reducing risk is all about the perceived risk of Nampak. I've spoken about the perceived risk from the market and our lenders. But I think also very important is the perceived risk as a supplier to our customer. We would like to believe that we are reliable partner to our customers, and we've got to make sure that they grow that confidence that we grow their confidence with them. That is not only about the supply of safe and quality products that's supported by R&D. But I would like to believe it goes beyond that. It's about governance. When we talk about Nampak, we're a listed company. We believe we've got very strong ethical values. And when you do business with Nampak, there's a certain ethic that goes behind it. And that is something that we value tremendously. Governance costs money. We've seen that in some of our African operations over many years where we probably could have done business quicker. We had to hold back. And as a result, some of those projects were delayed. But in the end, that we find that good governance pays off over the long term, and we believe it is the same for us and Africa business. So we're going to continue to do that. And as a result, we believe that we should be able to keep building that trust with our customer base. And as a result, we do believe that they will allocate us more volume. So that's the end of our presentation for today. So we're now going to open up the question-and-answer session. So I'm going to hand over to Nondyebo for that. Thank you.

Are there any questions from Chorus Call?

[Operator Instructions] We have a question from James Twyman of Prescient Securities.

Yes, I've got three questions, if I may. The first one is could you just give us a very broad idea of the profits that are coming from Zimbabwe now. Obviously, that had a good year. Secondly, you talked about shortages of packaging substrates. Could you just sort of unpack that a little bit in terms of the scale of that and which countries you're talking about and how long that may be last for? And then finally, it looks like your dollar debt from what you were saying is about $130 million. Are there any plans to change that going forward? I mean, should we expect that to be the -- where we expected to be at the end of this year as well?

Thank you, James. I'm going to -- maybe while Glenn gets his notes together about some of the profitability, I'm quickly going to address the issue around shortages of raw material. So there's been a couple of places where we've experienced this. The one was in Zimbabwe. As I mentioned, we couldn't get all the paper material that we were looking for. And then we also did have some shortages in our Metals business in South Africa, DivFood. So our two-piece can line stood for a couple of weeks without steel because of shortages out of the East and mainly as a result of problems shipping that material around. At least I can say, we've now received ample inventory, so at the moment, that problem is out of the way, but it did impact for a short period of time during the last year. So those are the major ones. Although we were very tight in Nigeria at times, we didn't run out. I mean we literally got you within a day at one stage. It was a nervous moment, but overall, I think we managed to keep the lines going. So in summary, a little bit of paper in Zimbabwe and a bit of metals in -- still in South Africa. The other question you had was around which packaging substrates we benefit from, in other words, shortages. In South Africa, it was the glass market. Because of some of the impacts of the restrictions last year, the glass market lost quite a bit of production capacity. During the early lockdowns, you might recall they were not allowed to produce any bottles for the alcoholic market. And as a result, there's still sort of an overflow from that shortage created last year. So they are trying to catch up. And as a result, we did benefit to a certain extent in our beverage can business. A little bit of shortages of PET, et cetera, in Nigeria, not huge. So I think those are the shortages that you were referring to. In terms of the financial questions, Glenn, if you can maybe address the size of the business in Zimbabwe, and I can't recall the other question, James.

James, if I can start with the dollar debt component, you are about right in terms of the component of $130 million except that we can do it in an optimal basis. We will, and we are trying to find mechanisms to do that. We need to be very careful, though, that we don't reduce the dollar debt too much because we've got to balance both the net debt-to-EBITDA and the EBITDA interest cover ratio. Now clearly, the interest rate associated with rand is higher than dollar. So there's a fine balance that we need to find in doing that. And in terms of how one actually reduces the dollar debt, it would require, in some ways, an additional injection of capital into those offshore structures, which can result in certain tax leakage in that the interest might not be tax deductible if you don't structure [indiscernible]. So we're looking at the most optimal way of doing that. In terms of your question around the minorities or the Zimbabwe contribution, the Zimbabwe contribution to trading profit has increased substantially in the period, and it's gone up by an excess of 64%. When they published the results independently, you'd be able to work these numbers out yourself and then think. But in the current year, it's a contribution to the total trading profit for the year. It's north of 20% to the total group.

Our next question is from Errol Shear of Sasfin Asset Management.

