Nampak Limited (NPK) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Nampak's interim results presentation for our half year ended 31st of March 2022. I think we're going to start with the forward-looking statements that you know very well by now. I'm not going to go through that in detail, but please have a look at it when you have some time. A quick look at what we're going to be covering today. First, we're going to take you through a very quick overview of Nampak, who we are. We'll take you through the results overview, spend a little bit of time on the operational review before Glenn will give you a lot more detail on the financial results itself. And then we'll also look at what the future holds for us. And we've got some appendices in the download version, which we will not present in detail today. So first of all, as I said, Nampak, who we are. I think most of you know us very well by now. But if not, we consider ourselves as Africa's foremost packaging company. We've been listed on the JSE for a very long time, more than 50 years. And essentially, we make metal, paper and plastic products. We are a market leader in the South African beverage can market as well as Angola, with a very significant market share in Nigeria. We operate in 33 countries -- sorry, in 33 operations from 10 different countries with a world-class R&D facility. And essentially, we're saying we'd like to add sustainable business for all our stakeholders. We believe we are a trusted supplier to our customers. We deliver exceptional food safety packaging to consumers. And we produce sustainable products. So very quickly have a look at a map. You can see our main base is in South Africa. We have significant operations up the East Coast -- sorry, of Africa, but our larger operations are actually on the West Coast of Africa, mainly Angola and Nigeria. Again, just a reminder of our strategic focus areas and our strategic building blocks. I think these are not new by now, and you'll see a consistent theme running throughout some of our commentary and what we've done over the last 2 years. It's all about reducing risk and growing profits. We definitely need to strengthen our capital structure. We've got -- and we will talk to that a little bit later about how simplification will play a role in that, not only on the balance sheet, but also our portfolio of businesses. And then, of course, there's a big focus on growing profits through optimization, innovation and growth. So let's look at a very high level at our results, pleasing revenue growth, up to ZAR 8.1 billion. That's an increase of 24%. Very strong demand in our key markets but significantly impacted by higher selling prices and the fact that we had to recover that in our prices. Operating profit up 26% to ZAR 668 million, where our profit for the period is almost doubled to ZAR 321 million, up 87%. Earnings and earnings per share and headlines per share, as you can see, has more than doubled up, earnings' up 105%, while EPS' up 102%. Pleasingly, cash generated from operations before working capital is up to ZAR 1.1 billion, that's up 30% but very significant investment in working capital required of ZAR 653 million, and that number probably could have been much higher if it was not for some of the initiatives that we implemented during the period and may I say some very significant or successful initiative. Very importantly, I think we've complied to all group funding covenants and EBITDA, net debt to EBITDA down to 2.8x. That's well within the threshold of 3.5x, while our EBITDA interest cover has up to 4.7x versus a threshold of at least 4x. So let's just take a step back and look at what we promised the market at the end of November, start of December last year when we presented our previous set of results, we said these were the focus areas for FY '22. So let's look at the progress to date. If we look at our debt structure, the optimization thereof, I think that's fair to say that is still a work in progress. We have not achieved everything that we wanted to yet and more to follow on that. In terms of continued covenant compliance, I think there, we've been very successful, as I just demonstrated on the previous slide, well within covenants, not a problem at all. Very tight CapEx control and working capital. Yes, we did have to invest some further into working capital as a result of the very high commodity prices, but I think if you see the level of increases in those commodities, you'll find that the amount required was actually very well controlled. And Glenn will show you later on that on the CapEx side, we -- it is 39% down on what it was before, very well controlled. And then, of course, the one area where we have not been as successful was the disposal of some of the nonstrategic assets, very difficult market conditions to dispose of assets. We have not been successful in those previously identified assets, and this is a process that is still continuing. We're not saying that's the end of it. So we're definitely still looking at that and see how that can contribute to our overall strategy delivery. Next item is ESG. This is still a work in progress. We find this is for most companies still relatively new. The JSE is in the process of announcing some disclosure requirements on ESG. We're working very closely with them to see how that will impact on Nampak and how we can make sure that we comply or even stay ahead of the game on that side. So on our side, we are looking at not only the policy development in terms of ESG, but also what practical measures and metrics we can implement to make sure that we use this as a sustainable advantage. And then last but not least, I've mentioned this many times before, for me, it's all about how do we build trust, how do we make sure that not just our shareholders but also our customers and all stakeholders trust us with not just their money and their investment, but also with the business that they allocate us to make sure that we give them safe quality products. And we believe that we're doing that through the support of not just world-class facilities, but also a very well-respected R&D facility. So let's look at what we said the operating context was going to be for the first half of 2022. And I think you'll find that we were spot on in terms of what we expected and what is -- what came through. So we expected some ease restrictions on large events. I think that's slowly starting to happen. We expected some further savings from the restructuring in DivFood and Plastics. Some of that's being delivered. I think there's more to come, and of course, then leveraging our productive capacity. That was with specific reference to Nigeria, where before we did say we're approaching full capacity, we managed to squeeze further capacity out of that plant. And as a result, we are still approaching full capacity but not at full capacity yet. In global terms, high commodity prices was a very strong theme throughout the period as well as supply chain disruptions. We all know about the problems in global shipping as well as the problems experienced in South Africa, in particular, in our ports. If we look at the Rest of Africa portfolio, we expected positive momentum to continue in Nigeria and indeed, it did, slightly improved conditions in Angola. I think if anything, it was probably a little bit better than we expected. So we're quite pleased. And then we did warn about potential ForEx devaluations in Nigeria and Zimbabwe and true to the expectation that come through to some extent and then Zimbabwe even a larger extent. In Zambia, we did expect some better trading conditions from east -- sorry, better trading conditions resulting from the easing of some of the restrictions and the diversified customer base. And we did also say that we are in the process of evaluation of some of the smaller operations in Africa in terms of how it fits in with our strategy. So let's look at the big impact during the last year. A very strong theme, as I said, was increase in commodity prices. As you know, the bulk of our business comes from the metals cluster and where we have 2 input materials, the one aluminum, the biggest; and then, of course, steel. Now if you look here at what aluminum pricing has done in the last 18 months, you can see since 1st of October, it has more than doubled. So depending on where you start, you're seeing different increases, but very interesting to see, if you look at my screen here at the end of March is where it looks like it has peaked. So since then, we've seen prices coming off in round numbers, we were talking about LME price for aluminum of roughly about $3,400 a tonne. At one stage, it even peaked above $4,000 a tonne. Where currently, as we look at today, it's somewhere in the order of about $2,900. So it has come off quite a bit. A very important thing to take into account here is that none of that reduction will be reflected in our results yet. And the reason for it is when you buy aluminum generally, you buy it on what is termed M -1, in other words, you buy it at the average pricing for the month, one month back. So even in April, we will still be buying aluminum at the average price for March and then, of course, that rolls forward into May. So we should be starting to see the impact of the reduced aluminum pricing coming through from where we are now onwards. But keep in mind, during this period, there was also a reversal on the strength of the rand. So of course, there's a combined impact that we need to consider. If we look at polymer prices sort of for our Plastics division, a very similar trend. You can see how that has sort of peaked almost between January and March. I haven't got the data to show you going forward. But essentially, those prices are also slowly starting to ease, but of course, heavily impacted by oil prices. So let's see where that is going to go. I'm now going to spend a little bit of time on the operational reviews, again, at quite a high level. So if we look at our overall results, as reported, very strong growth from our Metals division and then may be looking slightly different for the rest. At least nothing has gone backwards, but all of them has not gone up to the same extent. So let's start maybe with the Metals side, the largest part of our business, as you can see in terms of revenue, it contributes 74% of the group revenue and 98% of trading profit. I just have to warn that the trading profit you're seeing that percentage excludes the -- or the impact from -- well, in fact, it includes the impact of our corporate offers. So the total pie adds up to more than 100% because of the negative contribution from our corporate office. And as Glenn will explain to you later on, the corporate office is also contains all our nonrealized ForEx losses related to commodities that are priced into our contractual obligations and with customers. And hence, although we've incurred a loss on that during the current period for the full year, it actually will be sort of neutralized when it reverses and is priced into the product. So let's maybe look at the overall results. Very pleasingly, you can see revenue has gone up 27%, but it's fair to say that a large portion of that -- a very significant portion has been driven by the increased cost of commodities and because we had to pass that on to customers, you see that big increase in revenue. But it has actually also been, of course, on the back of volume growth, which is very positive. And hence, you can see our trading profit has shown a very pleasing increase of 37%. If I look at the different regions, let's start with Bevcan in South Africa. As mentioned before, we're still seeing very strong growth in the beer side and energy drinks market, mostly the larger can sizes, 500 ml, 400 ml cans, et cetera. And of course, it's fair to say that we did benefit from shortages of other packaging substrates, in particular glass. So we expect some additional capacity to come on stream in the near future. So I think that growth will probably ease off a little bit, but there's still very strong underlying growth from particularly the energy sector where glass has got no significant impact. Of course, yes, we did have no restrictions on trading, no alcohol bans, et cetera. And as I mentioned before, we had to recover those very high cost increases in our selling prices, which will have an impact on demand. We hope to see the prices coming down that we can again provide some relief to our own customers and so that the inflationary impact is lessened on consumers. Interestingly enough, last year, as you know, we had very large export orders where we -- everybody was concerned that once those orders are completed and not repeated in the current year that our beverage volumes will go backwards. It did not. The strong local market is, in fact, more than compensated for the loss of those export contracts and as result, we've seen continued growth. If I then move on -- still in South Africa to DivFood. Same story there, very big increases in steel. We had some very difficult discussions with many of our customers to pass on those significant increases. And as a result, that also impacted on their revenue. But on the positive side, they also saw the recovery of some of those fish can volumes that we did not enjoy during the previous year because of a lack of the raw material for our customers, the raw fish. That is now looking a lot better and fish volumes has increased dramatically. Also some improvement on some of the other volumes for fruit cans, vegetable and milk cans. So all looking stable and growing on that side. Diversified cans where the growth a little bit more limited, but mainly as a result of the inflationary pressure on consumers' disposable income. When we move over to our closures business, the caps and closures that come on top of bottles and some other product, we've seen positive growth in our ROPP sales, and those are generally going into the wine and spirits market. We'll go next, let's move now to the rest of our Africa portfolio. First of all, Nigeria, strong revenue growth at Bevcan. Like I said, it was also a little bit boosted by shortages in raw materials for some of the other substrate. I think that issue is now a lot less. And I don't think that should contribute much more going forward. As I mentioned, we are operating close to full capacity there yet, but there's still, I want to say, don't think that we are full -- running at full capacity yet. I think there's quite a bit of capacity for growth yet, and we continuously upping either the speed or the efficiencies on that line to make sure that we can still deliver further growth. Sadly for our general metals packaging business, they performed below expectation and mainly as a result of reduced volume allocation from key customers, where some of our customers are going into self-manufacturing of some of the smaller requirements and that had a negative impact on that business. In Angola, very encouraging revenue growth, again, off a low base, but slowly as the economy is reopening after some easing of some of those COVID restrictions, we've seen encouraging volume increases, however, still off a low base. One of the factors that we've mentioned many times that's got a very significant impact on this business, is the border to the DRC that remains closed, now we've heard many, many rumors that, that border is about to open soon. That it has not yet. We understand there are other political concerns that are being addressed as we speak. So again, they tell us it's going to happen soon, but we don't know when that's going to happen. But once it does happen, it will be very good news as there's been historically very significant movements of indirect exports by our customers of our cans into neighboring territories. So we're holding thumbs on that. Next, let's move on to our Plastics business. Again, smaller contribution to overall revenue about 20%, with trading profit increase of 19% -- sorry, contributing 19%. So trading profit growth there on its own. You can see a lot more muted than in the beverage can side, a 2% increase in trading profit. And that was, to a large extent, driven by good growth in Cartons business. So not just revenue growth, they also had good volume growth for both their Pure-Pak and conical cartons side. Similar to Bevcan, no restrictions on alcohol bans like they had in the previous period. And this additional volume has also given them some further operational efficiencies, which translated into higher profits. Plastics SA, unfortunately, has been quite disappointing, marginally as a result of lower volumes of plastic bottles that are supplied or supposed to be supplied to some of our key customers that experienced very protracted strikes. And in fact, one of them, I believe, the strike action is still in place and probably one of the longest in history. So quite a big impact, some volume loss there. Better volumes on the closure side of the business, but lower demand for most other categories. So not a good result for Plastics. And as a result, we are still heavily focusing on seeing what can be done to make that business more sustainable. When we look at the rest of Plastics business in the Rest of Africa, the bulk of that is coming from Zimbabwe, very robust demand in Zimbabwe. And I want to say almost a consistent theme, very good performance from Zimbabwe despite some really challenging operating conditions. So they've seen double-digit revenue growth at both Megapak, our Plastic operation and the smaller one CMB. It's a metals operation. And as we've mentioned before, they have to sell a fund. We're not giving them any funding. They can only buy raw materials to the extent that they've got access to dollars or ForEx. And as a result, it's a continuous challenge to see whether they have enough raw material, but very good team on the ground and a theme that you will see in the next one paper as well as the impact of currency devaluation and of course, hyperinflationary adjustments as a result. Our last clusters are our paper cluster. Again, operating mostly from Zambia and Zimbabwe. So trading profit remained level. This business, of course, is only contributing about 11% of our -- of the group's trading profit and only 6% of revenue. So if you look at the -- sort of the difference between the revenue contribution and trading profit, it's clear that the group -- or the margins on this product is very high, but you can see that contraction of margins in this business, and I'll give a little bit more detail just now. So in Zambia and Malawi, I think, very happy stable performance, improved trade volumes from Zambia, but slightly lower carton volumes. However, on the other side, in Malawi, again, we've seen some increase in carton volumes on the back of some promotional activity. The main feature that came from Zimbabwe, Hunyani business. again, very good demand, good revenue growth, but a contraction of margins as a result of higher operating costs and not just coming from the price of raw materials and the ability to pass that through, but erratic electricity supply. This business does not like stop starting, very similar to our Metals businesses and even all our other businesses, so heavily impacted by unreliable electricity and hyperinflation also had quite a big impact on their numbers. So both Plastics and Paper, if we had to reverse out the impact of hyperinflation, these numbers probably would have looked a lot more respectable, but for the moment, we've got a lot -- with that, and as a result, unfortunately, flat trading profit performance. Last but not least, Kenya, a very small business. Again, improved trading conditions off a low base, but the key one there is that our JV with Elopak, has now started trading, again, very low volumes, but where before, I think most of the effort has been in terms of gaining new customers and making sure that people know about us, et cetera. The first orders have not started coming in and with some very significant potential. So we're looking forward to see where that's going to take us into the next couple of months. So that concludes our operational review. I'm going to hand over now to Glenn Fullerton, our CFO. And yes, over to you, Glenn.

