Nampak Limited (NPK) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the annual results presentation for Nampak for the financial year ended September 30, 2022. Before we get into the presentation itself, maybe just a quick warning, unfortunately we expect loadshedding to end here very soon, in the next couple of minutes. Not quite sure when. So if there's a sudden break in the transmission, just be patient. The systems here will take a minute or 2 to reset and then we will be back. But let's hope that doesn't cause any problems. So let's get straight into it. So again, welcome and thanks for joining us this morning. I think first of all, just the normal customary forward-looking statements. Please have a look at that later on and go through that when you have time. So I think if we get straight into the highlights, let me start off by saying I think it's been quite a disappointing set of results after we posted, I think, fairly strong results at mid-year. We'll give you a bit of a reconciliation later on to show why essentially it looks like we didn't generate any headline earnings during the second 6 months of the year. But Glenn is going to take you through some of that detail a bit later on. So we've got quite a large number of slides to go through. We're going to go through the first operational slides at quite a pace. Most of the detail is contained in the long form announcement that we sent out. So I will glance through that at quite a speed. So let's start off by saying that at a revenue level, 21% up, largely driven by, yes, from some good volume growth. But the main reason for the increase has actually been as a result of the pass-through of the enormous cost increases that we had as a result of the commodity cycle. So yes, good revenue growth, but unfortunately, we had to fund that and we'll talk about that a bit later on. Very pleasingly though trading profit up 13%, no, this is not a line item directly on the face of the income statement, but it is still a very good measure of the performance of the underlying business and dare I say before we look at ForEx cost. So trading profit, of course benefited from the ones-off pension fund surplus, but at the same time, we had some disappointing results from the food operation that I will unpack a little bit later. Operating profit of ZAR 1.2 billion, that is 4% down and that is high -- that is really as a result of much higher ForEx losses. And then at operating profit level, of course, there we include the payments that, again, we will unpack in more detail. So disappointingly headline earnings down to ZAR 0.359 per share. And as I said, that means that since the half year, we've actually made very little headline earnings during the second 6 months of the year. And of course then at a loss right at the bottom of the income statement with attributable loss for Nampak of ZAR 147 million. If we look at cash generated from operations, you'll see Nampak is still generating healthy cash flows. It is what happens after once you look at the working capital that I think in this last year has been really disappointing. I think it's important to point out and Glenn will show that to you later on that during the second 6 months of the year, we actually did not consume any meaningful further working capital. So that is something that we expect should start unwinding itself during the next couple of months. But more on that a bit later. Sounds like everything is still on track. So sorry for that short interruption. And then of course from a group funding point of view, although we did require some relaxations, particularly on the interest, interest covenant, we managed to comply with all covenants. And, yes, I think that was good. So if we then move on to the operating context, different from the order on the slide, I'm actually going to start with the last one, the global look at the macro position and then work sort of closer to home back to South Africa. Of course supply chain disruptions still cause quite an issue for us, in particular for our DivFood operation and the requirement for higher stock holdings in some of our operation as arose and then the higher commodity prices worldwide, of course, cause that expansion not in our revenue line, but also working capital. I think once we get to impairment, you'll see that elevated working sort of weighted average cost of capital rates was caused by higher in country risk premiums, and of course, higher global interest rates. And then I think a global phenomenon that we're still seeing is this trend towards more sustainable packaging. And we've definitely benefited from that tailwind in our beverage can operations and we expect that to carry on if. I look closer at the rest of our African operation, very nice recovery that we started seeing in Angola. As you would have seen in our results announcement, we've seen very close to 30% volume increases in the last quarter in Angola. So suddenly that economy is starting to take off again. And I'm happy to say that that growth has actually increased into the New Year. And in the last 2 months so far, in fact, things have even improved slightly beyond that. In Zimbabwe, again, a very resilient performance, but sadly, again, held back by the availability of not just foreign currency, but also raw materials, but very robust performance out of Zimbabwe. And other than the impacts of hyperinflation, I think that business is doing -- still doing very well. If we get to South Africa, very robust sale and demand for our Bevcan operations. I'll unpack that a little bit later, but that momentum has continued. While on the other hand from DivFood operation, I think it's been disappointing. I'll unpack that a little bit later, but we've seen quite a slowdown in demand during the second half of the year. And that is still ongoing at the moment. We had an under-recovery of the funding cost of working capital. So again, we managed to pass through the cost increases to our customers, that increased price and of course, expansion of our accounts receivable book. But at the same time, we had to fund it and the pricing mechanisms did not allow us to recover that additional funding costs of working capital, and that had quite a negative impact on our interest line. And of course that is reflected all the way down to a HEPS and earnings level. Another one that didn't affect our backend operations, but certainly our -- both our paper and plastic businesses in South Africa were quite prolonged industrial action, some of our key customers and that, of course, had a impact on volume. But at least we can end on a positive note and say that despite the loadshedding and electricity shortages, we managed to maintain high levels of customer service to our customers and I think that will -- is good for Nampak overall. If we look at the commodity price cycle, I think this is just one of the commodities we're buying, of course the biggest one being aluminum. You can see how the dollar price for aluminum kept on going up [indiscernible] half year at the end of March. Although that right there shows that sort of close on $3,500, I think it's important to note on the one day it actually did close above $4,000. So it was really a high spike and then thereafter things started normalizing more, the rate came down quite rapidly since the end of March. But at the same time, on the blue line, there you can see the impact of the rand-dollar exchange rate and it was almost at the exact same time as the dollar price for aluminum started coming down that the rand started deteriorating more meaningfully and hence we have not seen the full impact of that lower commodity price coming through. Of course there's quite a lag in seeing the benefit of lower pricing in our working capital. But that is certainly starting to work its way through to us. If we then look at polymer prices, there you can see all the different types of polymer that we're buying. That's been sort of a one way street and in still sort of when I say increasing, we haven't really seen those -- those numbers starting to come down in a meaningful way. And then I haven't got a slide for steel, that's unfortunately not a publicly traded commodity, but it's only now that we're starting to see the price of steel coming down. And hopefully in a couple of months' time we'll see that benefit coming through in our working capital and also hopefully the pricing that we can put through to our customers. So I'm not going to get into the different operational reviews. And I think before we look at the various substrates, I think let's just quickly look at the segmental information by region. And you'll see quite a difference between the left and the right. So from a revenue point of view, very similar to last year, you'll see sort of, let's call it 2/3 of our revenue is generated in South Africa, and roughly about 1/3 in the rest of Africa. But then once you go to the trading profit line and, again, let me note that is before ForEx losses, you see an entirely different picture. In fact you'll see that that we actually managed to expand the trading profit percentage from the rest of Africa from 68% last year to up to 81% this year. So a very meaningful portion of our trading income coming from the rest of Africa. Okay. So there we have sort of the headline numbers for the different packaging substrates and, again, you'll see the bulk of the growth came from our metals business, that's up to 17% at a trading profit level where the other 2 were unfortunately down. So if we start with metals, I think very good performance in Bevcan and in fact we had strong performances in each one of our core beverage can businesses; first in South Africa, you might recall last year we had very large export contracts into North America that came to an end. We were quite concerned that how we were going to fill the vacuum left from those contracts. But I'm very happy to say that we had unprecedented growth in the South African beverage can market largely driven by the larger form effects. A lot of it going into alcohol, but also very strong performance out of energy drinks. But of course at the same time, the enormous commodity price increases that result in a requirement to expand working capital from it. So Bevcan, very good volume growth. We've managed to improve the efficiencies in the lines. So while we're running at full capacity on a larger format cans, we did manage to squeeze more out of those lines. And of course every additional can resulted in more profit. So that was a very pleasing performance out of our Bevcan operations in South Africa, where if we go to the DivFood food, sadly, it was the opposite. This business not only suffered some supply chain constraints that ran out of template sort of in the first quarter, in November last year, due to some issues from supply from abroad. You might recall we also had a major restructuring in that business the year before. And although it was the right thing to do, we're very happy with the way how we've restructured it by moving some of the equipment down from [indiscernible] down to the Western Cape, closer to the source of material from the port. Sadly with some of these disruptions in the supply of metal and then them not having the right specification of metal all the time. That combined with new skills, learning how to operate some of those lines caused us some serious operational issues. And then on top of that, the market has also really dropped off during the second half of the year. With the year before, you might recall we had a shortage of fish from our customers to pack, fish cans. This year no problem on the fish, largely very strong demand for fish cans. But the rest of the market, whether it's the vegetable category, meat as well as some of the diversified products. The slowdown in the South African economy is very visible in this business. So overall quite a disappointing result. We're quite confident we can bounce back into the New Year. Things are starting to look better, but the demand is still very soft in that business. If I then move on to Nigeria, again, a very big contributor to our overall trading income, stable demand. We are very concerned though that that economy is slowing down. We've seen it in our general metals business. The general metals business volumes were under pressure. Where on the beverage can side, it was stable. But we are starting to see some of the volumes taper off in our beverage can business there as well. So that is an economy that we need to watch and hence why we are quite conservative in terms of any future capital allocation towards that market. And Angola, definitely the most pleasing one lately. Came off a low base, but really starting to see much better results from that business. Over the last 2 years, as you know, they really restructured themselves, reduced the cost base and the benefits of that is not coming through. We'll talk about that later on the impairment that, sadly, is a business that had to be impaired further, despite the fact that it made an enormous increase in trading profit during this year. But then we'll explain that a little bit later. That's all based on increased risk premiums and so on. Something that although I am an accountant myself, I must say, this was a very hard one to swallow, to have to book quite a sizable impairment to your business that's actually in much better shape than it was the year before. But again, that's a book entry and something that we had to process. So if we move on to plastics, the plastics business, again, keeping in mind, the biggest portion of both our plastics and paper businesses are sitting in Zimbabwe. So a portion of it is, of the paper is also in Zambia, but keep in mind, a lot of what you're seeing, yes, come from Zimbabwe, and huge impact from hyperinflation, et cetera coming through this. So at the top line, you'll see its stable revenue. But if you look at the accounting, if you have to undo the accounting where we have to book everything at the closing rate at the end of the year, if it wasn't for that, the picture on both of those lines, would have looked dramatically different. So sadly, the impact of hyperinflation very visible on both the impact, both the categories of plastic and paper. If I can start with South Africa, South Africa, again, the economy is poor. That as with are the food operation, it's fairly sort of coming through on -- in this business. Both of our businesses, yes, heavily impacted by the prolonged strikes at some of our major customers and as a result also from increased competition. It is fair to say that that margins were under pressure. In our cartons S.A. business, that liquid cartons business, we have seen some increased demand from salt sorghum-beer, but that was partly offset by a decline in the Purepak volumes and just a reminder that the Purepak volumes, these are the ones that were impacted by the strikes and that's generally used for milk products, et cetera. Where for plastic South Africa, also strong, or sorry, demand not strong and demand in water, juice, milk and some of the CSD volumes declined and as a result, not a great performance. I've already spoken about Zimbabwe. And we also saw some very strong demand out of Zambia that carried on from the year before. Zambia performing well and Zimbabwe really the star performer yet, but not, I think not being recognized as such given the treatment in terms of hyperinflation. The last category that we want to talk about is paper. Again, keep in mind all of this is outside of South Africa, the bulk again sitting in Zimbabwe, and hence the reason why we almost go against the alphabetical audience, start with Zimbabwe, very strong volumes coming from Zimbabwe. Tobacco cases, demand for tobacco cases particularly strong. But sadly again, because we can't get enough ForEx and all raw materials, volumes were constrained. And then of course the impact of the spot rate adjustment at year-end. In Zambia, sadly, we saw a decline in the demand for conical cartons. And that was with the pressure on consumers, they tried to go back to lower cost products and as a result, there was a move out of conical cartons back to bulk produced beer, traditional beer in big drums and so on. Of course that is -- that's not very hygienic and as a result I think there's a lot of pressure from regulatory framework to get customers to put more -- pack more of this product into conical cartons. And hopefully, we will see some return of volumes in the next year. Malawi, very small market, but we had very strong volume. All of those products are actually produced in Zambia. So although we show it under -- we sell it in Malawi, very nice volume growth in Malawi, which was quite encouraging, where Kenya, again, a market that we're actually reevaluating whether we should be in that market or not. There we've seen a backward integration from flour millers into the production of self-opening bags. And I think it's a very good chance that we will exit that market over time. I'm now going to hand over to Glenn. And in fact, this is the bulk of the presentation. You'll see he's going to try and unpack which you'll see is quite a complicated set of results because further up, you'll see we've been very successful at the trading level. But as we go down, huge impacts coming through, first of all, from the ForEx losses to extract funds out of Nigeria, in particular, and then, of course, lower down the impairments, but Glenn is going to explain that to you in more detail, and then we'll take some questions afterwards. So I'm going to hand over to Glenn now.