It appears that the sector infrastructure ban on your debt is higher than -- maybe it could be. When do you think the banks and your debt position will be such that your average interest rate could be closer to what a large corporate would be pay?

Errol, thanks for the question. I think the FY 2021 year in exchange for the relaxed covenants, there were rapid interest rates charged to accommodate the higher levels. There have been amendments to those that will reduce the rate interest costs going forward, but they are kicking in at a lower level. The funding partners are wanting the net debt-to-EBITDA level to get down to a more sustainable cover of around 2.5x. And there's a strong encouragement in the structuring of the interest rates to head towards that level within the next 12 to 18 months. So I would think in 18 months, we should be back at a more market-related interest cost. Included in the results for the current year is ZAR 88 million of ratchet investments.

We have no further questions from the conference call.

We'll now look at the questions from the webcast. The first questions come from Glen Heinrich from Perpetua. He is asking if you could please take them through the noncontrolling interest line on the income statement. It seems extraordinarily high. How can we think of this going forward?

Glen, another good question. What we've got is two meaningful minorities in the group. The first relates to the minorities in the Zimbabwe business. It's just under 49% and then 30% in the Angolan business. In order to not have any tax leakage in the paying of the -- the restructuring of the Zimbabwe -- sorry, the Angolan business. We have not charged any further interest on the loan from the Isle of Man into the Zimbabwe structure. We're in the process of negotiating with minorities there where we'll now have to take the higher percentage of that business. So there's no interest charged on that particular loan. So what's happened is the contribution to the group profits from Angola has gone up substantially at a consolidated debt because when you worked out the minorities last year, it was after a significant interest cost on the borrowings to fund the structure in that business. So proportionately, the interest would have gone up for the minorities in this. In the Zimbabwe business, it's a similar kind of thing where the restructuring of the Zimbabwe $67 million that was owed to Isle of Man, the Reserve Bank of Zimbabwe will settle that debt directly with [indiscernible] treasury and procurement business. So there's no interest cost sitting in that structure as well. So the proportion there to the group profit has gone up off the back of that arrangement as well as the 60-odd-percent increase in the trading profit out of the Zimbabwe business. So when you look at that as a relative increase in the split between minorities and the Nampak [ shares ], there is a disproportionately higher attachment to minorities in the current. Those are the two primary reasons for that business.

The next question comes from Charles Boles of Titanium Capital. He's got two questions. The first one being, can you provide more details of nonrecourse funding facility? What is the underlying security for this funding and the cost of funding? The second question relates to the large volume plastic market. He's asking if the JoJo market is an attractive market and if it's a market Nampak might consider entering.

On the recourse trade finance facility, essentially, what we have done is looked at high-quality trade receivables in our books, entered into an arrangement with one of our funders who will provide us the funding essentially on a look-through rate relative to our customers' interest risk profiles. So the cost of the funding is lower than it would be if we had borrowed the money directly. And essentially, the Standard Bank is the funder on the trade finance facility. We'll purchase those trade receivables on a nonrecourse basis. We will derecognize the debtor from that sale. So we will then apply the proceeds from that sale to reducing our debt. So it's advantageous for the group from a working capital point of view, from a debt repayment perspective and from lower interest prices. And [indiscernible] those proceeds towards requirement to repay ZAR 1 billion by September 2022.

Yes. So I think if I can maybe add to that. That facility gives us the ability to -- if we need to, to do the entire debt repayment from that. So it's not something that we would ideally like to do, but this is a fairly small percentage of our overall accounts receivable book and very manageable. But still, we do believe that there are other sources of funding that we can use, for instance, the cash we generate from the business itself. So we will definitely use this facility if needed, but it's not necessarily our first point of call for that purpose. Your second question, Charles, talks to JoJo Tanks. That is not a market that we're servicing in South Africa right now. We don't have all that equipment necessarily. But we do service that in Zimbabwe, for instance. So we have the ability to service that market, but it's not something that we in South Africa right now. We can certainly look at it, but there are many other priorities in the business right now.

Thanks, Erik. The next question is from [ Woba Silyas ] from All Weather Capital. He says well done on a great turnaround on the Metals division for DivFood. How is the capacity utilization looking? Are there additional contract rooms in the pipeline? How quickly can you recommission the line if a big contract is achieved? And secondly, in Bevcan SA, can you also share the current capacity utilization? And will the absence of export contracts be filled by organic market growth volume?