Thank you, erik. I'm just loading the presentation. Good morning, ladies and gentlemen. Thank you for joining us on this results presentation. If we look at the key features of the income statement, for the period, very pleasingly, revenue has grown by 24% to ZAR 8.1 billion, with operating profit of ZAR 668 million, up 26% from ZAR 529 million in the comparative period. Our profit before tax of ZAR 392 million is a 44%, profit for the period of ZAR 321 million is up 87%. I think what we have seen is a very strong cash generation from the business, where we've generated ZAR 1.1 billion, up from ZAR 831 million in the previous period. That's a 30% increase. But a key feature of the results for the period has been the required investment in working capital due to a significant increase in the commodity prices. We invested ZAR 653 million in working capital, and that has reduced the cash generated from operations, and that's down at ZAR 428 million. So that reflects a 50% reduction from the prior period. As we see commodity prices potentially normalizing going forward, we'd expect that to be a credit that will come back into that cash flow statement sometime in the future. Our EBITDA for covenant purposes is very pleasingly up at just short of ZAR 1.8 billion. That reflects a 44% increase in the prior year. And as Erik indicated, a very pleasing performance on the covenants with both covenants showing quite significant headroom relative to the threshold level. The net debt to EBITDA of 2.8x, well below the threshold of 3.5x and very pleasingly far lower than the 3.7x in the comparative period. EBITDA interest cover at 4.7x also shows a very significant improvement from 3.1x in the prior period. Earnings per share up 105% to ZAR 0.349 and headline earnings per share of ZAR 0.356, up 102%. And you can see there's not a particularly big difference between EPS and HEPS. There are not very many adjustments there. If we have a look at some of the more of the details behind the income statement, the revenue of 24% -- being up 24% has been pruned by significantly more healthy demand in our key markets, and that's also coupled with higher selling prices. As Erik has indicated, this is caused by increased commodity prices and raw material prices. Our trading profit of ZAR 770 million is up 9%. This has been impacted by the pass-through mechanism on the commodity prices. There are also certain unrealized foreign exchange losses that carried at the same time on behalf of certain of the operations. Those are contracted positions going forward, and we'd expect those to be recovered in the second half of this financial period. There has been a ZAR 40 million impact on the devaluation from Zimbabwe compared to ZAR 10 million in the previous year. And the operating profit before net impairments of ZAR 678 million is up 25%. There've been no real material impairment losses in the period, and those impairment losses really relate to specified assets [indiscernible] in our diversified and food business. And we have done 4 impairment assessments at the half year with no impairments noted or impairments. Our operating profit of ZAR 668 million is up 26%. Our finance costs declined 9%, and we will unpack those in a slide later for you. But in essence, the finance cost element is up 5%. And we also had lower finance income because historically, we've been receiving interest on the U.S. dollar in kwanza bonds in Angola. During the last reporting period, the final portion of that was recovered and there have been no further receipts in this period because that full program has been recovered. So at a profit before tax level, we've made ZAR 392 million for the period, up 44%. Our income tax has reduced by 30% to ZAR 71 million in certain deferred tax assets raised in the period and our profit for the period very pleasingly, up 87% to ZAR 321 million. The noncontrolling interest have increased by 62%, and those represent the outside shareholders interest in our Zimbabwean business and our Angolan business, both of which have performed well during the period. Our profit attributable to the owners of Nampak is at ZAR 222 million, up 102%, in line with the increase of 102% in the headline earnings per share. What we will see in the minority interest line for Angolan position is we have restructured that business. We have converted certain of our loan funding into that business into equity. It has not resulted in the [indiscernible] on consolidation in terms of the IFRS principles because the equity holding is backed by loans given by the minorities, that would be accounted for as a 0% minority. Yet there's a contractual holding of equity in that business of 7% while minorities down from 30%. So prospectively, for the second half, it'd be accounted for on that basis. If we have a look at the reconciliation between our trading profit and our operating profit, really, the key feature here is a reduction of 46% in the net foreign exchange movements with the decline from ZAR 163 million to ZAR 88 million. And that's despite these Zimbabwe elements increasing from ZAR 10 million to ZAR 40 million. There has been a reduction in the mix from Angola and Nigeria from ZAR 153 million down to ZAR 48 million, and I'll unpack that for you in the slide that follows. One of the very key features of our numbers is always the impact of our foreign exchange positions. And what we do see here is a very resilient rand, where the average rate is in line with that of the previous period, and the closing rate is 1% stronger. There's been a kwanza strengthening in the period. It has been limited to foreign exchange in Nigeria and a very key feature is the Zimbabwean dollar continues to devalue. Just to remind everyone from a rand-based income statement, we translate the dollar-denominated earnings at the average rate, the statement of the financial position at the closing rate. And what we have seen is that the covenants have benefited marginally from the 3% strengthening in the rand versus the closing rate at the end of September 2021. The naira has devalued by 6% on average and has the 2% weaker than the closing rate of the previous period. We have incurred a foreign exchange loss of ZAR 109 million in the period. That is down from ZAR 160 million in the comparative period. It is limited dollar availability at official spot trade in that market. I think it's a pretty well-known fact. Angolan kwanza has shown an interesting trend where that has strengthened on average by 18% in the period. And if we compare it to the closing rate by 30%. We have made a foreign exchange gain of ZAR 61 million in the period compared to a gain of only ZAR 7 million in the previous period. I'd like to remind the listeners that Zimbabwe is classified as a hyperinflation economy and the exchange -- the translation of the results is done at the closing exchange rate for the period. There's been a 69% weakening versus the exchange rate at the previous period of the prior year and 62% versus the closing period of the prior year. U.S. dollar availability does remain challenging. But as Erik has indicated, we have not provided funding to the operations since April 2018. They are self-funding, they secure dollars themselves for all their procurement requirements. We have not received anything further from the Reserve Bank of Zimbabwe in respect of our legacy debt there. other than the $4 million, which equates to ZAR 57 million that we received in the prior financial year, there has been a reclassification of this debt, where it was previously owed to us by the Reserve Bank of Zimbabwe, it's now being classified under the Zimbabwean blocked funds framework. It's now deemed to be a sovereign debt and subject to payment under those conditions. We have maintained our expected credit loss provision ratio at 90% as we do believe that we're at least to cover the remaining portion and time will tell. We unpack the borrowings number. I think the key is that there's a higher core borrowing cost. And that really crystallizes us down into the higher investment that has been acquired in making capital for the period. We have seen a lower ratchet interest cost and finance income. And what we have tried to do in this slide is to show you the component parts of the net finance costs. A key feature is the finance lease liabilities. And you can see a pretty consistent picture for those because those numbers really don't move that much. There has been a significant reduction in the ratchet interest cost from ZAR 65 million in the first half of 2021 down to ZAR 19 million in this period. And there's been a 56% increase in the core borrowing costs from ZAR 127 million up to ZAR 198 million. And really -- that really comes to a higher investment in the working capital linked to the significant increase in commodity prices. There is a structural imbalance in the South African beverage can supply chain and market at the moment. We are addressing that with both customers and our suppliers to avoid Nampak carrying the financing cost of supplying much higher raw material costs into this structure. There has been, as I indicated earlier, reduced finance income because the liquid bonds have now been fully recovered. There have been 2 interest rate increases during the cycle, both of 25 basis points. So compared to the previous period, there's been a 50 basis points increase in the interest rate. And really, the lower ratchet interest is attributable to a better net debt-to-EBITDA ratio, where that has improved from 3.7x in the first half of the prior year to 2.8x now. Our interest rates on our local loans range between 7.1% and 7.7%. Our foreign loans between 3.8% and 5.3%. If we look at our statement of financial position, key features, our equity has increased by 9%. There have been no disposals in the period and then there's been a significant investment in working capital. We have 2 of our businesses previously reflected as assets held