Thank you, Erik. Good morning to everybody. If we have a look at the detailed income statement, as Erik has indicated, there's been a very pleasing growth in the revenue to just short of ZAR 17 billion, up 21%. And we've seen a very, very strong recovery in our beverage can volumes and it's also been lifted by higher commodity prices. The Metals division has boosted our trading profit of ZAR 1.6 billion by 13% and I think you can see that that lags the revenue growth because of the pass-through pricing mechanism, which allows the recovery of the input costs that have gone up, and they have gone up significantly in the period, it doesn't necessarily follow with the total margin. There has been a significant impact on the cost of funding where that additional working capital that's been invested, we have not been able to recover those additional financing costs in the pricing mechanism. We've seen a devaluation associated with Zimbabwe of ZAR 70 million compared to a ZAR 5 million of profit in the previous year. And that's left us with an operating profit of just short of ZAR 1.2 billion, down 4%. As Erik has indicated, a significant feature of these results are the net impairments. I have got a slide that will unpack that. That has increased from ZAR 264 million to ZAR 512 million, leaving the operating profit down 31% to ZAR 640 million. The increase in the finance costs of 21% to ZAR 586 million reflects higher working capital levels through the year, together with increased interest rates. That leaves us with a profit before tax of ZAR 59 million. And then they are -- it's not on a group tax basis. So there are certain entities that are paying tax, others that aren't getting a tax shield. And unfortunately that has resulted in a loss for the period of ZAR 26 million compared to a profit of ZAR 377 million. What is interesting is when one looks further down the income statement, at the other comprehensive income, there is a net credit that comes through those numbers. And really what that is made up of is a foreign currency translation reserve of ZAR 610 million, which is partially offset by a Zimbabwean adverse effect of ZAR 160 million. When we look at the profit that's attributable to owners of Nampak, there has been a loss for the year of ZAR 147 million compared to ZAR 207 million in the previous year. There is pleasingly headline earnings of ZAR 229 million, although it's down 43% from the previous year. These metrics that I've just spoken about translate into a loss per share of ZAR 0.231 compared to ZAR 0.321 and headline earnings of ZAR 0.359 down from ZAR 0.623. A very significant part of our results is influenced by the foreign exchange rates. And just remembering that the dollar-denominated operations income statements are translated at the average rate. So you can see that the average rate for the period, we've got a benefit of 7% for that. But the translation of the debt leg, although our dollar-denominated debt has been adversely affected where the currency has depreciated by 20%. The naira has officially remained relatively constant, although in the parallel markets and seeking currency in those markets is quite different. The Angolan currency strengthened during that period, and we have seen a foreign exchange gain. So the key features from this are that there's a ZAR 606 million foreign exchange loss from the Nigerian economy, partially offset by ZAR 60 million foreign exchange gain in Angola. The devaluation in the Zimbabwe dollar, it started at the beginning of the year at a rate of 88 to the dollar by 31st of March, devalued 62% to 142 to the dollar. And then in the second 6 months, devalued by 336% to 622 to the dollar and an overall annual devaluation of 609%. We've done really well in transferring cash, particularly out of Nigeria, where we've got ZAR 1.7 billion out of that economy. It has come with it a ZAR 606 million foreign exchange loss. The Angolan position is more pleasing where we've managed to increase our transfers from ZAR 683 million to ZR 717 million and make an exchange gain on that particular amount.

Glenn, just before you move on, if I can maybe just make a comment on that. I think it's crucial to understand that historically, we always used to extract most of the cash at the -- using the foreign market in Nigeria, and that is the rate that we actually incur in buying raw materials is what's passed on to customers. In the second 6 months of the year, we had to start accessing virtually completely the parallel market to get access to dollars. And as a result, we incurred this enormous premium that's reflected in the ForEx losses. We immediately update our pricing to reflect the latest rate at which we are buying dollars. So going forward, those same losses won't be incurred. It's as the currency move that it is not reflected in our pricing. But as we go forward, the new pricing is updated in accordance with the latest rate. And as a result, it is quite an abnormal first amount of cash that we extracted during the second 6 months. But I also just want to give you the comfort that this entire loss is not just flowing through every year. It's the sliding down and the playing catch-up that was causing these losses, but we are our pricing our product at the latest rate and therefore it should normalize as we move forward.