Thanks, [ Woba ]. So the first one in DivFood, you talked about new contracts. Well, I think as you all know, there is a very significant contract that's coming up for renewal at the end of March next year. This is a contract we lost a couple of years ago. We know our competitor did not cover themselves in glory while supplying this volume. So obviously, that's something that we would like to see if we can get some of that business back. I don't want to speculate at that at this point in time. But your second question is, if we do get substantial back from a source similar to this, do we have the capacity? We've got very flexible capacity. So first of all, our two-piece can line down in Epping where we consolidated volumes, we can add additional crewing there and increase the volumes. We also have the ability to start up again the line we have in Rosslyn that we must build some time ago. It will require a little bit of CapEx to get that up and going again, but we can probably do that in about a 4- to 5-month period. So we've got many different ways how we can service the market. We've got some excess three-piece capacity that we can use in the short term. Like I said, we've got some flexibility on our two-piece line down in Epping, but a bigger constraint, in fact, is to make sure we have metal. So if we secure any new contracts, of course, we will place the orders for that metal. And all of that should come through in time to service such a potential. Your second question then relates to the beverage can volumes, what's the utilization. So the utilization, as it stands right now, is high. So the entire market is under pressure as a result of the larger format cans. So therefore, the loss of volumes into North America, of course, it is an issue and particularly because most of that volume came off 1, 2 in Springs, which essentially is set up to do your standard 330 cans. That can line can't do other shapes or sizes other than the 355 that we drilled it up for. So if we -- if there's additional demand that's coming our way contractually, we will certainly look at spending more capital on that line, and that can be -- that's probably the most significant CapEx that we're looking at potentially spending in the next year or so. But again, I have to repeat, we'll only do that on the back of getting contractual commitments out of customers. So overall, the demand on beverage cans at the moment, all our other lines are really running to capacity. So things are going well there. And then, of course, the other one on the ends side, the export contract that we did service during the last year has already been replaced by a new one for next year. So we don't expect any loss of that volume into next year. I hope that answers that question. Thank you.

Our next question is come from Mark Narramore from Excelsia Capital. I'll take you at this point. Glenn, please can you provide us to the guidance for the 2022 expected tax rate? And also, how should we think about working capital flows in the coming year?

Mark, the tax rate's always a very, very tricky one. We have provided a tax rate analysis in the supporting slides to the deck, which I will [ let you first go look at in ]. And the current year, there've been the utilization of certain assessed losses within Angola and the ability to raise the deferred tax assets on that. So that's substantially reduced the rate in the current year. I would think if you look at the -- obviously, the South African statutory tax rate is going to be following a 1% lower than rate at this stage that we start off with 27%. There might be 22% as a shield offer if there are no other abnormal or funny issues that hit the tax line. So maybe 24%, 25% is possibly a rate that you could use. Bearing in mind that certain of the African operations have tax rates of 30% and 32%. So it depends on the relative contribution to the new profitable tax from those operations in the rand-dollar exchange rate of [indiscernible]. So it can live around, but modeling wise, it would probably be the safe bet. And then from a working capital point of view, the model that we try and adopt is a relatively simple one, seeing that the market is normal. We try and fund our trade receivables with our trade payables. And then we, as a group, will finance a very high-quality trade proceedings book. And the net working capital cycle, I would think of around 70 days is kind of optimal for us, and that's how we see the business. [indiscernible] the degree that we can beat that, it would be advantageous obviously all round, but around 70 days is a good position.

The next question is from Daniel Isaacs from 36ONE. How confident are you in paying the export contract volumes and profitability in the coming year? You might have touched on this, Erik. Would you like to explain...

No, a little bit, Daniel. So I think I've already answered this from two angles. The one, the export of ends, we've already replaced. The other one, of course, is the export volumes were a lot less than we anticipated. So therefore, the hole that we need to fill up here is probably less than what we were hoping for. But we are -- like I said, we are seeing very strong demand from the local market still. The issue is really going to be how can we utilize some of that capacity on our line in Springs that can only do 350s at the moment. So we've got a number of plans in place. And yes, I'm confident we will make a big dent in that loss of profitability.

The next question comes from Mila Mafanya from Afena Capital. Can you quantify the extent of the swing in DivFood's profitability in rand millions and how much further this can improve? Second one is, can you comment on the profitability of Angola?