for sale. Those were the diversified and food business located in Mobeni and our tubes business. Unfortunately, given market conditions, they no longer meet the requirements of IFRS 5, which is the assets held for sale and discontinued operations. So we have reclassified those back on to the respective lines in the statement of the financial position. And where we have got assets held for sale, those really relate to the specific assets in the field, which are deemed to be noncore. We've not had any particularly material additions to our property equipment during the period. And as you'll see at ZAR 94 million, that is 39% down from the comparative period. The right-of-use assets have increased from the prior year due to the reclassification of assets previously identified as assets held for sale. The goodwill movement in the main related to Bevcan Nigeria, which was a dollar-denominated goodwill and the only movement on that would be related to the foreign currency movement of 1%. The other noncurrent assets have increased primarily due to increased deferred tax assets in the period. Key feature has been, I think, the increased investment in inventories with those up 25% from the financial year ended '21, and 47% up from the comparative period, as indicated, external pressures on commodity prices driven by Ukraine and Russia war, increased demand and higher safety stocks that we've deemed necessary in certain territories has driven up that number. With a strong revenue growth of 24%, our trade receivables and other receivables have increased by 30%, and that's from higher selling prices and increased volumes. But as I'll indicate to you in a slide later, the book is being well managed with the trade receivables sitting at 63 days. We are holding ZAR 1.4 billion in cash reserves. Our total equity of ZAR 4.4 billion is up 9%. And within that equity base of -- increase of 9%, our noncontrolling interests have been impacted by Angolan restructure on a positive way. Our noncurrent loans and liabilities have increased by ZAR 1.2 billion from the prior year. And really at the end of September 2021, there was a portion of our long-term funding that had been classified as short term, just because certain agreements went in place at the 31st -- 30th of September. Those have been rectified. And as per the funding agreement that ZAR 450 million is now shown as a long term. There have been increased drawdowns in the term funding and there also a reclassification of lease liabilities from assets classified previously as held for sale. Our trade and other payable funding was up 8%, and that's not anywhere close to the rate at which the trade receivables has gone up by -- as we can see there, they are relatively static supply credit limits where we've got certain surprises, who are unable to provide limits and [indiscernible] fund that mismatch in the supply chain. The current loans and lease liabilities and bank overdrafts have declined by ZAR 697 million from the previous financial year. And if you summarize really what's happened there, the ZAR 450 million is going to be classified to long-term loans. And then we have drawn ZAR 267 million from the trade finance facility and utilize that to repay debt. Our short-term liquidity remains sound with our current ratio reflecting a pleasing improvement to 1.9x from 1.6x in the first half of the prior year. We have a stable acid test ratio of 1x, which reflects our ability to settle all short-term creditors without having to sell any of our inventory. We've reduced our offshore net debt, and that is now approaching our targeted levels. What we have seen is the U.S. dollar-denominated component for covenant purposes, reducing from 41% down to 33%. And we're very pleased with that. There has been ZAR 400 million drawn out of the total facility of ZAR 1.1 billion on a nonrecourse trade finance facility, ZAR 267 million of that was used to repay debt at the 31st of March and with the balance of ZAR 133 million settled post the 31st of March. So cumulatively, we've used the ZAR 400 million as of today to reduce and cancel banking facilities. One of the key features that sits embedded in this ZAR 5 billion net debt is the investment to fund the increase in working capital of ZAR 653 million. And just to contextualize that, that represents 13% of our group debt at the 31st of March. If we look at the synopsis of our covenants, I think the key features are that the covenants were both through quarterly reporting periods in this half year have been met and they're returning to former levels. If we have a look at the picture over the period from FY '19 through to 31st of March. In FY '19 from a net debt-to-EBITDA level, we requested our funding partners for a relaxation to 3.5x. There was extreme volatility in the rand dollar exchange rate at that point in time. The actual limit was at 3x and we were concerned that the dollar component of our debt may cause us to exceed that particular 3x cover. Nevertheless, we came in at 2.9x. Everybody is very acutely aware of the impact of COVID on the FY '20 reporting period. We negotiated with our fund partners a relaxation to the 5.25x cover at that point in time, we're able to achieve 4.94x cover and then negotiated a 3.5x cover period. Up to the end of September 2022, the covenant will revert to 3x from the 1st of October the pleasing headroom in both of those reporting periods below the 3.5x. What we can see on the right-hand side is, again, compliance through all periods here, where in the last 2 reporting periods, both our metrics have exceeded historic required levels of being above the 4x level. So I think there's a strong management of the business and our ability to meet these covenant levels have been tested through very, very trying times with successful outcomes. If you look at the broader picture from September '20, the dotted lines are the maximum level for the net debt-to-EBITDA and the EBITDA interest cover and these are the actual results that have been achieved. And really, the theme of this picture is to show that management has been very, very proactive in managing the return to former levels in the covenant. I would just point out the net debt-to-EBITDA levels are restated to take into account hyperinflationary requirements in the economy of Zimbabwe, but very clear demonstration that we're well within our threshold levels. We look at the statement of our cash flows, 30% improvement in our cash generated from operations for working capital is pleasing. We have, however, reinvested ZAR 653 million being 60% of the ZAR 1.1 billion back into short-dated assets, beyond the working capital cycle and I'll unpack the component parts of that for you in the next slide. So that is quite significantly impacted the cash from operations with that has declined by 50% to ZAR 427 million. We have paid ZAR 247 million in interest. It's slightly in cash flow terms 9% better, very consistent flow of ZAR 38 million for the both periods of the half year for the postretirement medical aid liabilities, there has been ZAR 45 million spent in the executive incentive share program and then we've paid income tax of ZAR 73 million. So cash generated of ZAR 24 million, a 39% improvement in the capital expenditure. And I think we -- a very key feature here. There's a very strong maintenance of our capital base through maintenance expenditure and curtailment of CapEx, we are not doing in any way to compromise the asset base but to rather to conserve cash. So the de-investing activities, the net outflow of ZAR 79 million from financing activity is ZAR 55 million before finance activity is going to be raised a net ZAR 385 million. There's been ZAR 433 million raised in financing, and then the balance has been used to pay off lease liabilities. So we've resulted in a net increase in our cash position of ZAR 330 million for the period. [indiscernible] an active management of inventory days during the period. As you can see here, we are down from 155 days in the first half of last year, down to 121 days, slightly better off than the closing period last period. But the absolute investment in working capital has grown by ZAR 674 million at an inventory level. The trade payables have more than funded the increase in the trade receivables. So the bulk of the net outflow in working capital really relates to our requirement to cope with increased demand and elevated commodity prices and also in certain territories to increase our safety stocks. Overall, we feel that the inventories have been well managed. There's no particular concentration risk in the trade receivables book. We are managing those very actively. And the trade payables is a sticking point, where we have certain trade limits that have not increased relative to the increases in the commodity prices, and that's resulted in an outflow for us where the cost of the inventory. You can see there's quite a significant mismatch between those 2 particular numbers between the outflow in inventory and what's been funded by the creditors. We're working on that, and hopefully, we can get a solution to that. The trade receivables has benefited from the utilization of ZAR 267 million of nonrecourse trade finance facility that was drawn by the first half of the year, and we continue to utilize that to repay debt. We look at our capital expenditure. This program has been very, very tightly controlled. As you can see, the significant reduction in CapEx from a peak of ZAR 735 million in FY '19, down to ZAR 94 million for the first half. There's no major single CapEx within that number that is creating any concentration risk. And in the expectation for ZAR 350 million for the full year, again, no concentration risk of any one capital project being problematic. What we have seen is the majority of that CapEx being employed or replacement CapEx with 38% for expansion in CapEx. So that's a brief view of the finances, and I'll hand over to Erik.

