RFG Holdings Limited (RFG) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. A warm welcome from chilly Groot Drakenstein. We appreciate all your -- the time that you've taken to attend the presentation -- our interim results presentation this morning. I'm joined here by Tiaan Schoombie, our CFO, who will manage the financial part. To start off with, just looking at the -- at our presentation outline, we will do the review of the 6 months. Then as I made mention, Tiaan will do the financial performance part, doing a bit of the trading review, talk about our capital investments, sustainability and then also a couple of comments on outlook and then give an opportunity for questions. So this, when we look at the review of the 6 months, a strong revenue growth performance was achieved, which is in line with our strategic intent as one of our key financial targets, which I will discuss again a bit later in the outlook. It was supported by good volumes in the regional and our international businesses, where we're proud to see some increased market and brand shares in our core product categories. The constrained consumer spending environment in South Africa that put pressure on pricing and the supply and logistic challenges mainly impacted the export business although we also had some issues with regards to raw and packaging material on the local business. Significant input cost inflation that impact our operating margin where we're unable to fully recover price increases from customers and consumers. In this case, normalized operating profit margin declined from 7.6% to 6.5%. If we -- just a couple of comments on the Today pie acquisition. It services top end retail channel with Today and the Mama's brand. We also bought the Big Jack brand, which is mainly in the informal market. The business was acquired for ZAR 53.7 million, which includes inventory of ZAR 43.3 million. And since the acquisition on 1 February, up until the end of March, the revenue was ZAR 46.1 million (sic) [ ZAR 47.1 million ], and the profit was impacted by once-off restructuring costs of ZAR 23.6 million. In the past 2 months, we've relocated the RFG's 2 pie production facilities in Gauteng. And the integration, we expect it to be completed by the end of this month being end of May. Tiaan will now cover the financial performance, after which I will continue with the presentation. Thank you, Tiaan.

Good morning, everybody. Group revenue grew by 20.9% to ZAR 3.4 billion in the period to end March. This period included an extra week of trading, just to get our financial amount in that better aligned with calendar month and dates and, in particular, the trade. The group revenue growth was driven by a regional revenue growth of 15.5% and international revenue growth of 53%. Just a comment on international revenue growth. In volume terms, international volumes have recovered to pre-COVID pandemic and then also for the first half of the year for the first time since 2020 financial year. During the -- in March, we received an insurance claim settlement of ZAR 43.4 million for loss of profits during the lockdown in 2020. Following the acquisition of the Today business, as Pieter has mentioned, it was relocated and restructured. And the group incurred once-off restructuring costs of ZAR 23.6 million. During the period, net foreign exchange losses for the period amounts to ZAR 4.2 million compared to gains of ZAR 19.6 million in the prior period. Operating profit grew by 30.6% to ZAR 241 million during the period. But when we exclude the insurance claim and the once-off restructuring costs in the current year and restructuring costs relating to the KZN pie restructuring, which took place in the previous financial year, the normalized operating profit on that basis increased by 2.6% to ZAR 222 million for the current period. The normalized operating profit margin declined from 6 points -- 7.6% to 6.5%. In the regional segment, the normalized operating profit declined to ZAR 201 million. And the margin declined by 180 basis points to 7.1%. International operating profit increased from a breakeven in the prior period to ZAR 21.3 million, and the margin improved to 3.4%. It is the first time in 5 years that the international division makes a more significant profit in the first half of the year. EBITDA increased by 17.1% and normalized EBITDA by 20 basis points on the prior year. In addition to the other once-off items, the group's deferred tax liability was reduced by ZAR 9.6 million based on the 100-basis-point decrease in the South African income -- corporate income tax rate, which was announced in the budget speech. Headline earnings increased by 32.5% to ZAR 158 million, and normalized that's excluding the after-tax effect of the once-off items and the ZAR 9.6 million reduction in the deferred tax liability increased by 3.2% to ZAR 134 million. Revenue growth -- compounded growth over the last 5 years, 8.2%. And then drivers of revenue growth in the current period, volume contributed 12.5%, a mix of price inflation and currency movements, 10.4%. However, the currency, as we will see later, had a very limited impact on revenue growth in the current period. Mix was negative 3.5%, and the acquisition of Today contributed 1.5% to the 20.9% growth. Revenue growth over the last few years, pleasing to see in terms of volume growth, where we had negative 12.9% last year. That was turned around to the 12.5% achieved in the current year. And then also a significant impact by price and mix changes in the current year but not so much as in the prior year. Segmental revenue. Regularly, contribution from the fresh subsegment to group revenue stays at around 31% to 30% of group revenue. A decline in regional long life due to the good growth that we've seen in international mainly. So at 18% for the period, it's the highest international [ note ] contribution has been for the last 5 years. Normalized operating profit, not -- like I said earlier, not a lot of growth but at least not going backwards compared to last year, which is we're quite pleased with in the current circumstances. Earnings growth, obviously, including the once-off items, growing to ZAR 0.603 per share for the period. The impact of currency again, 66% of the group's foreign or international revenue was U.S. dollar-denominated. There's a swing from -- compared to the prior year, and the second biggest currency being the sterling followed by euro. In terms of impact of currency swings on revenue for the first half, as you can see there in the current year, it was actually negative ZAR 3 million versus positive ZAR 3 million in the previous year. That's also illustrated by the table of the average, right side, at which sales took place during the period on the dollar, a ZAR 0.13 movement year-on-year. Then working capital is high at this point in time for various reasons. As a percentage of turnover for the period, 57.4%. It's a 240 basis points more than what it was at the end of the prior period. Net working capital days, 4 days longer. Surprisingly, now the biggest increase was on inventory as an absolute number, but the base actually came down by 3 days. Trade payables also improved but -- trade payables, sorry, came down, and that's a result of where our margins fell this year. We had to pay all our creditors before our actual financial month in which we brought [ Today's down ]. Inventory levels are higher compared to the prior due to higher raw material stock cover due to the uncertainty and challenges with global supply and logistics, the impact of inflation on the value of stock. We would -- later on, we'll talk a lot about the impact of inflation on the overall business, and it also had a significant impact on the value of stock. Higher canned food and fruit pulps and purees production levels, there's an opportunity in the international market, and we produce a bit more stock than normal to take advantage of that. But due to the logistical constraints, we couldn't export much more of the additional product that was produced. And then obviously, Today's acquisition included ZAR 43 million of inventory. Free cash flow, well, only ZAR 2 million cash generated from operations. As you can see, working capital changes, a lot higher than the prior year, and the main contributor is stock. And then for the rest, in line with expectations. Capital expenditure, ZAR 9 million more than the prior year at ZAR 147 million, leaving us with a utilization of cash with losses of ZAR 212 million in the current year versus ZAR 14 million in the prior year. In terms of capital management, paid a dividend, obviously, paid interest on the debt, the acquisition, which amounted to ZAR 54 million. And then loan and lease liability repayments that rise to a net short-term ordering, which we had to take up, ZAR 452 million, to fund the shortfall. Okay. Pieter?