The disconnect that happens is on a pricing basis of an N minus 1, if one can't get the dollars available immediately to the extent that you're waiting for the dollars, there's a disconnect there. And if you can see at the bottom of that slide, the average rate at which we transferred that ZAR 1.7 billion out of Nigeria was at 583 to the dollar. This is a relatively busy slide, and we'll have to spend a little bit of time on it, but I won't get stuck in the detail. In the first half, we produced headline earnings per share of ZAR 0.356 and then for the full year ZAR 0.359. So there's been very little accretive headline earnings per share activity in the second 6 months. You will see that in the second 6 months, we actually at an attributable profit level improved from an operating performance from ZAR 226 million to ZAR 229 million, and that was augmented by a surplus of ZAR 229 million from the pension fund -- sorry, ZAR 222 million and after tax, that's ZAR 162 million. The big movements that happened in the second half where we incurred a ones-off foreign insurance loss in the Isle of Man of ZAR 50 million. Unfortunately there's no tax shield that comes with that. So it's a full flow-through. And then the big movement is the after-tax effect of ZAR 310 million of these foreign exchange losses, putting the headline earnings for the full year down to 229 million. If you look at it on an annual basis, we started the year on a comparative basis, the headline earnings were ZAR 402 million. And then the bridge that builds that is the pension fund surplus contribution of ZAR 162 million. And then you can see quite significant impacts from the Zimbabwe movements as well as the additional interest costs. And then again, the major, major losses are coming from the insurance and the foreign exchange losses. And that's the bridge that builds the movement from last year to this year. Just unpacking the net impairment losses of ZAR 512 million. As Erik indicated earlier, there's been a tremendous movement in country risk premiums, that's also been impacted by increased interest rates. And you can see that the WACC rate in South Africa has moved from 11.9% to 13.6%, Angola up substantially from 11.9% to 14.9%. And despite the business actually recovering very well there, that increase in the WACC rate is a result of an impairment there. And in Nigeria from 9.2% to 12.5%. Importantly 77% or ZAR 392 million of the ZAR 512 million is purely related to the movement in the WACC rates. So -- and the majority of the impairment, excluding the goodwill impairment, when WACC rates normalize, can be unimpaired in time to come. If we look at the borrowing costs, and we analyze those, those have gone up by 21%. I think the key feature of this slide is that the core borrowings have increased by 56%. And that's really a function of higher working capital through the period and higher interest rates. We have had a reduction in our ratchet interest costs from ZAR 88 million to ZAR 64 million. And I think that is clearly from a better managed net debt-to-EBITDA ratio. And you can see the interest rates for the year, clearly following the increased trends in most economies. If we look at the balance sheet, what we do see is a movement on the property, plant and equipment. The 2 features of that impairment losses of ZAR 324 million and then a weaker rand, elevating the cost with the value of those assets. And then impairment losses of ZAR 143 million impacting the right-of-use assets and then a small movement on impairment on goodwill of ZAR 45 million. All the goodwill that sits there is really related to Bevcan Nigeria and is dollar-denominated. In the 2021 year, we had the Tubes and our Mobeni business classified as assets held for sale. Those have reclassified into normal assets as we have not been able to sell those businesses. A very key feature here is the 35% increase in the commodity prices and the impact that that's had on the inventories. And you'll see that we've tried to the extent that we can fund that with the use of trade payables, but there's a slide later that will show you there's a gap of about 24 days. I think it is that we need to fund on average. The trade receivables, very high-quality trade receivables book. It is up by 16% as a function of our increase in revenue, and we have closed the year with ZAR 1.5 billion cash. We increased our shareholding in our Bevcan Angola business from 70% to 93%. Because that 7% is effectively an out-of-the-money option for the Nigerian minorities, we do account for it as a 100% held subsidiary in our books. And what you'll see is on the total equity, the total equity of the group has gone up by 9%. The noninterest-bearing -- sorry, the noncurrent loans and liabilities has only moved by ZAR 400 million and the trade payables up 30%, where we're trying to fund much higher inventories. The balance sheet has been impacted by the requirement to show ZAR 1.35 billion as short-term debt as that's the amount of money that we have to settle by the 31st of March in terms of the funding arrangements. And then the ZAR 1 billion that we owe the U.S. private placement funders is due on the May 28, 2023, and that's also short-term. We have used ZAR 400 million of the proceeds from the nonrecourse trade finance facility to repay debt. The trend behind the debt is pleasing in that it's dropped from 65%, being dollar-denominated debt, and it's been maintained at around the 41%, 42% level in the period. And that is quite a good achievement given the fact that the rand has devalued by 20% in the period. What I've tried to do here for you is just to unpack the movement in the debt for covenant purposes where that's increased to ZAR 5.2 billion, and that's ZAR 551 million increase. And in your time, you can go through the waterfall. But I think the key takeaway from this is that the movement from the foreign exchange impact in the rand reported debt is ZAR 447 million, and that accounts for 81% of the increase in the debt, and it's attributable to the decrease in the value of the rand. The covenants have been under pressure, but we have complied with those covenants. We had to get a relaxation at September 2022 for the EBITDA -- the interest cover ratio. But you can clearly see through the period, we've complied with our covenants and the group actively manages these on a daily basis. Key changes to the funding arrangements. The first and most important one is we moved the maturity dates on the revolving credit and loan facilities from the April 1, 2023, and the September 20, 2023, out to the December 31, 2023. So that debt is shown as a long-term position at September 2022. We are able to maintain the EBITDA interest cover -- the net debt-to-EBITDA, rather, cover at 3.5x. That will be low to 3x from the 31st of March, the date after which we repay the ZAR 1.35 billion. And then the threshold for the interest cover ratio has been reduced from 4x to 3x from September 2022 out to the December 31, 2023. And then the key feature is having to repay ZAR 1.35 billion after costs from the proceeds of the rights issued by the 31st of March. The cash flow statement, still relatively strong cash flows at the top at ZAR 1.5 billion, albeit that it's 10% down on the previous year. Very elevated levels of working capital compared to the previous balance sheet, has consumed ZAR 659 million in working capital. But the point to note is that it's only ZAR 6 million more than was consumed at the half year. That's left us with ZAR 845 million generated for the year by the operations. It is 20% down. We've paid ZAR 547 million in interest and ZAR 170 million in tax. The retirement benefit obligations for the posted time of medical liabilities is relatively flat at ZAR 75 million. And what we have done well during the period is control the capital expenditure, reducing that by 34% to ZAR 208 million for the period. It has resulted in utilization of cash of ZAR 108 million for the period, and we have used certain financing activities to fund that resulting in a closing position of ZAR 1.5 billion. The working capital activity ratios, I think, are quite important to note where you can see the inventory days have actually declined from 138 days to 133 days. We've improved the trade receivables days to 65 days. And the feature is that we've got lower trade payables days and there's a disconnect between the inventory holding and the trade payables days of 24 days. And if you translate that into absolute funding, that is a funding requirement of approximately ZAR 1.1 billion for the group. The current ratio remains sound at 1.4x, albeit slightly down from the 1.5x in the previous period and the acid test ratio slightly down from last year at 0.8x. We have had to hold certain additional stocks because of supply chain issues as well as the need for safety stocks in certain areas. But overall the working capital has been steadied in the second 6 months with only 6 million additional consumed. The capital expenditure program over the years has shown a downward decline. We have reduced that from ZAR 313 million last year to ZAR 208 million in the current year. The key feature is that the majority of the capital expenditure is a replacement in nature. And the future, the expenditure trend will be between ZAR 350 million to ZAR 400 million, excluding the expansion activity of improving the Line 2 in our Bevcan Springs operation. That will cost around ZAR 350 million. Over to you, Erik.