Thank you, Glenn. Let me just get the presentation going again. Okay. So we've had a very quick but comprehensive look at the finances. I'm sure you know by now that Nampak finances is fairly complex. But I think after the presentation, you'll probably have time to work through that in more detail. And I'm sure over the next couple of days, there will be some further questions. Let's look forward I think the first thing we want to address is the issue around our balance sheet and the optimization of our portfolio. So we will continue over the next couple of months, and we have been very active in terms of being busy with looking at the portfolio. And we're looking basically to see which of these businesses has got a good strategic fit and which of the businesses are not providing us the appropriate return for the risk involved. As I mentioned before, to date, we've not been successful in disposing off those previously identified assets. And of course, the asset disposal project or looking at opportunities is continuing and by no means have we given up on that. Let's now next look at our current debt position. As you know, there's an assessment that will be done by our lenders at the end of June, and that will look at the group's ability to repay at least ZAR 1 billion of debt by the end of September. To date, we've paid ZAR 425 million of this, and we can break down sort of the detail, but essentially about ZAR 400 million of that came from the trade finance facility, meaning that there's still ZAR 600 million available on that facility and the other ZAR 25 million essentially came from some of the money that we received from the Reserve Bank in Zimbabwe. So more importantly, I think, is the fact that our entire debt package, the local RCF facility is maturing on the 1st of April 2023. So that's in less than a year away, with the balance our U.S. private placement note holders, their debt is maturing on the 28th of May 2023. So I think there's more to look at than just the lender assessment on the 30th of June. And as a result, we are reviewing our entire capital and funding structure. We have come up with a comprehensive plan to address all of these factors in a comprehensive way. And maybe just to comment on that. Part of our strategy, we've always said we've got quite a complex funding structure and consortium. We've got many banks involved. It's difficult to make decisions when too many parties are involved. So what we're trying to do is to simplify not only the debt package itself and so on, but also the funding consortium that I think we can identify where we've got strength and sort of better support and make sure that we concentrate the entire package around that. So to date, we've made very good progress in terms of the initial design of this structure and maybe structures work, but the whole concept around funding, if I want to call it that. And we're planning to finalize the refinancing process before the 30th of September this year. If we look at the outlook for the second half of 2022, a lot of these are very similar to what we've seen in the first half. I think a very new element to that certainly is the conflict in Ukraine. That is causing a lot of panic and uncertainty around the world. We are definitely seeing some commodity prices starting to ease off with the exception of oil. We are seeing a higher interest rate cycle and the Reserve Bank in South Africa has already announced some increases in rates. And as a result, I think it's fair to say that there will be pressure on consumable -- consumer spend as a result of lower disposable income. In South Africa, despite all of this, I think we expect to see further growth in demand for beverage cans as well as food cans, in particular, the fish side. We do know there's some actions in place to make sure we can have further improvement on the operational side from the food where, as mentioned, in Plastics, hopefully, some of those strike action at some of the customers will come to an end, but also a lot of focus on seeing how we can improve this operation to make it more sustainable into the future. On the Liquid Carton side, I think there, we've had some export orders that were pushed into the second half. So we'll definitely benefit from some of those export orders and the higher all the operational benefits that come through from some of the increased volumes. Moving on to the Rest of Africa. The higher oil prices should have quite a positive impact on the economies of both Angola and Nigeria. As I mentioned, in Angola, we've already seen some improvements. We've seen the currency starting to strengthen. We haven't quite seen that happening yet in Nigeria. I think it's the way how the central bank control their currency, I think, it's slightly different and in a way, disappointing. So we're hoping to see some of the benefits of the higher oil price also coming through in that economy. So in Nigeria, I mentioned the 2 portions of the business, the beverage can side, I think that we should see some further growth on the beverage can side, although probably at a much lower rate. And we also hope to benefit from that capacity that is still available on our existing line without the need for any further investment. In Zimbabwe, there's definitely something to watch out for. We have recently seen some further currency weakness, so that will be a feature in that economy where in Zambia and Malawi, I don't think that should change very much from the type of environment we operated in during the last 6 months and we have some positive momentum to continue. And as we said before, we will always continue to look at our portfolio which businesses make sense, which not and that is an ongoing progress -- process. So I think that concludes our -- the formal part of our presentation for now. We're now going to open the floor for questions. And hopefully, we can take it forward from there. Thank you.