Thank you, Tiaan, for the financial numbers discussion. If you look at the trading for the 6 months, irrespective of the difficult trading environment that we've been in, I think we really traded well in the period. Tiaan made mention of the revenue contribution by segment, where we see the international division being 18%. I'll talk a bit later, again, about the main reasons for the increase in the percentage in that regard. If you look at private label, just a couple of comments on that. Our dual strategy of growing our branded portfolio and our manufacturing private label ranges from major retailers increased during the year, specifically due to a new house brand contract that we got last year in the juice category, specifically at Pick n Pay. Our private label accounts for around 48% of our total group revenue. On the international side being 100% as the products that we pack are for those customers. And on the regional side, around 40%. RFG also produces private label products and categories where we do have strong brand presence. And this actually gives us a good opportunity to have greater influence over the category. If you look at the growth that was achieved over the period, we saw some similar growth rates in branded and private label products. If you look at the regional side, some comments there. If you look at the turnover growth, volume up by 9.2%; price inflation, up 8.5%; and as Tiaan has mentioned, mix, 3.9%; and acquisitive growth of 1.7%. I think what's important to note on the regional business is that we're really focused extremely hard on trade execution to ensure that our market and brand shares increase, and we're so resilient in those -- specifically, on those brand shares. I'll talk through them a bit later as well. So just some highlights on the regional business. Fruit juice and dry foods achieved double-digit sales growth, contributing to increased market share. I'll talk a bit later also about the dry food share, and we really did exceptionally well in those 2 categories. Canned meat, however, showed muted growth, owing to cost increases, specifically relating to cans and meat. And our ready meals reported some good volume growth and continue to prove resilient in the current weak consumer spending environment. Pie sales continue to recover. Margins, however, are under pressure due to meat price inflation as well as some increased competitive activity. The Today acquisition extends our pie offering, specifically in the top end retail channel with the Today and Mama's brand. If we then have a look -- if you then have a look into our performance in the rest of Africa, our sales of long-life foods into rest of Africa, up by 15% to ZAR 227 million. Nice to see the CAGR below of 10.6% over the last number of years, and it accounts for about 12.6% of our regional long life sales. Growth drivers specifically into Africa are fruit juice, dry foods and our canned meat, and we've got excellent long-term relationships with major distributors and our customers in Africa where we sell products in 13 other African countries. If you look at our market shares. To start off as a manufacturer, proud to report that in jams, #1 position, canned food as well as canned meat and meals. And then in canned veg and in long-life fruit juices, #2 position. I think to note specifically here is the increase in our brand share on the long-life fruit juices side. If we then look at our brand shares, looking specifically at the Rhodes brand in jams, we're #2; canned fruit, #2; #1 in canned pineapple; #2 in canned veg. And in canned tomato, we have still our #1 position. Then also in corned meat, #1. You would have seen, as made mention, some good brand share increase there. Then on 100% fruit juice, also proud. If you look at the Rhodes brand, getting close to that 20% share, being the #2 brand. Infant meals also a good increase in that with our Squish product, #2. Dry gravy and coatings and crumbs, we're #1. And then I think some really excellent performance in the spices, herb and pepper category, where our Hinds brand is #3, but the increase in the share, we're very pleased about. If we then look just a couple of pictures of some -- the brands that we bought, as I made mention, Today and Mama's, mainly in top end retail and then Big Jack in the informal market. Also, some new product launches. We had a range extension in our Bull Brand business and also a new ginger beer that we sell mainly into the African markets and then some other Hinds extensions within this spices category, adding to the growth that we achieved. Also on the Woolworths side, an extension of Plant Powered Protein range and also some other new products that we do jointly with Woolworths with our good relationship that we've got with them. Then if I talk through the international business, some specific comments there, giving a breakdown of our revenue growth. Volume, up pleasing 32.7%. But I think the most important one is the price inflation that we managed to push through of 21.8%, which had a huge impact on our profitability, as Tiaan has made mention, from a breakeven in the prior year to a ZAR 21 million profit. And I think this is a really good performance that we managed that in very difficult circumstances. Obviously, what assisted us in this to get these price increases, as we made mention previously, there was a crop failure in Greece, and it gave us an opportunity to move revenue to more profitable markets and also gave us an opportunity to increase prices to this