Thank you, Glenn. So let's get into the outlook. What does the picture look going forward? I think, first of all, in our metals business, we do expect strong demand to carry on. I've spoken about the global trend towards more environmentally friendly packaging. And of course, with aluminum cans being infinitely recyclable, we are seeing that trend to continue. And hopefully it should start picking up more momentum in South Africa itself, where in certain market segments, unfortunately, the local customers have still been going against the trend where in certain businesses, they are still increasing the use of plastic. So hopefully, that trend will come our way. But I think in the short-term, while we don't have more capacity on our beverage can operations, maybe it's just as well. So a bit of time, we need a little bit further investment there. And then hopefully, in time, we can benefit from that trend. We expect the continued growth of the energy sector that is not slowing down. That is almost still picking up speed. And then, of course, a huge focus will go into DivFood food to improve the operational performance and of which a huge portion relates to building skills, experience in that business. That is busy happening. We're starting to see better efficiencies coming through from that business. And of course, enormous focus will be on working capital. It may be important to stand still there to say that despite all the increases in aluminum, the business that actually consume the biggest portion of working capital was not our beverage can operations, although we expanded working capital in Nigeria. Our South African business has actually contracted its working capital. It's actually been on the steel and plastic side where we consume working capital, and we do hope that we can get that back under control as commodity prices now start coming down. So that will definitely remain areas of focus. On our plastic business, again, we will keep on reducing operational costs. We've got very active plans that we're busy executing on. And then from an innovation point of view, there's a very exciting development. We are -- we have internally developed a very lightweight PET bottle. I want to go as far as that it's one of the most light-weighted bottles in the industry with, of course, savings in raw material, but it will also have a price benefit to our customers, making us a lot more competitive and, at the same time, reduce the impact of these bottles on the environment. Overall, we'll -- I think it's fair to say that we'll keep on leveraging the brand and the service to grow, hopefully grow our market share in that business. On the paper side, I've spoken about some of the loss in Zambia volume to Bullpak. We expect pressure from a government point of view to assist us on getting more of the product packed in hygienically sort of conical carton. So we do believe that that demand to start stabilizing again where in the Zimbabwean businesses, the pressure on our paper business is still really there. And as we're trying to get more paper in with ForEx, and we do expect further growth still in that business. So I think there things looking reasonably well. I think the last one and the picture on this slide with -- this is what we term ends. And we were joking about it last night. And this is quite a depressing tale to tell, but let's say, this is to make ends meet, sadly, we have to do a capital raise. We did announce that last week. I know the markets reacted quite violently to that. But let me just unpack some of that because the question that one needs to answer is, well, why should shareholders vote in favor of this capital raise? What is going to look different going forward that's different from the last 10 years? And I think the answer is actually fairly straightforward. And what I want to show you, we're going to go through a bit of a 10-year history, how did we get to where we are now? And then what is the picture looking forward before we get into what we're going to use the funds for to start off with. So I think to put things into perspective, the last 10 years, we had some very dramatic events in Nampak. I think let's start off from a group revenue point of view. This is a strong company. We have a very strong customer base. We have market-leading positions in most of our core markets, and we are significantly larger than our nearest competitors. So over the last 10 years, we've generated revenues of about ZAR 184 billion. That translated into operating profit of about ZAR 14 billion. And yes, margins did come down slightly post COVID, but we do hope that as commodity prices normalize, that the net margin should improve a bit. As I think we've explained many times, the part of the margin contraction is really just mathematical as a result of the expansion of the revenue line through the cost through pricing mechanisms. One of the things that is requiring more working capital now, you'll see over the last 10 years, the average net working capital cycle was about 12% of revenue. That post COVID has increased to where we are now at over 20%. Yes, commodity prices did have an impact, but at the same time there's much more pressure on us in terms of longer payment terms from our customers. But then the other one is very interesting. If you go back to the working capital slide that Glenn presented earlier, you will see that although inventories increased, we could not fund that through our accounts payable. There's a dislocation in the last year of about ZAR 255 million, and that's simply because a lot of our suppliers, our creditors are not prepared to extend credit terms to us or and credit limits because of Nampak's constrained balance sheet. So if we can improve the quality of our balance sheet, there will be other benefits coming through and quite a chunk of capital will simply be released from our creditors that then will be prepared to fund our purchases of inventory, where at the moment, over the last year, they've actually pulled back on the credit limits, and that had a very negative impact on our working capital itself. I think the key element in the last 10 years was actually the spend on CapEx. So you'll see in the last 10 years, we spent about ZAR 10.9 billion on CapEx. And please keep in mind, this excludes the acquisition of Alucan, the beverage can business in Nigeria, for another ZAR 3 billion. So in total, in reality, we spent basically about ZAR 14 billion in CapEx and the bulk of that was spent in the first 5 years of the last 10 years. So Glenn showed you sort of the trend how our CapEx reduced over the last number of years. But the bulk of that CapEx was spent very early on. And if I can unpack that maybe just quickly, the first one was the investment in the Bevcan factory in Angola. You might recall that the first line that was a very successful investment, that was very profitable, and the Nampak results really benefited as a result. It was on the success of that that we then invested into Nampak, Nigeria. And yes, it is definitely a case that we overpaid for that investment. You might recall, we paid $300 million for that plant, which was very rich. But if you consider that the competitor plant literally across the fence from us, went for an enterprise value of quite close to $500 million, then even the high price that we paid at the time was very cheap compared to the rest of the market. Of course, now with hindsight and the market not have taken off the way everybody expected, that turned out to be a very expensive investment and hence the fact that we had to impair some of the goodwill since. So the 2 major capital expenditures in the last 10 years, first one, Angola, which was followed up by a second, the installation of a second line in 2014. It was those 2 investments and the growth that we experienced in South Africa after we converted the industry from steel to aluminum that really drove up the Nampak share price to over ZAR 40, ZAR 44 at the time. So it is very sad that the very thing that investors applauded at the time through the share price is what's actually now causing Nampak's problems at the moment. So I want to say it's the [ sins ] of the fathers that we're paying for today, but I think let's focus on what we can do about it because those are still good investments. The return on capital really is not what it should be. It's a very poor return on capital right now, but it's actually avoiding those expenditures going forward that will actually make sure that there's a good return for investors going forward. I think at the same time, it is fair to say there was one other big investment that was done that really did not perform well, and that was the investment, firstly, to buy out our partners in the glass business and the investment in the third furnace of our glass business. But of course, that's a business that we've sold since and we got out of that. The second big element is, of course, during this time, we paid close to ZAR 10 billion to the suppliers of capital. About half, ZAR 4.8 billion, was paid in interest. We paid about ZAR 3.2 billion in dividends in those early years. And then we also used about ZAR 1.7 billion to settle some of our post-retirement medical aid liabilities, and that was actually a very good investment at the time with a good return. But then, of course, there's also a lot of cash that was generated through corporate activity, and I'll explain some of that a bit later on. So the net result is where we were virtually ungeared in 2011, '12, we ended up being overly sort of geared where we are today. So what did we do? Was Nampak proactive in addressing this? I want to say, almost train crash that was happening in slow-motion that started in about the end of 2014, '15, when the economies of Angola and Nigeria, the wheels really came off when the oil price started going down. And I think you'll see over time, I think Nampak management has been quite proactive in trying to address the debt burden, first of all, through selling our paper business, our corrugated paper business in 2015, '16 for about ZAR 1.5 billion. We did a sale and leaseback transaction that raised about ZAR 1.7 billion. And then later, of course, more meaningfully, we got out of our glass division that was really burning cash at the time as well as quite a profitable business in Nigeria. And we used the proceeds from that not only to settle some of the post-retirement medical aids liabilities, but we also used ZAR 123 million to reduce dollar-denominated debt that has really reduced the overall percentage. And if you look at how the rand dollar deteriorated over time, I think that had quite a beneficial impact. Maybe just going back, all the CapExes that we had investing in Africa, as we mentioned, all of that was debt funded. We never went to shareholders to ask them to contribute. All of it was debt funded. And as we know, most of that was dollar-denominated debt, and we're now trying to improve that position. At the same time, in 2020, we disposed of our metals business -- or sorry, our plastics business in Europe to get rid of the pension fund liability. And during the last 2 years, we really optimized our working capital cycle, as Glenn demonstrated, in that improvement in both our inventory days as well as our accounts receivable days. The one that was not better, as I explained, is on our accounts payable because of our constrained balance sheet, creditors are holding back and therefore we have to fund more of that on short and payment terms, and that is really something that we need to address through getting this balance sheet stronger. So moving to the bottom left. During the last couple of years, yes, we did restructure some of the businesses. Some improved, the DivFood operation, as we mentioned, that has not returned the profitability that we're looking for, a lot of focus to improve that, but that is still lagging. Some other successes as we discussed the reduction in dollar denominated debt, some of the operating cost reductions. But I think another key thing to note is how we've pulled back on in terms of capital allocation of, as I mentioned, in the last 10 years, on average we spent ZAR 1.4 billion per year on CapEx. So ZAR 14 billion over the 10 years. The bulk of that in the first couple of years. If you look 4 years ago, we spent over ZAR 700 million in CapEx 3 years ago, where over the last 2 years, that then dropped to about ZAR 400 million. And in the last year, we managed to limit that to only ZAR 200 million. The question is, is that sustainable going forward? And I think the answer is no. I think ZAR 280 million is too low. The guidance that we give is that we'll probably spend about ZAR 350 million up to maybe ZAR 400 million per year going forward. But that's very dependent on which businesses we remain invested in. And it's interesting that even within that, the bulk of that number is not necessarily going to our beverage can operations. So if we can exit some of the businesses that strategically, we said, we don't want to remain in long-term, that number might improve even further. The big question that investors want to know is, well, hang on, why did you not sell assets? There was a requirement to sell assets to, first, repay amount of up to ZAR 1 billion to the lenders. We were not successful in doing that. And I can promise you that it's not for a lack of trying. Part of the reason why the banks allowed us to kick the can down the road for a number of years in terms of repaying that ZAR 1 billion is because they knew we were actively negotiating some large transactions to raise the capital. For various reasons, those transactions did not culminate in a successful transaction. I think it's fair to say that even the last extension we got in June this year, that was on the base of a very big transaction that we were contemplating at the time. We were busy doing -- or the purchaser was busy doing the due diligence. And then very sadly, this opportunity, we lost literally 2 days where before the purchaser was meant to put in a binding offer. And they were very complementary on the asset that they were looking to buy, et cetera, but they then pointed to globally the risk -- the global risk at the moment was just too much, and it was a matter of saying, the time is not right, right now. And it's only once things normalize in the rest of the world that they might reconsider. But I think it's fair to say that it was not for a lack of trying, a lot of interest in some of our high-quality assets, but the time was simply not right. And it became clear to us that we were not going to be successful of doing anything like that in the short-term in terms of getting reasonable value. And hence the only option that remained was to do a capital raise. The next thing I want to do is just take you very quickly through a summary of the last 10 years, the cash flow history and then just say, if we normalize that, what would that look going forward? Now of course, this is not meant to be an accounting reconciliation at all. It's a high-level reconciliation. And it's got some very basic assumptions in, which are not necessarily accurate and that they're saying, if you look at the last 10 years and all the problems that we incurred during the last 10 years, including the cash that was burned in our glass operation that we now got out of, remained for the next 10 years. How different will the next 10 years look if we simply normalized our CapEx spend? So you can see there on the left, we generated from our operations about ZAR 20.7 billion of cash. We then got in a further ZAR 3.8 billion from corporate activity, and that's net corporate activity. So that would include all the businesses we've sold and we bought, PRMA activities, et cetera. So the net, there was another ZAR 3.8 billion that we gained. But then at the same time, we utilized the full amount in -- by the business of 25.3. And maybe just a reminder, that includes all the payment of interest, dividends, taxes, working capital, all the likes. And the net result was actually an outflow of ZAR 0.8 billion over the last 10 years. So the question is, well, what is going to change? So if you look at it, just say hang on, let's first look at some of the things we benefited from that will be nonrecurring, some of those corporate activities, that give us an outflow of ZAR 1.7 billion to start off with. But then the most material item in there is the normalization of CapEx of ZAR 7.4 billion. So if I can just quickly take you through how we got to that. That's the ZAR 10.9 billion that we said we had before. If you take about ZAR 350 million a year times 10 years, that's ZAR 3.5 billion. So the ZAR 7.4 billion is literally just normalizing ZAR 10.9 billion to ZAR 3.5 billion so the net benefit is ZAR 7.4 million. Of course, at the same time, there will be a reduction in interest costs as a result of the strength in balance sheet, and that will give us, post dividends, close on ZAR 6 billion. But once you add back dividends, the total amount of cash that we should have available to not only pay dividends, but also degear the company is give or take ZAR 9 billion. And at the same time, I have to point out that that ZAR 9 billion does include some profits from Zimbabwe. So it would be fair to put a bit of a discount on that number to say what is the total amount that will be available to repay debt and pay dividends. But I think what you can see is that even excluding all the improvements we've done to the business in the last 2 years, there's a very good prospect that we can really pay down all our debt and pay dividends. If you then consider on top of that, that we exited some of these businesses that were really just burning cash like Nampak Glass. If you consider that we are arguably at the peak of a commodity cycle right now and then further some benefits that should come through from creditors extending their terms to us once we strengthen our balance sheet. I think it's fair to say that this should be a very conservative view, and we are, therefore, very confident that we should actually generate very good cash going forward, even if we essentially stay the way we are right now. Of course we do plan to exit certain businesses. We've always said that the plastic business is not one that we want to remain in long-term. And of course, the food operation is also something we need to see how we return that to profitability and then determine whether that is a business that we want to remain in long-term. So that takes us to almost the end of the presentation. I think the question is why ZAR 2 billion. We -- first of all, you'll note, we set up to ZAR 2 billion. We did not say it will necessarily be ZAR 2 billion. Of course there's a lot of factors that will still determine the total size, but it will not be more than ZAR 2 billion. That is made of ZAR 1.35 billion is the minimum that we need to repay to the banks, of course, and that's net of cost. We have a very good opportunity to expand production of a line in Bevcan that is being underutilized at the moment because of its configuration in terms of the fact that it can only make small cans. We have an immediate demand for cans from that line. We have an opportunity. It's an amount of about ZAR 350 million that's required. It is an investment in the core of our business and therefore really opportunity that we have to take on to not just sort of benefit from the profitability that it will generate, but also to support the growth in that industry. And then the last bit is at the moment this business is operating with virtually no flexibility. We have very little liquidity. It's almost impossible to get through the working capital cycle, the seasonality in our working capital cycle and we added ZAR 150 million, which is -- I know it sounds like a lot, it is a sliver compared to what I think is really required. And then the last, but is just the transaction fees that will be incurred in this process to not only do the capital raise, but also to do the refinancing itself. So that is how we got to the amount of ZAR 2 billion. And I think that's all that we've covered for today. So we will now open the floor for questions.