[Operator Instructions] The first question from the line comes from James Twyman of Prescient Securities.

erik, I've got 3 questions. Firstly, could you talk around what the volume growth was that you saw in cans by region? Could you talk around the ZAR 200 million or so of corporate costs? And where you see that being for the year? Because there seems to be some exceptionals in that and also what the tax rate you expect for the year and going forward?

James, sorry, just to repeat your first question? I didn't quite get that one.

Yes, the volume growth that you've been getting in the beverage cans business reportedly by region.

Okay. James, as we said before, we won't break that down by region, but in terms of exact numbers, that I can give you a feel for it. So the biggest growth came from South Africa, which was quite surprising given the loss of those export volumes. But despite the loss of export volumes, the base volume growth came from South Africa, they -- probably they're after Angola off a much smaller base. So they're starting to pick up on volumes and then much lower growth in terms of volumes from Nigeria. The other -- next 2 questions, I believe, are of financial of nature so Glenn will handle that for us.

James, thanks for the question. The effective tax rate of 18.1% is what we expect for the year. In terms of the accounting standards, we have to try and estimate a full year tax rate from the private at the half year. If I can just remind you, last year, at the interim, it was 37.1% and it finished for the year at 15.1%. And the major variance came there from a deferred tax asset that was raised in Angola in the second half because the trading conditions have improved, and we had stopped charging interest on that particular loan account ahead of this recapitalization. So the profitability of that business in country improved quite substantially. And then on the corporate cost line, there's just been a timing mismatch between certain forward cover contracts that the central treasury takes out on behalf of the operations. We take those contracts out at the date that the orders are placed, when there's a firm and ascertainable foreign commitment. The operation only records that foreign credits at the date the risks and rewards of ownership passed. But the contracted position of the customer is based on the forward cover contract rate. So there's just been a mismatch of this particular period. What we may do going forward is rather look at certain cash flow hedging. So embedded in the corporate cost line that you see of the ZAR 200-odd million is ZAR 100 million of unrealized foreign exchange losses to be recovered in the second half. So that should reverse in the second half.

At this stage, there are no further questions from the lines. I will now hand over to questions from the webcast.

I'm going to start responding to some of the questions. So the first number of questions came from Rajay from Excelsia Capital. And he's asking -- he says, please explain why you would not use the balance of the trade finance facility to repay the remainder of the ZAR 1 billion repayment required by September. Is there potential to increase the trade finance facility? Glenn, do you want to respond or...

I'll respond yes. It's a good question. We have got certain qualifying debtors embedded in that trade finance facility. There are certain criteria. What we have got is the current utilization where the look-through interest costs associated with the draw on that facility is preferential to Nampak. We can expand that to a broader based within the trade receivables base that gives us the additional capacity. I think what we are seeing is the potential ability to do that, but we do also want to look at the overall funding structure of the company. It certainly does create the capacity. I don't think there at this stage is a short-term intention to increase the capacity to be ZAR 100 billion. As the business grows and the trade receivables balances grow accordingly, one could consider negotiating with the financing partner there to increase that capacity. If we can certainly utilize a significant portion of that to meet the ZAR 1 billion repayment requirement.

Okay. There's one further question from Rajay and there's a number of further questions that pick up on the same theme and he asked, please comment on working capital movements post the period end. Now there -- we obviously can't give you exact numbers on that. But as I've said, we've seen commodity prices starting to come off. So there's certainly an expectation that, that might ease, but it's early days. So there are two things to consider. The one is the commodity prices themselves and then, of course, also the strength of the rand. So we will have to see to what extent the rand continue with its most recent trend of strengthening against after that sort of a deterioration to beyond $16 -- ZAR 16 per dollar. So we certainly expect prices to start coming off. We are seeing this across the board on aluminum. As I mentioned, aluminum was sitting round about $3,500 -- $3,400 a tonne. That's already trading at about $2,900. Should that continue, it will definitely have the impact of releasing quite a bit of pressure from our balance sheet. And the same can be said for thin plate and polymers. So nothing specific at this stage, but the moment those start coming through, the formulas that we've got in place with our customers will then immediately allow us to lower prices to our customers, and that will then have the effect of lowering our accounts receivable balance as well. So when prices do come off and we can't guarantee that that's going to happen. But certainly, I think there's an expectation that we are past the worst in terms of this working capital cycle. Good. Then the next question comes from Cobus Cilliers that also ask a similar question around the working capital. So I think that's been addressed. He -- Cobus from All Weather Capital. He's asking whether the protected strike action at 2 of your key customers is still ongoing. I think for most of them, the strike action is beyond us, but one in particular, it is still ongoing. And we will have to see how that impacts our volumes going forward. But for one, it's not been resolved yet. The next question comes from [indiscernible]. He is from Nampak, and he's asking Glenn. He says, Glenn, can you provide us more detail on the funding partners that have provided the long-term funding in terms of plus/minus ZAR 7 billion? Glenn, you can respond to that.

I think that it's the leading financial institutions in South Africa. And then there are 5 life insurers in the United States, who've provided $60 million, and that's the portion that matures in May next year. So we have a collection of 12 different funding partners, 5 of which are international life insurance providers. Who've put funding into the business. That was originally there to fund the expansion into Nigeria and then the rest is from the leading financial institutions in South Africa.

Thank you. Then the next question comes from Mark from Accenture Capital, and he asked whether there's any update on the Tiger Brands contract for the food division. At this stage, unfortunately, we cannot report that we've been allocated any new volumes from Tiger. So we don't know whether that -- those volumes have indeed been allocated to anybody else yet. But at this stage, we have not been allocated volume, and therefore, we can assume that at the moment, it is still allocated to the existing supplier or maybe even third party. But we don't have any further details on who it's been allocated to. Another question from Mark. He says, can you give guidance on the corporate cost for the full year?

As I've indicated at the half year, the number is a little skewed because of the unrealized foreign exchange losses on forward covered contracts. I think we probably will take a view that we'd rather go on a cash flow hedging basis where any movement in that mismatch should be accounted through other comprehensive income as opposed to earnings. So I think if you probably took the current number of ZAR 200-odd million, took up ZAR 100 million and then doubled it, that's probably a reasonable estimate.