extent. So as I made mention, sustained strong demand for group's canned food product and also in our industrial food pulps and purees. Exceptionally pleasing performance, as mentioned, to get the volume growth of 32.7% in very difficult circumstances. And if I look at our volumes, it returned actually to pre-COVID-19 levels in H1, although we continue -- it's continued to be impacted by shipping backlogs. The challenges did contribute to increased sea freight costs while also impacting the group's raw material imports. Just a couple of comments on our capital investments. Our capital expenditure is ZAR 147 million for the period. In H1 2021, it was ZAR 138 million. Just a couple of comments on our major capital projects that we undertook in the first half. We completed a new warehouse at our fruit juice plant. This also gives us an opportunity to expand further in that category. We did the integration of our Today pie business, some equipment upgrades at Eswatini and also at our pie facilities in Aeroton and Linbro. And then also busy with our ongoing development of our new pineapple plantations in Eswatini. We plan to spend CapEx of around ZAR 240 million for the full year. This includes ZAR 22 million relating to the Today acquisition. Then just a couple of comments on sustainability, where we've made some good inroads. As made mention previously, our ESG strategy is aligned with our -- with the 5 Sustainable Development Goals, focusing on clean water and sanitation, affordable and clean energy, responsible consumption and production, climate action and life on land. And we set ourselves some targets for circa 2025. Those are all documented in our integrated report, where we specifically focus on energy, water and waste management and greenhouse gas emissions. We are signatory to the national food loss and waste management, where we are committed to reducing waste by 50% by 2030 and doing excellent work in that regard. The environmental, sustainability and transformation performance measures, as made mention, is included in our integrated report and also part of short -- our short-term incentive scheme. Then we also focus on the renewable energy, and we've accelerated it by -- been accelerated by load shedding. We've approved a solar installation at our Groot Drakenstein and vegetable production sites. We're busy in the process to evaluate further installations at Tulbagh and meat plants. And we have, as made mention last year, successfully put up a solar installation at our juice plant. With regards to our dairy farm, there's a 3-year effluent irrigation project underway, and at Groot Drakenstein, there's also an effluent treatment project that we're busy with. In Eswatini, we're composting our fruit waste, and we use it in our pineapple plantations. Then just a couple of comments on the outlook, as I made mention in my introduction. Firstly, as we've mentioned previously, we've got 3 specific targets being revenue growth, operating profit margin and our return on equity. Those are the metrics that we focus on. Target revenue growth, at least to get to GDP plus CPI plus 2%, you can make a quick calc, it's about 10%. We did obviously achieve that, as we've mentioned in the results. So we had some strong volume growth and high levels of price inflation. From an operating margin perspective, still looking for that magic target of 10%. Unfortunately, significant cost pressures negatively impacted the profitability of the regional segment and slow progress achieving this target. And as we made mention, our international segment, again, is recovering and making some good inroads to getting closer to that number. From a return on equity perspective, we target the WACC to get -- to be WACC plus 2%. Our initial progress, we made some progress but the return impacted by decline in profitability, specifically in the regional segment. Then just a couple of other comments. If you look at our focus for the next 6 months, obviously, focus number one is to ensure that we recover increased input costs from the market. We're looking at generating some operating efficiencies to counter some of these -- some of the cost pressure on margins. And then also a big one for us to continue to reduce canned food inventory levels to improve our cash flow. We will continue to drive organic growth to expand our brand shares. And we'll also continue to invest in renewable energy infrastructure to reduce the impact of load shedding on production input, as I mentioned. Then obviously, we've only recently started with the Today acquisition, and we will -- it will continue to support our growth in the pie category. And we expect that to contribute -- that it will contribute to operating profit from the second half. Then as also made mention previously, our demand for our canned food remains strong in the international markets. We will also continue to diversify into new markets in the fruit and pineapple categories with the opportunities that we've made, and we're making some good inroads there. We expect that global shipping challenges will continue for at least 12 months in the -- for that period. And the Cape Town port congestion was compounded by disruption at the Durban port. Obviously, that's where we export our pineapple products from. Then management will continue to evaluate any strategic acquisition opportunities, which are aligned to our core product categories. That is the end of my presentation, and I will gladly answer any questions that anybody might have. Thank you.