Okay. So first of all, DivFood, it's not a number that we disclose separately. But we can say that it's been a very significant swing, and it is well north of ZAR 100 million. So it was -- it's certainly a big swing around. How much more? Well, probably on the -- any new business is something entirely different. But even on the existing business, as we said, there are more benefits to flow through from the restructuring, of course, not nearly to that extent. But I would actually give you an exact number. And in fact, we will never disclose that. But yes, we do still hope to get some additional profit from those efficiency gains. Then the profitability of Angola, I know we are always -- it might sound very negative, the profitability or when we talk about the profit from Angola. And that's simply because it's been such a huge contributor of our profits in the past. It is still a big contributor, so make no mistake. It is not as if that business is breaking even or anything. We're actually getting very decent profitability still out of Angola. And of course, not as good as in the past, but unfortunately, we can't give the exact amount, but it is still a very good contributor overall to the group's profits.

Next question comes from [ Nick ] [indiscernible] from [indiscernible]. And he's got a number of questions around Bevcan and supply chain. First question is, how much of your aluminum requirements are sourced offshore? Secondly, do you source any aluminum from China? If yes, have there been any changes in this supply chain? Thirdly, given the high shipping costs, did it not make sense to source locally? And lastly, how material is the new export canning contract? Can you provide details on this?

Okay. So [ Nick ], that one is actually quite simple. So for our local requirements, we actually source all the material locally. So there are no additional costs incurred for -- on shipping this around the world. But I have to say at the same time, local prices are very high. So as you know, we're buying all our material now from a local supplier, [ Hulamin ]. And yes, but prices are high, but at least to be -- at the moment, we're getting most of the material we have or require. They have been affected by the riots in the last quarter, but they've now basically caught up. But the supply even there is very tight. The second question, do we source aluminum from China? The answer is yes, we do, mostly, of course, not for South Africa but for our businesses in Africa. So we've done that for quite some time. So yes, shipping costs, all those things certainly did impact overall. But at the moment, I think we have adequate supply. Then your fourth question is about how material is your new export canning contract. Maybe just to clarify, it's not a canning contract. It's the ends contract. So it's only the end that we put on top of the can that we are shipping. It's a reasonably material number. But keep in mind, the profitability of ends is a lot less than can bodies. But it is still something that will support our overall profitability quite nicely. So we're very happy with that. Yes, I think that's as much we can say about that contract for the moment.

The next question is from [ Nio Tema ]. With regards to the RBZ's debt that has been defaulted on. First question is, has the Reserve Bank of Zimbabwe recommended with the repayments of the U.S. dollar debt to Nampak post-September? And secondly, is this expected to negatively affect Nampak Zimbabwe and its sourcing of materials?

We haven't received any further payments at this stage. We have got a moratorium on funding purchases into Zimbabwe unless they are prefunded in dollars by the customers. So it will not affect our ability to keep those operations go.

Maybe just a comment on that. We never used any of those -- the funding that we received from the Reserve Bank of Zimbabwe for any operational requirements. All of that came back to first the Isle of Man and was then used to settle debt to my knowledge. So yes, that won't affect the Zimbabwean operations at all. They source all their ForEx for normal operational requirements locally.

There's two more questions from Mark Narramore. The first one being -- he's asking about at what levels the ratchet interest falls away. At the current run rate, would you expect a much lower number in 2020? Any guidance would be appreciated. The second one is about Bevcan SA markets. Please give an update. What is the current demand running at? What's the current split between beer, energy and soft drinks?

Okay. So the South African market, unfortunately, we -- given the fact that we now have competitors, we don't disclose that overall number anymore. What I can say is -- and I've said it before, is that we're basically running to capacity at the moment with the exception for our Line 2 in Springs that I mentioned and largely as a result of the increased demand for bigger-pack cans like 500 ml cans, et cetera, 440s and 500 mls, we've seen a huge growth in the energy market. That has been very dominant in the last year or so and also very good demand from the beer side. The one market that has not recovered yet is on soft drinks. And as I mentioned, that's largely as a result of the larger events not taking place. So in the soft drink side, there's been quite a big swing away from your smaller immediate consumption packs to the large formats like 2 liters, whether [indiscernible] the events and those things start opening up again, there is an expectation that the demand for the smaller cans will increase again. And of course, some of that demand can be serviced from Springs' Line 2. So yes, that is where we believe there's further potential to come through.