Absolutely. So I think as we mentioned before, that ForEx loss -- unrealized ForEx loss that is contained in our current set of results, that will actually disappear in the full year results or most of that at least. So that is a bit of a red herring that is -- that dragged our current results down, but should not have an impact on the full year results. The next question comes again from Mark, he also talks about the unwinding of working capital. I think we've addressed that already. And then the -- let me just see -- I just want to update the questions here, a number of new ones. So next question comes from Koti from Citi. He says, have you pushed through the entire input cost increase to your customers? And do you think there could be more price increases in the second half, particularly around thin plate and aluminum? As I said, that it all depends on what's going to happen to commodity prices. We've seen it starting to ease off. And if this trend continues, we will actually pass through decreases to our customers. Contractually, for most of our customers, we have a contractual ability to pass through those increases, particularly on the aluminum side, it's where the costs are based on public indices. On the metal side -- or sorry, the thin plate side, that's more difficult because thin plate is not publicly traded commodities. So therefore, it depends a lot more on individual contracts with suppliers and therefore, more difficult to pass through the cost on the thin plate side, but in general, we have passed through all those costs, sometimes with a bit of a delay, but generally not significant. So the one thing that is important though to keep in mind is that when you pass through these costs you are passing through the actual cost itself but not necessarily the cost related to the additional working capital required. And as a result, we took quite a knock in our interest line on the income statement during the last 6 months, where we had to fund these higher levels of inventory and working capital. So in a way, yes, most of the costs are passed through and fully recovered with some smaller exceptions, but the one cost that certainly did hurt our income statement during the last 6 months has been on the interest line where we have not been compensated for carrying this additional working capital. The next question comes from Francois from Basco Group. He says, are you concerned about the rate hikes worldwide and due to the high levels of debt. So I guess this is an interest rate-related question, and I'm going to ask Glenn to respond.

Now certainly, we are concerned about high interest costs. And as Erik has indicated, particularly we're certain of the pricing mechanisms are not rewarding us for the investment in working capital on behalf of the supply chain. So we're going to have to be having those kind of discussions with the supply chain that protects the Nampak shareholder. We will certainly try and optimize the working capital cycle as best as possible to counteract those impacts, and to the extent that we can with free cash pay down debt as fast as possible. I think the extent -- to the extent it impacts consumer demand, now that will be borne out in the demand as time unfolds.

Thanks, Glenn. Next question comes from Errol Shear. He's from Sasfin Asset Managers and he asked, what would be required before you can think of dividend payments? So let me maybe take one step back, as I mentioned before, we've not been successful in disposing of any of those assets previously identified. So our balance sheet is not at the level yet where we believe it is strong enough to start paying dividends again. Yes. So I think we've been quite consistent in saying the moment we've been able to repay debt to a point where we believe the balance sheet is stronger, we hope to resume dividends at that point in time. But clearly, we're not in that position yet, but it is certainly our intention to get back to a point where we can start paying dividends on a regular basis. Okay, the next question comes from Hilton, he's got 2 questions, Hilton Kanovsky. He says, what are your plans for the long stroke body makers spoken at last year? And how will that impact local volumes? So let me just refresh for everybody's benefit. So what we said is we've got 5 beverage can production lines in South Africa, 4 of which are essentially fully utilized at the moment. The fifth one is Springs Line 2, which is currently equipped only to make shorter, the standard 330 ml can that you knew for many decades, where most of the growth more recently has been in larger can sizes, like 500 ml cans. And as a result, that line cannot take up some of that additional demand. What we can do is to replace the body makers on that line to replace them with what we term long-stroke body makers and that will release quite significant capacity that we can then use to take up some of this local demand. It's quite a significant lead time to do that, but it is still much shorter than adding a new line either by ourselves or one of our competitors. So this is something that we are looking at seriously, but of course, we have to take into account all our capital constraints and see where we can fit this in. So we can't report on that opportunity yet, but it is something that is enjoying a lot of attention. And hopefully, soon, we can report something more positive on that side. Then another question from Hilton. He says, please comment on the possibility of a rights issue in '22, '23, is this possibly receding? Now of course, this is not something I can comment on. I know there's been a lot of rumor in the market. I almost want to say that is the elephant in the room. We're not in a position where we can say that we're going to do a rights issue, whether we're going to do or not do a rights issue, I think it's far too early to say that at this point in time. As I mentioned before, there's a large number of factors that will influence whether we do something like that or not. We are reviewing the entire funding structure, the capital structure with the debt package that's attached to that. And to a large extent, the conditions in such a refinancing will give us,, internally, more guidance on whether a capital raise is required or not, but it is too early to actually make any comment on that. Okay. Let me just see there more questions. Okay. I think there's 1 more question from Patrice from Visio. Patrice is asking, is there an opportunity for a new U.S. private placement bond after next year's maturity? Is the appetite given the likely favorable performance to maturity? Glenn any comments on that?

Patrice, I think real thinking is to try and simplify the funding structure and not overly complicate it. It's been very difficult in these times we're dealing with over 10 different funding partners. The current funding that we have -- was set over 10 years ago. So it's quite expensive and we'd be looking to try and rather address that as we go forward. I'm not sure that we would want to complicate a lot going forward. I think the theory is rather simplicity wins the game. Erik, there was a question from Chris Logan.

I think that has been answered and that talked about the -- whether we've been successful in those previously identified access disposal thereof. So I think that's been answered. So the answer is no. We have not been successful in disposing off those assets. Okay. I'm just seeing if there's any further questions. I'm not seeing anything on my feet. Are you seeing any other questions?

I look at the bottom it says the 2 questions on the conference call.

I don't have access to those questions. So if somebody can ask them, I can...

Next question comes from [ Nick Kreher ] of Signal Asset Management.

Sorry about that. Can you hear me?

We can hear you, yes.

Okay. Great. I just said how do your customers -- your beverage customers feel about switching out of PET into cans? I mean given the environmental damage the PET does.

This is a difficult question, and I would hate to put words in the mouth of my customers. So I think what's fair to say is that PET is a very attractive form of packaging for them because on the one side, it is low cost, and they can produce it themselves. Over the years, most of the PET bottles used to be made by packaging producers, but most soft drink producers have backward integrated to first blow their own bottles from the preforms and then eventually even started producing their own preforms. So at the moment, most soft drink producers are heavily invested in the production of plastic bottles. Unfortunately, that talks directly against what the environmental or the global trend is, which is to move away from single-use plastic. And of course, the first thing produced -- they do is then to try and move away from single-use plastic, but use more what's called PET or recyclable material, either use a returnable bottle or try and improve the recycling content in the plastic itself. The point is that these producers are, to a large extent, favoring plastic for the reason that their own capital formation has historically supported that move. Now we've seen a move away from that in Europe, and to a large extent, the U.S. So in the U.S., plastic has never been such a high pack share as we're seeing in the rest of the world and in particular, in South Africa where plastics has got a incredibly high pack share depending on the producer, it could be more than 70% of the entire volume. Glass, historically a little bit higher, more recently, fairly low and cans, I want to say, very low. In South Africa, less than 10%, where in the U.S., cans tend to have a pack share of up to 50% on soft drinks. So I think most soft drink producers in South Africa is actively resisting this trend, but I cannot see that, that is sustainable. Once government through either changes in regulation or public pressure, eventually, I think soft drink producers will have to come to terms with the environmental impact of plastic. And like I say, we are seeing that trend in Europe in particular, and that has caused a very strong move away from plastic towards cans. And if you had to talk about South Africa, like I said, in general, for soft drink cans, it has got a pack share, and I'm not talking any particular customer here, probably less than 10%. If you consider something north of 70% for plastic, even a small move away from that 2 cans can have a very significant impact on the overall demand for cans. So this trend has not taken off in South Africa yet, but I do expect, like I say, other through changes in regulations or public pressure for this trend to enter South Africa and the Rest of Africa as well.

I'm surprised that they are reluctant because, I mean, there are a lot of people pointing fingers at the soft drink makers that they are the biggest polluters in the world, and you think they'll be kind of bending over backwards to kind of address that concern, but -- I mean I don't know if you walk into a shop these days and you look at the beverages in the fridges. You do kind of feel that there has been a switching to cans. I mean, all the new drinks seem to be in cans. So I mean, do you think cans are gaining market share overall, especially when one thinks about the new drinks on the shelves?

It's difficult to comment on, I want to say, gut feel without doing a proper analysis. But I think it's fair to say that on the soft drink side, overall, cans have actually lost market share or PET share during the COVID pandemic. So there's been a move away from smaller PETs in general, not only cans to larger format PETs. And as a result, we've actually seen the opposite for soft drinks. What you have seen is a massive growth in energy drinks. And I think the energy drink producers have capitalized on the fact that soft drinks are priced at a fairly high price point as a result of the sugar tax. And they now offer to consumers what appears to be a far more value proposition, where you can typically buy a 500 mL can at the same price that potentially you can buy a much smaller soft drink. And hence, the enormous growth in the energy drink market. But yes, like I said, I think we haven't seen the soft drink industry reacting yet to this threat against plastic. And I think it's -- because consumers have not made their voices known yet, and that will only happen once they start voting with their wallets.