The first question comes from Nick Wilson, News24. My first one relates to the proposed rights offer you hope to undertake to the tune of 2 billion. How much breathing room will this give Nampak? Will the worst be behind the group, which is at the moment seems to have the group -- the debt issue seems to have the group in chokehold? My second question is about the strong performance of the Bevcan ops in S.A. You mentioned that this has been driven by alcohol and energy drinks. I was hoping to get a bit more color on this, if possible. On the energy drink side, is this young people? Or is it a cross demographics? And is the alcohol side coming more from a low base?

Okay. Nick, I think -- thanks for 2 very good questions. The first one and a number of investors have asked us that question is, first of all, is the ZAR 2 billion enough? Are we going to come back and ask for more later on? I think, yes, I think it is enough, although we only put in breathing room, if I can call it, of ZAR 150 million. I think once we can get a successful capital raise, the relief that it will put on our balance sheet will allow us to then go back to some of our creditors and allow them to extend further payment terms to us. Like you would have seen in the last year, there was that disconnect of about, sorry, ZAR 255 million, where we expanded inventories, but not accounts payable. And that came directly from a contraction of some of our payment terms from suppliers. So yes, the capital raise will allow us that additional flexibility. And I think some of it is just pure timing. At the moment, the T-junction that we are standing in front of is the fact that we have to refinance this business before the end of March next year. And therefore we cannot kick this can down the road. So it is forcing us into the situation where we now have to act. And yes, we always wanted to avoid a rights issue. But now we're at the point where we have no choice. But I think we got to look past this event and look at the benefits that will come through thereafter. A lot of the pressure that's currently on both Nampak and the management team is how to manage this business with a constrained balance sheet. It is not only investors that are concerned. Like I said, our suppliers are very concerned. They're not prepared to extend credit to us to the extent that is required. And of course, then we have our customers. Our customers are looking at us and saying, guys, we trust you, you are a trusted brand. You have good quality products. Despite all the problems we had in the last 2 years, you managed to give us good quality and certainty of supply. But you need to demonstrate to us that you can grow as our demand is growing. And that's why it is critical for us to invest in this additional capacity in Springs. But yes, I think by doing this, that it will be a game changer for Nampak. And as a result, I think management will be able to focus on the core part of the business that is very profitable and also improve those that at the moment is still lagging. So I think, yes, the rights issue of ZAR 2 billion, despite the negative implications that it is going to have on potential dilution of those that cannot follow their rights, I think we would like to urge investors to follow their rights. I think if you do, of course, the big benefit is you won't be diluted, but we do expect that it would be very positive for the company going forward. Your second question around energy drinks, I have to say, I know you and I had this discussion before. I'm not an expert on energy drinks. We can only react to what we're seeing in the market and most significantly our beverage can business. You might have seen, in fact, I know you posed the question to me, where one of our big customers that is currently not in this category, took a decision to enter this market. They realize that, hang on, the growth is happening there. Why is it happening? I think, again, speculation, but I think it's because of the good value offering that energy drinks is perceivably having for consumers. They can buy quite a large size drink up to 500 ml for anywhere between ZAR 10 or ZAR 12 versus a normal soft drink at a very similar price point of [ 300 mls ] or less. So from a value point of view, I think there's still a lot of benefit coming through from energy drinks. A lot of consumers start the day using energy drinks rather than something that might be more nutritional, I think, it's quite sad. I mean I think we should encourage people to eat healthy and not sort of use energy drinks as alternative to having breakfast, but it is a reality that we're seeing out there at the moment. And then on the alcohol side, I think this is a long-term trend that we don't think will slow down. A very large portion of South Africa's total beer consumption is still in returnable bottles and worldwide I think we're seeing this trend towards not just more sustainable packaging, but also convenience start playing a bigger role. And the moment you go to convenience, you see a conversion from returnable packs to one-way packs like not just nonreturnable glass, but also cans. So I don't think that trend will slow down. I suspect it will pick up over time. So I think that hopefully answers your question, Nick.