Thanks, Pieter. The first question is from Paul Steegers from Bank of America. And Paul asks, what is the outlook for regional growth and margins in H2? Do you see further margin pressure due to input costs? And if so, will this likely be more pronounced than in H1?

Thank you, Paul, for that question. That's the million-dollar question. What we do see is there is, unfortunately, further cost increases that's coming through in the market. As I made mention in my presentation in December, we were actually hoping that there's going to be at least stabilized cost and also getting a bit of relief on costs. But unfortunately, we're not seeing that. So yes, there will be continuous pressure on margins going forward. We foresee that the price increases between 5% and 10% will have to be given to recover some more cost increases that we currently see. We had additional cost increases in canned goods again after the huge cost increase that we did get last year, October. So yes, there will be pressure on margin, but we will continue to focus on driving our business and, obviously, protect our volumes and grow our volumes as we have done. I think we've really done exceptionally well on the execution side on the -- in the regional business. And I think with our high-quality products at a competitive price, I think we will continue to see some growth in the categories that we operate within. But Paul, to answer your question, in short, yes, there will be continued pressure on margin as we need to increase pricing further to be able to recover these input cost that keeps on coming. We also do see that, as I made mention, you need to increase your working capital due to the fact that the congestions and difficulties to get rolls and packs. So that also puts pressure on cost. And we also saw some increased cost [ of goods ] coming through from a distribution perspective. Also electricity cost increases. So unfortunately, there is continuous cost pressure that needs to be recovered in the market.

Then we have a question from Sizwe Msomi from Differential Capital. It's related partly to what you have discussed. Could you please take us through your pricing discussions with clients? Are they accepting the proposed price increases? And what are the prospects for H2 on this?

Yes. Obviously, that is a very difficult discussion with any of our customers. I think as I made mention from the international perspective, the positive one on that side is that the pricing -- we put through the price increases, and we currently sell the more expensive or better pricing product into the market as we are setting on new stock that we manufactured. So there's some good news in that regard. So we expect to open up margins on the international side. And -- but on the local side, we -- our customers are obviously trying their best to keep a tab on price increases, and yes, those are difficult discussions. But as our people say, when they go to any of the retailers, the [ out foyer ] is full of people and they're all sitting there for price increases. So I think those pressures are everywhere, and they're real. And it is extremely difficult to get price increases in the market although we do foresee that we will get those price increases, but we do see there is a bit of a lag. I also had a discussion with some of our international customers, and they're actually experiencing very similar issues in the international markets where pricing is a bit behind. We were actually fortunate that we've signed our pricing for the year on that side and impact our products.

Then a question for Tiaan. This comes from Stuart Bradbury at Nedbank. Please advise the rand value that stock was higher than planned or expected.