Okay. And then just one last quick one. Why do you expect canned fish demand to pick up?

This is a very easy question to answer. So the underlying demand for the product, the full product from our customers has always been strong. What's been lacking is that South Africa used to have quite good access to fish volumes from our own waters. So our customers could go out and catch fish. That has dried up to a large extent. That resource has really declined. And you can argue that's because of overfishing or other factors. And as a result, our customers have to buy in raw fish generally in frozen format from other parts of the world, mainly in -- at the moment from Morocco. So during last year, they couldn't access adequate volumes to fill their demand, where the containers with that frozen fish have now started arriving in big numbers. And as a result, they have adequate access to frozen fish and therefore, they are now in need of cans from us and long may that continue.

The next question is a follow-up from James Twyman of Prescient Securities.

Just a quick accounting one. Could you talk about the tax rate next year? Is that likely to be similar to this year as things stand? And should the minorities charge all in the second half [indiscernible].

James, the tax rate is always a very difficult thing in Nampak because it depends on the proportion of each operation's contribution to the overall tax position. It's -- for this year, it's expected to end at 18.1%, up from 15.1% in the prior year. I think as one starts utilizing the assessed losses and that the tax rate should probably go up slightly from that number. We have got certain structures that given the lower demand out of Africa or elevating tax rates, and that could reverse slightly. So it's very legal to answer, and it depends on the foreign currency translation rates at which we're translating foreign operations and whether the earnings are growing or declining. So it's a number that internally is hard to predict. Externally, I'm sure it's even more difficult. In South Africa, the tax rate has come down from 28% to 27%. Strange enough in our tax rate recon, if you have a look at one of the appendices, you'll say, why is that increasing the tax charge in the current period. And it's because effectively, there's a deferred tax asset at the center for which you're getting a smaller benefit for now going forward as the rate has gone from 28% to 27%. So I wouldn't expect the South African corporate tax rate to change again in the next reporting period. There is one other region where the tax rate has changed, but the rest is pretty static. So it depends on, I think, the relative contribution of earnings from the different regions and what the rand/dollar exchange rate does to those numbers. In terms of the minority, it's an interesting situation, in Zimbabwe, we own 51.43% of that particular group. So -- and that's unlikely to change going forward. In this Angolan business, historically, we have owned 70%, on the minority 30% where we've recapitalized that business and converted certain of our land funding into equity. There's been a transaction that we funded the 7% shareholding allocated to the minority against the loan account. Now technically, from an accounting perspective, it is deemed to be almost an option with no value and at this stage because the loan account equals the equity valuation. And therefore, despite contractually, the minority having 7%, from an accounting perspective, you would account for that minority at 0. Each reporting period, you would assess whether there is value in the option. And to the extent that there is we would account for that value creation. So prospectively, at this stage, there would be no allocation to the minority up until September this year. We will reassess it at that point in time. And the loan account in that particular structure would be repaid from dividends declared from the Angolan business back to our Nampak International businesses. And to the extent that, that creates value, it would be value attributable to those minorities. In the event of the loan account not being repaid at the end of the period, those shares would revert back to Nampak.

Okay. I see there is 1 further question from [indiscernible] and he says, is it fair to say the risk of a rights issue is considerably lower today than it was 3 months ago? I think as I said before, I think it would be inappropriate for me to speculate about the risk of a rights issue. I think, as I said, we are looking in a comprehensive way to address all the issues around our capital structure and our funding before the end of September this year. And therefore, I don't want to speculate about the risk at this stage. Any other questions from the Chorus Call side?

We have another question coming from Chris Logan of Opportune Investment.

Yes. Sorry, I understand you haven't been successful in disposing previously identified assets. That's not the question. The question is, why not? Because it stands out this is the logical thing to do. I mean, you're trading at less than half of book. So if you do have a rights issue, obviously, it's going to be hugely [ dilutory ] trading at such a big discount, one would think the logical way forward would be to dispose of assets, it's something close to book value. And is your inability to conclude transactions because you're asking too much and possibly that your assets are overstated, perhaps you could amplify things.

Thank you, Chris. I'm very happy to respond to that question. So first of all, yes, we have not been successful. And I think it's fair to say that the last 2 years were particularly difficult years to try and get appropriate value for these assets. In many cases, it was not a matter of price. We actually took some of these, let's call it, processes right to the end where it was literally from within a day or 2 of signing a final contract where the prospective bidders then pulled out right at the end for different reasons other than the price that we necessarily ask. So there's been a number of assets that we considered. And you might recall, one of the first ones that we had to withdraw from the process was related to the license agreement under which we operated. And there, we had no choice in it. And then some of the others, as I mentioned, for different reasons. So yes, we are not trying to give away these assets. We always weigh up the asking price versus the risk of having to excess capital through different means, including a potential rights issue. So I fully agree with you. The first choice would be to dispose of assets at a reasonable value. And therefore, when I say we look at a comprehensive plan, the disposal of assets always remain part of that plan. And that's why we made the very sort of, I want to say, a clear remark that we keep on reevaluating our business portfolio. And hence, all those factors that you mentioned do play a role in determining is the asset disposal, the right thing to do? Or do we need to look at other options, including a potential rights issue. I hope that addresses your question, Chris?

No, thanks. You understand from a shareholder perspective, the logical thing would be to sell assets rather than have a rights issue.

Fully understood.

We have a follow-up question from [indiscernible] of Signal Asset Management.

I mean, I'm going to follow up on Chris' statement really. I mean at the end of the day, a large chunk of the assets aligned in working capital. And it's amazing to think that I'm buying that working capital at 0.5x book. And there's clearly something not right at Nampak. And I think it's the cash flow statement. I mean we've got all this money coming in from operations and all that cash goes into working capital. And I'm certainly wondering how this -- how are we going to get our money out of working capital? Are there any dynamics in the next 6 months that will allow us to see that some release from working capital? And also, I mean, I suppose, is there any way of extending your debtors? It seems to me you maybe paid creditors a lot quicker this time around. So that's my -- I think that's my big concern is the cash flow statement. And I think that's why I'm buying the shares at such a cheap price. And that's what I need to get -- I need to know how we're going to get fixed that problem or maybe it will fix it [ off ] naturally?

[ Nick ], first of all -- so again, good question. And you're right, it was very disappointing for us to see a 30% increase in our cash flow before net working capital and then for almost half of it or a little bit more than half of it to be absorbed into our net working capital. Again, what can be done about it now, what we cannot do anything about is commodity prices. Now I think what we can control are 2 things. We can control, to some extent, the -- or to a large extent, the level of inventory that we hold to compensate for either cyclical demand or risk. And that we have addressed. So if you look at the actual levels of inventory that we're holding in our businesses, that has been optimized to a level that we are very comfortable with. So hence, should commodity prices start coming off, there will be an automatic inflow of cash. Then the other 2 elements, the one and before I get your accounts receivable will be around the accounts payable side. So yes, can we just extend payment terms? Well, it depends on very much who your suppliers are and what their ability is to extend further credit to you. Now Glenn referred to this location in or some of the imbalances in the working capital or the supply chain, I'm going to ask him just now to maybe explain that in a little bit more detail. But then if you look at the other side of this equation, which is accounts receivable, I think we've made very good progress to try and contract some of those positions to assist. If you look at the full potential impact of what this commodity cycle could have done to the working capital, I think you'll find that the ZAR 653 million is a relative small number compared to what could have happened. But maybe, Glenn, if you can maybe just expand a little bit on that imbalance and what we've done to to address that? And to what extent it impacted our current set of results?