Next question is from Rowan Goeller, Chronux Research. How much cash can impact release from working capital should supply chain issues ease and what would drive this? Had some of these variables worked in your favor, could you have avoided the rights offer?

Rowan, thank you for that question. I think if you go back to the COVID period, Nampak was very responsive in its management of working capital, where we contracted working capital because of declining demand. In FY '21, we had to respond to increasing demand and we consumed ZAR 621 million in working capital. What we've seen now is the Russian and Ukrainian war and commodity prices and supply chain issues, those commodity prices have gone up dramatically, and we've consumed another ZAR 659 million. So in 2 years, basically, we've consumed just under ZAR 1.3 billion. So if life was to normalize and we could close the gap between the inventory holdings and the trade payables, there's a very significant release of working capital into the system. We've also got to manage it, and I think Erik mentioned it a bit earlier, where if you have a look at what the rand-dollar exchange rate is doing, as one brings it down, if the rand weakens and you've got lots of dollar imported inventory, it kind of, in rand terms, reduces your ability to release the cash. But every single day, we're doing about ZAR 46 million in sales a day. I would think that if we can get some relief on this ZAR 300 million to ZAR 400 million released out of this working capital cycle going forward could be quite real. But it isn't going to be in time to address the full structure of the balance sheet. And I think going back to Erik's point, where the expansion into Angola, Nigeria was done several years ago or using dollar-denominated debt. It's far more a structural issue within the -- in the balance sheet that we're looking to address than a short-term nature. There will be fluctuations in this working capital cycle depending on demand and commodity prices. And we are working with the funding partners to try and build a financing structure that does accommodate those types of flexible funding structure. So that if the commodity prices move up, so does the funding requirement. What we need to do as the manager is ensure that the activity ratio as measured through the net working capital cycle, the days invested, is well managed.

Next question from [ Colin ] [indiscernible] International. It seems you do not fully hedge your U.S. dollar interest rate exposures and costs and your U.S. dollar ForEx exposures against the rand. Why is this?

I think I'm going to allow Glenn to -- will ask Glenn to answer part of this. I think, first of all, the -- there's always the potential dislocation of the year-end rate versus the average during the year. What we got to keep in mind is that we essentially earn dollar income during the year from the economies of Angola and Nigeria. And that is sort of a natural hedge against some of the exposure, but of course, not necessarily about the dislocation itself. The other part of that question, the actual FX in country, unfortunately, there are no hedges available to hedge currency in Nigeria or Angola at the moment. So part of it's a natural hedge, but we cannot hedge ourselves unfortunately against the dislocation at your -- not sure if you want to add anything, Glenn?

Colin, I think it's very, very expensive to try and take out an annual hedge for the dollar component of the debt. We have reduced the dollar component, as you can see, to 42%, significantly down from previous levels. And if the currency was freely available in those markets of Angola and Nigeria, and we could get the cash out immediately, you can see that we'll probably not have these foreign exchange losses. Where the currency is freed up in Angola, it's actually worked the opposite way. We've ended up with a gain. What we have to do is get the available dollars as soon as possible in Nigeria so that the pricing to the customer the very next month can be reflective of the cost of those actual dollars. What we saw during the current year is a buildup of dollars in Nigeria, or the naira equivalent to those dollars in Nigeria, but then a sudden devaluation in the currency. So that is really what the key issue here is, ZAR 606 million of these losses are purely as a result of a delay in getting the cash out of Nigeria. In terms of the core debt, there's about $190 million worth of debt sitting in the structure. And going forward, we would like to reduce that component in the refinancing process, and we will be utilizing a relatively significant portion of the proposed capital raise to reduce the volatility in the balance sheet. Because I showed you that 81% of the increase in the rand reported debt is actually coming from this movement in the currency.

Adrian Zetler, A2 Investment Partners. You have indicated in your announcement that you expect the rights issue costs to approximate ZAR 150 million. This seems high relative to current market rates. Can you please provide a rough breakdown of these costs? Secondly, you have indicated that the rights issue will be up to ZAR 2 billion. Under what scenario will this be downscaled and end up being less than ZAR 2 billion? If the rights issue is not successful by March 31, 2023, you have said that a sale of Nigeria will take place. Has this option already been explored? And how did you weigh to this option up versus the rights issue option?

All right. If I can maybe answer some of that, and Erik will probably answer a portion as well. If you look at the costs of ZAR 150 million, they are equally split between the costs of refinancing the group's debt for the next 4 to 5 years and then the other portion being the rights issue itself. What we are wanting to do is create a structure in the funding mechanism that puts down a 4 and a 5 year term as the basis for which the funding will be in place to secure the rights issue as well and then also have a flexible funding structure for the working capital element. So that will be a cost to be paid to a consortium of banks. And the balance will be for the rights issue. So it's not purely ZAR 150 million just for the rights issue. In terms of the ZAR 2 billion rights issue, I think we have indicated that we do need operational flexibility. We do need to respond to increased demand in the beverage can line in Springs. And if we do a rights issue for just ZAR 1.5 billion, and we pay away the ZAR 150 million in costs, all that happens is the full -- the net ZAR 1.35 billion goes to repay the debt. But it doesn't allow Nampak any operational flexibility, and we would then have to fund that line 2 expansion in Springs out of internal cash, which will again place strain on the particular cash flows. Erik, do you want to deal with the last one?

Yes, I think the last one, maybe just under what scenario will be downscale the 2 billion? Well, there's a mathematical reality that also comes in. You have to issue this at a discount. We can't say what the terms of the rights offer will be at this point in time. It will, in all likelihood, be at quite a significant discount. And therefore for the amount required, you need a certain, what's it, share price to support that. So hence if our share price is too low, it's arguably possible that we cannot get up to ZAR 2 billion. That, of course, would be problematic for some of the other requirements. It will put pressure on our ability to repay the banks, and hence the reason why it's quite critical that we do get this away. So your last part of the question is, if it's not successful, you talk about a potential sale of our Nigerian business or any other business for that matter. Of course that is something that we've already explored not only in Nigeria, but every other asset in the portfolio. So it's not as if suddenly you're going to find buyers for Nigeria that suddenly comes out of the woodwork, which means that if you are forced to sell that particular asset or any other one, it would be an absolute as a fire sale and the value destruction in there would be even more. I know that one of the further questions, I'll address a bit later as well. But have we considered selling some of these businesses at a discount to what we believe is fair value, of course, we have. We've considered the potential impact of a rights issue. So yes, all of those things have been considered to try and avoid a rights issue.

Charles Boles from Titanium Capital. Please explain the merits and funding options of the ZAR 350 million Bevcan expansion?

Charles, I think this one is almost a question of timing. We have to do this expansion. Otherwise we will be handing market share over to our competitors. But the reality is we will, in all likelihood lose more market share than only what we can gain back as a result of this investment. Keep in mind, this is a core part of the -- our business, the beverage can factory. It is necessary to require it from our customers. If we're not going to demonstrate our support to our customers' growth by doing this, that will signal to them that they potentially need to look elsewhere for support, and that would be very negative. I think we can generate returns on that to return cash to shareholders in a fairly short period of time. So yes, you can argue that this comes at a big discount at this point in time. But I think the value uplift very shortly thereafter should justify that expansion.

Chris Logan, Opportune. Please advise the various reasons you mentioned you could not sell assets and why you have not spun out assets in the form of a rights offer. Also why are you prepared to have a rights offer at a massive discount to your NAV, but not prepared to sell assets at a discount?