Erik, to answer the question on the ratchet interest costs, below 2.5x covered. I think the Board returned to normal kind of interest cost. And then there's a structure between 2.5 to 3 and 3 to 3.5. So it's in our interest to generate as much cash as possible. We have to use that to repay debt and to get those covenants as strong as possible. It will then reduce the interest rates. And as I mentioned, in the current year, cost is a ratchet interest cost of ZAR 88 million. That was at a higher cost because the covenants have been relaxed for a large portion of the year at well north of 3.5x. So I expect that number to drop.

The next question is from Nhlakanipho Mncwabe from 36ONE Asset Management. What is the impact of the [ block ] shortage in South Africa on the demand for beverage cans?

Thanks for that question. I think that has been answered. Certainly, from -- on the alcoholic side, that did put additional pressure on us to supply some of those bigger can formats. On the soft drink side, no impact at all, but certainly on the alcoholic side, it did have an impact and strengthen the demand. And we do see the demand still going forward for some time. But obviously, I can't give you an exact number because we don't even know exactly how much of this demand is coming from that other than knowing that that's one of the factors that's contributing to overall beverage demand.

And our question is from Todd Jennings. And he says, focusing on your last closing statement: range, trust and the number of years of being in business. On the Metals side and the quality of your customers, if there was an invitation to a worldwide metal conference, where would Nampak rates the following areas? And we've got three areas: quality, customer satisfaction and, three, markets in Africa. So the rating is out of 10 for all of these three.

Todd, thanks for that question. As you probably have seen, customer satisfaction and brand trust is very close to our heart. How would we rate ourselves? Well, first of all, I think we would hate to rate ourselves. We would ask our customers to do so. We believe we supply very good quality. Make no mistake when you talk about beverage cans or food cans. It is a business that runs at very small tolerances. So it is never possible to supply products that are 100% defect free, but we certainly try and keep those as low as possible. And that is normal in the industry. So it's no different from us or in of our international competitors. So overall, we believe our quality is very stringent. We've got stringent controls in place to make sure that bad product doesn't leave our premises. And so far, I think the experience for our customers has been very good. Customer satisfaction comes from a number of different areas. The one is, of course, the quality of the product we supply, price, all those things, but a significant portion comes from the interaction of our people with their own planning staff. And a huge impact there also comes from forecast accuracy, et cetera. So it's very difficult to supply or have very good continuity of supply if the forecasts are not in line with what was given to us earlier. So we focus very much on the sales and operations planning processes, not just internally but also with our customers because there's a direct link between customer satisfaction and the quality of the information they give us. And that's a partnership. And that's why we believe customer satisfaction is very much driven about how strong that personal interaction is and how strong the relationship is overall. So I know these days for many customers, they actually try and avoid strong personal relationships from a procurement point of view, which one can understand. But from an operational point of view, we believe it's extremely important to have very strong relationship with our customers, and that's where we believe customer satisfactory come from. So markets in Africa, your last bit. I'm not quite sure what you mean with markets in Africa, but certainly, our experience from our customers in the Rest of Africa is that they're getting very good quality. We've mentioned before that our operations in the Rest of Africa or some of the best operations we have, they run at the highest efficiencies. And as a result, you can imagine that they produce very good quality as well. So although very difficult areas to operate in, road conditions are terrible, et cetera, overall, I think we're very proud about the packaging excellence that is provided to our customers throughout Africa.

And no more questions from the webcast. Do you have any closing comments, Erik?

Thank you, Nondyebo. So yes, I think, overall, as you can see, very successful year for us. I think we've proven that we can generate the cash that's required to repay our debt. Yes, Rome wasn't built in a day, but I think we've made good strides. We have a much improved cost base now to attack the market with. I think we've had good service to our customers. We've provided good quality. And overall, we're very confident that the new year should be a good one. And we hope to, like I said, continue the momentum that we've gained in the current year. And overall, I would like to thank my own team for their support, our Board. Overall, I think we've had very good contributions from the whole team. They are energized through these good results. And definitely, we're going to try and make sure we carry that, that excitement into the new year to make sure we don't disappoint the market. Thank you.