Thanks, Erik. One of the theories that we're trying to run the group on is to try and get the inventory holdings funded by the trade payables, and then the group to fund a very high-quality trade receivables book. This time around, we just haven't seemed to get that right because certain of our trade suppliers have not had the balance sheet capacity to increase our funding levels in line with the increase in the commodity prices. So what's happened is that because Nampak has had such strong demand and in order to meet our demand from our customers, we've had to use internal cash reserve resources and/or borrowings to fund the increased demand that the market has put on us. So one has to go back in this whole supply chain and try and get a more equitable funding of the process. We've also got a position with one of our larger customers where there was a supply chain funding structure behind their particular terms. At some point in time, that was withdrawn from the market in general, not a Nampak specific issue. Those terms remained but without our ability to be paid to discount those invoices and be paid early. So that has caused the imbalance that we're talking about. There is a strong initiative in that regard to go and address that and we are working with that particular customer. And we're also working with a particular supplier in the South African market, in particular, to assist them in finding more efficient ways of providing appropriate credit limits to their customers, one of which is ourselves. So we do hope that those initiatives will yield positive benefits in the second half. And your point is absolutely valid, where we're reinvesting 60% of what we have generated back in working capital that is certainly not an ideal position. I think what it has shown though is that despite these absolutely abnormal positions in working capital, Nampak team has been very proactive and resilient to manage to fund this to the extent that we have and to keep supply to our customer base continuing through these challenging times. So hopefully, as we get these structures more efficient and as commodity prices come off a little bit when we'll see this flow back into the cash flow statement and accordingly be available to repay debt.

Exactly. Maybe just to add to that as well, is that we have an existing debt package and existing facilities in place. But with the increase in working capital, that, of course, put additional sort of limits on our -- or constraints on our liquidity, one of those is that where we import material, generally, it's a very long lead times and with very good payment terms. But those suppliers might require LC for us to actually access those payment terms. And unless you have the facilities to support those payment terms in the form of LCs, you cannot access the payment terms. And as a result, you're actually paying much earlier than what you should and all of that adds to our working capital requirement. So it's almost a self-fulfilling prophecy that as your balance sheet starts becoming more constrained and your liquidity starts drying up, more people want their money earlier or you can't access the credit terms you used to, and that just worsens the position. So the full impact of the commodity cycle potentially has been a lot more exacerbated than what it should have been. And hence, why I'm saying, if you look at the limiting the investment in working capital to only ZAR 650-odd million, I think it's actually been quite a successful intervention to limited to that. And as prices start normalizing, and let's be honest, we don't know what the new normal would be, one can expect quite a reversal of the current trend.

Erik, if I can just add if the viewers can look at Slide 32 when they do that assessment, you would see a position that is quite significant in that our investment in working capital has actually been very, very well managed in terms of the number of days that are invested. We have 89 days net, down from 106 days in the prior period and down from 102 for the previous period. So really, this is reflective of a significant increase in commodity prices that is really outside the control of management. If one had seen those activity ratios going the other way, it would have been reflective of maybe poor management from an internal perspective. But in fact, there's been a tightening in the net working capital days. So the function of the outflow in absolute terms is because trading volumes have increased, revenues up by 24% and commodity prices are up.

Thank you. I hope that answers the question.

And can I just push a bit harder there? Because I think it's the big issue. I mean, I think since [ '17, ] we've put ZAR 2 billion into working capital. So if I add up your working capital and your cash flow state since [ '20 ], that's the market cap of Nampak now. So now your balance sheet is under pressure and their group of investors are extremely concerned about this rights issue. Some of your investors, they -- all they want to talk to me is about the rights issue and how dilutive is going to be and there's no way out for you guys. I can't understand -- I don't really understand why the banks are so concerned. I mean your business looks quite healthy. The assets -- big chuck of assets and working capital, which are quite liquid, why are the banks worried about the business? I mean do they not see quite a healthy business right now and they can relax a little bit? They seem to be on high alert, and I don't understand it. I don't understand why they're not more accommodating.

Yes, listen, I don't want to talk on behalf of the banks. But I think it's fair to say that as we've gone through a very deep dip and with COVID and all the other related pressures, and as we started demonstrating to the market and our lenders, our ability to generate cash and repay debt, you would have seen the confidence from the banks also increasing, and they've given us more hope. You might recall that this requirement, you repay the ZAR 1 billion debt was supposed to have happened by 30th of September last year already. When they did their assessment, give or take August, September last year, they decided to kick the can down the road, if I can use that expression, and they moved the date effectively to 30th of September this year with the assessment on end of June. So I think the banks have been extremely accommodating to date. They're not in the business of just taking on risk without demanding their pound of flesh. So we've certainly seen that as well. But overall, I think all these factors that you are referring to are taken into account not only by the banks, but also by management in terms of coming up with this comprehensive plan that we are looking at. So I think, like I said, we've made good progress. All these comments made by yourself and Chris and all the other parties, those are not surprising questions to us, and those are definitely considerations that are very high up in the list of what we're trying to address and coming up with a plan. At the same time, even when you sell -- want to sell assets or improve your inventories, you have to deal with reality. And reality has been tough over the last couple of years. But I think we're very confident that we're making very good progress in resolving some of these issues or most of them. And I think you probably can agree from our trading results that those things that are within our control, we have addressed, I want to say, very successfully. Without a doubt, there's more things to improve, there's better performance that we still want from the Food operation. There's better performance we want from our Plastics operation and a lot of work still ahead. But overall, I think we're very satisfied with implementing those things that are within our control, and we also have plans to address the risk of those things that are not within our control.

My last point is, I just think we have to resolve this thing with this -- think of a rights issue all the time. And I think that probably has to be our top priority. And then the share price will go up and it'll give you -- if you have to raise [indiscernible] at a higher price, then so be it, but I think the banks are keeping that share price down. I think that's a major reason for your share price to be under pressure. Not recognizing a great job that you're doing. Everything that you've said is 100% correct. You've done a good job on working capital. It could have been way worse. And the sales have been impressive. So you've done a very good job. It's just not in the share price, and I'm trying to figure out how we can get the share price up and so I appreciate all your time. Thanks very much.

Listen, if I can maybe just respond to that a little bit. So you're absolutely right. I mean addressing this risk is definitely one of our key focuses. And in fairness, let's go back to the point where everybody said, this is a Nampak is about to fall over and there's no way we can avoid a capital raise. That was sort of reflected in the share price during September 2020 when the share price at one stage was sitting at ZAR 0.54. If we were to announce a rights issue at that point in time, you can imagine what would have happened. And I can do the math for you, but it's -- I don't even want to do that. So we did everything in our part to prevent that from happening because that would have been extremely dilutive to shareholders. And we had support from our lenders. They also looked at the information. And that was avoided. And we tried a whole lot of other, what we term self-help measures. And if you look at those, with the exception of selling some of these previously identified businesses, the rest have been extremely successful. And I'm not going to go through the whole list right now. But I think even getting it to where we are today with the rights issue has already delivered a lot of value for shareholders. That doesn't mean that we suddenly satisfied and saying, well, this is it now. We're not saying that by any means. But at the same time, we also have to take into account all the factors and assess the ability to push that out further, do it, not do it, sell assets, not sell assets, all those things. So that is what I can promise you, we are working hard at. And at the moment, I'm quite satisfied that the plan we have in place should address this in a comprehensive way before the 30th of September. Okay. I think that's probably what questions we have time for. I'm not sure if there's any other specific question, otherwise, we would probably close -- get to the close of the call.

There are no further questions on the lines.

Okay. If I can maybe then just make some final closing comments. As mentioned, it's been a tough time, challenging but not to the extent that it was too much to handle. I think under these conditions, we're actually very satisfied with the growth in profit we've achieved. I think you'll agree that the financial numbers look dramatically different from what it was to the comparative 6 months. We've certainly gained some further momentum in a lot of the initiatives that we started a long time ago. And hopefully, most of that will continue into the second half. The easing of commodity prices, I think, should play a major role going forward. We can't say whether that's immediate or further, but that should be something to consider. And hopefully, we can keep on improving our competitive position. But overall, to me, I always come back to the same thing, it's all about trust. It is whether you, as investors, trust us with your money in terms of giving you a good return. We certainly going from many years ago, I think you are properly unhappy. But we do feel that over the last couple of years, I think this management team has proven that we can improve the situation. And I think we're on a very positive trajectory. The same goes for our customers. This is actually where we make our money. If we can provide and prove to our customers safe and quality products at a reasonable price, I think that should keep building trust with our customers. That's what we're trying to do. My moto is we want to keep building trust in everything we do, and that is what we're going to try and deliver on. Thank you. All the best to all of you for the rest of your day. Thanks for joining us. All the best. Goodbye.