Chris, thanks for that question. I think as I mentioned earlier, we have considered selling assets even at a discount. We have explored, I want to say, virtually all the possibilities out there. We've been asked many times why haven't we approached this or that different parties across the world. I can assure you, we have done that. We've been in active discussions with virtually every potential buyer out there over a number of years, not only just now. So like I said, there's a lot of interest in these assets, but most of it, it's not the nature of the asset or even the valuation. Definitely we -- at times, we had proper engagement around the value itself. But the reason why we couldn't sell these assets is not necessarily about the value. It's more the issues from the buyer's point of view where there is this global risk sort of premium attached to assets right now. And coming into Africa at a time -- at a time like this, I think buyers are just not prepared to put in those big offers or go into a big transaction right now, where, over time, I suspect things will start normalizing and then the interest level should start preparing or improving. The point is if we want to force this now through, if there's an unsuccessful rights issue, the value destruction that you will crystallize then would be enormous.

Charles Boles, Titanium Capital. When Andrew Marshall arrived at Nampak, it was a key message that one of the challenges that Nampak had historically experienced was high CapEx, and that this would be addressed. The same message is coming again. Why should shareholders be confident that Nampak will be able to change its CapEx habits?

All right. If I can please take that one. If you look at the last 5 years, Nampak has spent ZAR 2.5 billion cumulatively in CapEx. I'm not sure where that comment comes from. Andrew Marshall was part of the expansion and the team that incurred all the debt. What we've done in the last 5 years is substantially reduced the capital expenditure that have been put in place. And with the last couple of years, demonstrating a very strong message in how we're managing the CapEx. The risk to managing CapEx too aggressively though is not providing sufficient sustaining CapEx to this business to keep the competitive edge in the business. So there is a balance between this, and that's why I do think that we need a capitalized balance sheet that can continue to provide this good capital base. But that debt level that was put in place was put in place in the 2011, '12 and '13 years, and that was some time ago.

I think it's fair to say that why should shareholders be confident this time around? Well, I think we've demonstrated it very well over the last 5 years, in the last 3 years, even more. So I think the capital sort of allocation committee that we've got in place is playing a very active role. And I think you can judge us on sort of performance over the last couple of years. I think you've seen how we've contracted that CapEx. And as Glenn pointed out, we should be careful to go too long, sorry, too low, and hence why we're guiding that this is probably too low right now. I think somewhere in the range of ZAR 350 million to ZAR 400 million is a more sustainable level.

James Twyman, Prescient. Could you split the volume growth in cans by region? What was the U.S. dollar debt at the end of the period on a gross and net basis? Thirdly, could you talk around the shortfall in the corporate costs ZAR 200 million?

I'm going to take the first one, and then I'm going to give a hospital pass to Glenn for the second 2. So the first one, the growth in volume. Listen, we never sort of disclose that in detail. But I think I can give you good guidance on what we've already said in the announcement. So first of all, let me start with South Africa. We've had double-digit growth in South Africa. And if you exclude the exports, so this was for the total business. If you exclude the export volume that we didn't benefit from this year, I think it would be, let's call it, high double-digit growth that we've experienced. So this -- I've used the word unprecedented growth in the description. So I think it's fair to say that in South Africa, we had very, very robust growth. Nigeria, we said volumes were stable. So in other words, I'm not saying there we had growth. In fact, it was a very, very small decline of less than 1%, but in other words, stable. But I am concerned about the volumes going forward with that economy really not performing well at the moment. Where in Angola, we had very good growth. We did say that in the last quarter, that was close to 30%. And I can say that over the last 2 months, that growth has actually accelerated.

All right, James, the other 2 parts to your question. At the year-end, the dollar component of the debt was $189 million. And on a net basis, it's probably approximately 140 million to 150 million. And then the movement in the corporate cost line, in the prior year, we had an unrealized foreign exchange loss on the forward cover contracts this year because the rand weakened at the end of the year, there was a profit embedded in those particular transaction. So hence the reduction in the net cost at the center.

Cobus Cilliers, All Weather Capital. Why are the transactions fees so high? Are these underwritten?

Yes. The costs that we have indicated on both fronts are on a fully underwritten rights issue at ZAR 1.5 billion and a fully underwritten debt package, and we are working on both of those to reduce the cost.

If we could just add, those are estimates. That's not finals, and it will be very much determined on whether it is underwritten or not. And so it's a high-level estimate based on sort of the going market rates at this point in time. But I think it's also critical to say that this is why we need to -- for our investors not to play their cards too close to their chest. The more we know the support for the transaction, the easier it is to get this process underwritten and at lower cost. So everybody playing their cards too close to their chest, unfortunately, potentially could just increase the fees, but the number we've got there is a very rough estimate.

[indiscernible] Oystercatcher Investments. Could you please give us the names of the banks to which you have the most debt exposure to?

I'm sorry, we can't disclose that. We don't disclose the proportionate contributions of funding by the respective parties.

No further questions from my side. Are there any questions on the Chorus Call?

[Operator Instructions] It seems we have no questions from the conference call.

If there are no questions on the conference call, we'll carry on from this side. [ Dean Tlotleng, Steyn ] Capital Management. Could you give us more color on beverage can demand in Tanzania, Kenya and Zambia?

Dean, thanks for that question. That's a fairly short answer, but I'm going to -- despite, expand a little bit. Tanzania, very low. In fact we've been exporting a small volume of cans into Tanzania. Most of the volume are consumed at Dar es Salaam close to the port. And hence it's easy to import from either South Africa or the Middle East. But very small volumes, definitely not sustainable to build a factory. The same for the rest of East Africa. In fact, one of our competitors started building a plant in Kenya. That's the very reason why they're now in South Africa. It was an unsuccessful feasibility study that was done. And only after they started building the factory that they realized the market is far too small to put in a beverage can line. And hence after they bought this line, they then shipped it to South Africa to try and recover some of the investments. But unfortunately, East Africa, the market is simply too small for even one beverage can line.

Richard Middleton, Excelsia Capital. Could you expand on the refinancing of the remaining debt post the rights offer?

All right. The refinancing is at quite advanced stages. We have got quite an extensive consortium of funders, and we are trying to look to simplify the terms of the refinancing. As I have mentioned, there will be a component of that funding that will be 4 and 5 year funding and then a portion of that will be on a working capital-related facility. So we are working towards a program where in the middle of February, we should be at a position that that would be finalized and that we can announce what the funding package will look like for the next 4 to 5 years.

[ Nic Krige ], Signal Asset. Will the managers help underwrite a portion of the rights issue? How much is management planning to spend following their rights?

[ Nic ], I would love to be in a position to, as a manager, help underwrite portion of this. If I had that type of capital, I certainly wouldn't be sitting here trying to manage through this position. So I can assure you, our managers do not have the balance sheet to do underwrite. And your next question, how much is management planning to follow their own rights? Yes, we are also shareholders in the business. And if we don't follow our rights, we will, of course, be diluted the same as any other shareholder. And then depending -- therefore depending on the personal circumstances of individual managers, they will, of course, also consider following their rights.

[ Nic Krige ], Signal Asset. First half cash generated by operations before working capital was ZAR 1.80 billion. The second half was only ZAR 424 million. Why was the second half so weak [indiscernible] covering the interest costs of ZAR 300 million?

I think the answer is simple. The ForEx losses were virtually all of it incurred in the second 6 months, and hence the drop off. It doesn't necessarily fill the entire bucket, but that's by far the bulk of it.

[ Nic ], if you look at the first half, the foreign exchange losses associated with Angola and Nigeria were ZAR 48 million. And for the full year, they were ZAR 546 million. So they all came in the second half with very strong cash extractions from Nigeria in the second 6 months.

Nick Wilson, News24. I know there may be an exit from plastics and DivFood over time. Are there any plans to exit markets like Nigeria?

So yes, there are. So first of all, as I mentioned, the general metals business in Nigeria is very weak at the moment with customers more sort of getting into self-manufacturing. We're not getting a good return from our general metals business in Nigeria, and that is certainly one that we are actively considering to exit. If you talk about the beverage can market there, that is a good profitable market still for us. However if we get a reasonable offer, we've always said that unless any particular country can give us a fair return for the amount of risk that we're taking there, we will consider options to exit and that applies to any of the other regions that we operate in as well.

James Twyman, Prescient. Can you explain why you have only talked around the rights issue rather than actually announcing that?

It's a bit of a technical question, but I'm going to try and explain it as much as possible. And Glenn, please help me out if I fall short. I think, first of all, the -- announcing a rights offer is a process that you need to go through. The first thing we need to do is from an administrative point of view, we first need shareholders actually need to actually approve that we can do so. That's one of the issues. The second thing, at the [ AGM ], we also need to get an increase in the amount of authorized shares that we have. So I think it's more of a technical issue than, I mean, obviously, we've already announced that we want to do it. But yes, I mean, before we couldn't do it simply because when you do it, you need to have audited results. We couldn't do it after half year for the simple reason that we didn't have audited results. Yes, technically, you can do it on -- without audited results or review. But given the size of it, that would not have been prudent and especially if you consider how different the second 6 months of our year was versus the first half, I think we would have been crucified if we issued the rights issue based on our first half results and then come with full year results that are very different. The actual reason, though, why we were holding back on doing a rights issue now is the confidence that we had about having concluding a successful asset sale, which sadly, as I mentioned, did not go through.

Chris Logan, Opportune. How do you explain the disconnect between Executive Director shareholding and their remuneration? Does this signal a little or no confidence in the business?

Chris, I think what you would have seen is that a huge part of our incentive over the last 2 years has been where it used to be 50% as a short-term cash incentive. The other half are all allocated in shares and those shares are held back. So the 900,000 shares that you're seeing, that is a historic position. That excludes any of the shares that managers have at the moment that are still forfeitable if we don't stay long enough. So from the shares that were allocated last year, 50% will vest or in fact did vest in the last year and another 50% will only vest the year thereafter. And then there's a minimum [ shielding ] requirement that was also introduced. So the total shareholding from the executive is, in fact, much higher than the 900,000 shares that you are seeing there. In fact it's all disclosed in last year's [ REM ] report.

Chris, if I could also just add that because certain of the vesting requirements have not been met over time, there's been a large proportion of those that have been forfeited.

From historic, yes.

From historic, yes.

Yes, correct.

Hence, that's why the actual shareholding by management is low.

Correct.

Can we take the question on the conference call?

We have a question from Chris Logan, Opportune.

Firstly, I did ask, why you haven't spun out assets in the form of the rights issue? In other words, you could spin out your plastics with people pay ZAR 0.50 to be able to take up that operation. This wouldn't be dilutive. Existing shareholders would get exactly full value. And it would address your grievous lack of focus, which has persisted for decades now. I mean [indiscernible] used to tell me, you were the last diversified packaging company in the world, and nothing much has changed. That's the first question. The second question, I'm in contact with other people in the packaging sector, and they say they have put in bids for your operations. So the 2 sides don't gel. Perhaps you want to answer that?

I think, first of all, about spinning off some of these businesses through a rights offer. I think it's very difficult to spin off a business that's making losses because you're going to get absolutely no value for it. So we've considered various options and it was simply not feasible. In terms of your second question about some of the parties that you've spoken to, please put us in touch with them. I'm sure we probably have spoken to many of them, and there's probably a lot more to it than possibly what you've alluded to. But unfortunately we're not party to those discussions one-on-one you might have had with them. But if there are interested parties, we'd be very happy to hear from them.

If I can just follow-up, you say you don't [indiscernible] businesses could be making losses. So this is as a chicken and egg situation. You're making losses because you don't have the focus. That's what packaging companies across the world focus. So now you're just going to raise more money by a rights issue, which will enable you to retain your lack of focus.

Chris, I'm not quite sure how to answer that without going into the specific details. But the -- if you take, for instance, our plastics business, we've gone through enormous process in trying to sell that off, et cetera, which was, for various reasons, unsuccessful partly because of the sell and lease transaction and the sites where we are locked into where some of the purchasers were just not prepared to take over those leases. So there's a lot more to it. On the surface, it might be -- it might look quite simple to get out of these operations or even give them a way for that matter in practice that unfortunately was not that simple.

Charles Boles, Titanium Capital. You indicate that shareholders are holding cards close to their chest. This uncertainty and perceived lack of commitment could drive an increase in the discount at which the rights issue take place.

Yes, Charles, it's for this reason that we will actually go out to our major shareholders to try and get a commitment from them, see if they're prepared to either underwrite or give us irrevocables. And the more we can get off that and put it out to the rest of our shareholders, I think that should get sort of bolder trust and give further sort of confidence in the process and hopefully that there -- from there it can be growing confidence and hopefully then a self-fulfilling prophecy thereafter.

Yes. And then the last question, bluntly put, it seems most of the sins that have given rise to the capital raise, long predate current management. Is that a fair comment?

Yes and no. So the sins of the fathers, in fact, I was a son at that point in time. So I was in this business. So I can't certainly not just blame this on everybody prior management, but I think it is fair to say most of this happened long before both Andre de Ruyter or Glenn came to Nampak. This was -- a lot of this was during the aggressive expansion into Africa. I was a very active member in management at that point in time. And at the same time, I don't think this is a matter of blaming anybody for it. I would use the term sins of the fathers and that's with the benefit of hindsight. But you have to keep in mind when we did these investments, the market applauded us, in fact, many of the other corporates in South Africa were doing similar expansions. And of course, now with the benefit of hindsight, we can now sort of term those the sins of the fathers. But I think at the time, those were very successful investments. It's only after those, economies, both Angola and Nigeria had a huge change in fortunes that these changed to be sort of problematic investments. But with the facts that we had in front of us at the time during the Africa rising narrative, it was very different. So now it's probably unfair to give that term. But at the same time, I was very much part of that management team at the time. And hence I think it's more circumstances than one can say, those were bad decisions.

Yes, for the sake of time…

If I could just make one point, having joined after those decisions, I suppose in retrospect, maybe the fully funding of that utilizing debt is the issue, in dollar-denominated debt. Now when one looks at the weighted average cost of capital of packaging companies worldwide, generally structured on 70% equity and 30% debt, yet those expansions were done on debt. And I suppose in economies where the currencies were pegged against the dollar and then the world had some challenges with oil over periods of time. I think at the time, it was at a peak of $127. It dropped to $27. It's gone back up. But it's caused tremendous disruption to the economies of Nigeria and Angola over the period. And where the pricing has all been linked into dollars, it would have provided a natural hedge, I guess, but the lack of being able to get the dollars times has resulted in significant foreign exchange losses. And recently, with the world risk perceptions changing, the elevated weighted average cost of capital have changed. And as indicated, 77% of the book entry that we've put through this year of the ZAR 512 million impairment is purely as a consequence of rising risk profiles and hence, higher WACC rates.

Yes. For the sake of time, we will just take this one very last question from [ Nic Krige ]. And I would make a request that any further questions be e-mailed to [ [email protected] ]. The question reads as follows: Bevcan seems to have a strong competitive position, yet given this competitive strength, the margins negotiated with suppliers and the poor working capital terms appear to undermine the returns the business should be generating. Is Nampak not underestimating its important position in the value chain and compromising the returns that should be earned.

[ Nic ], absolutely. I think you hit the nail on the head that we do have a strong competitive position, especially now that the demand outstrips capacity. But in order to maintain that position, it is very important that we demonstrate to customers our willingness and our ability to invest behind this growth. Otherwise we're forcing very loyal customers to go to our opposition and that will weaken the core business that we have in South Africa. I know there was a number of questions were asked about why do we need to invest this additional ZAR 350 million in upgrading the line that we have in Springs. And I think it's to this very point you're making. We need to maintain that strong position. We need to maintain the partnership we have with a lot of these customers and make sure that the current shortage of capacity or capital we have don't undermine this position. At the same time, it's not the trust in Bevcan as a supplier or our ability to produce good products that is holding us back. At the moment, the Nampak balance sheet is holding back our core business, Bevcan. And quite often, we run into liquidity problems not because of Bevcan, but some of our other businesses. And hence the reason why we need to get some breathing room that we can make sure that we don't suffocate the best businesses that we have that's actually generating the cash and hence the focus to reduce our reliance on Bevcan by improving these other businesses or exiting them completely. Thank you. Okay. I think that's probably the last question we have time for. But thank you very much. You'll see this, of course, this was disappointing results. But I think through the detail that you can see, some of it was very much linked to those 2 major factors why it was really so disappointing. Number one, the big ForEx losses from Nigeria, which, of course, won't be a feature that will go completely away in the future, but it should be a lot less. And then the second one was the big impairments. And again, as Glenn pointed out, most of those are reversible. And if you strip out the abnormal portion of that from these results, you will realize that the underlying business is actually still very healthy, in our core businesses and those that are struggling, we've got very active plans to address that. So I think with an improved balance sheet, we should actually be in a position to give more stable and improved results going forward. But thank you very much for your time. I know this was a very long session, and we look forward to catching up with individual investors over the next couple of weeks. Thank you, and goodbye.

Bye.