Yes, it's a -- I think it's -- year-on-year, it's up by a round number of ZAR 400 million to take inflation into account, plus ZAR 40 million for the Today acquisition. I would say that, that would account for almost ZAR 150 million plus. So -- but then there's the additional raw materials, which accounts for another probably ZAR 100 million. So yes, I don't know if -- for us, it's a great stockholding, if you want, but the addition is anything in the order, I would say, between ZAR 200 million and ZAR 250 million.

Thanks, Tiaan. Great. Another question from Paul Steegers at Bank of America. Please [indiscernible] revenue and EBIT for the Today pie acquisition.

Yes, I think Paul, if you look at the -- we've made some mention on turnover. Our expectation is still running the region of about ZAR 30 million top line per month from the new acquisition. And obviously, we would love to also strive towards that EBIT margin. But at this stage, we're not there due to the fact that quite interesting, when we bought the business, we obviously were behind from a pricing perspective, and you can imagine the difficulty we had to buy a business and to go to the trade and give them double-digit price increases. We did get some price increases into the profit, and at this stage, obviously, I would hope that we would get to the -- that we're striving, obviously, to that 10% operating margin. But at this stage, we're not achieving it. It's a bit early days to give you a bit -- and I will be able to give a bit more insight into that when we do our next results presentation. But we did get some pricing there. But obviously, with the increase in cost, we need to get some more pricing. But yes, we're very excited about the acquisition. And obviously, there will be some operational leverage due to the fact that we're manufacturing those products in current facilities up in Johannesburg.

And Pieter, then we have 2 questions from [ Myron Rajanan ] from [ Mehta ]. And his first question is, what was behind the loss of market share in branded canned vegetables and canned tomato? Was it [indiscernible]?

Yes, that was mainly driven by competitor activity that we saw. Obviously, when you remember last year, there was a big recall of products by one of the -- our biggest competitors in the market, and we gained some share there. And obviously, over time, we did lose some of that impact that we made in that regard. But we are -- pleasing to say, I think we're actually doing quite nicely in that category. But there's not a -- and we foresee that over time, we would love to get back to the share that we had previously. But as you would -- can see, we are still #1 in the category.

And then there's a second question from [ Myron ]. Can you please talk more to regional where you grew volumes and pricing by 9% each but normalized EBIT was down 12%? Why was there no positive growth in EBIT?

I think the answer on that one would be that if you look at the -- as we made mention, part of our strategic intent is to keep on growing volumes. Obviously, the big reason for that is that we couldn't recover the input cost that we -- that was given to us over that period. And we don't manage to get some pricing at the end of the 6 months period. But unfortunately, we continue to see some costs [indiscernible], and we would have to increase prices further to ensure that we get to our margins where it was previously.

A question from [ Charles ] at CH Capital. What will the ZAR 240 million CapEx amount be spent on?

Yes. Tiaan, maybe you can just comment specifically in that regard? We made mention of the ZAR 22 million that we're going to spend on the Today acquisition, but Tiaan can give you a bit of -- bit more insight into the detail of that.

Yes, I'll break it down as follows. These big projects that's listed in the presentation, including the one Pieter mentioned now, we expect that the spend on that to be in the order of ZAR 90 million. There's a ZAR 30 million expected for pineapple [ better ] plants, which need to be capitalized. So it forms technically part of CapEx. And then the balance out of the ZAR 240 million is expected to be spent on maintenance CapEx, which is within our target of maintenance CapEx, not be higher than 2% of turnover. For the year-to-date, we're just over the 2%, but depending on what turnover for the full year will be, but our aim is to keep it below the 2% or not higher than 2%.

Yes. Just to comment on that as well, it's very much in line with what we need to spend at the specific plant from the maintenance CapEx perspective.

A question from Ryan Seaborne at 36ONE Asset Management. He asks, given the impact on the aluminum market, how do you [indiscernible] into this impacting your medium-term input costs? Or can this be offset by longer-term contracts?

Yes. Currently, if you specifically talk about the canned goods, we buy our canned goods from 2 suppliers, of which 1 supplier is a lot bigger than the other. So to start off with all 3 suppliers, 1 is actually very small. There are 2 big suppliers of canned goods in -- or cans in South Africa, and 1 smaller one. If you look at that, the current way that it means that we buy our materials on is from an exchange rate perspective. They take the previous month's average exchange rate and convert it accordingly to ensure that you either get the ups and the downs from an exchange rate perspective. It's also from their side, they also had to increase a lot of raw material stock tinplate due to the fact that the disruptions that was experienced over the -- in the past 12 months, specifically also over the COVID period. So yes, not that easy to cover your tinplate for a longer period of time. And obviously, we've got a bit of a natural hedge in that regard due to the fact that we also export the biggest chunk of our canned food business. And then -- and obviously, we get -- we got that hedge in that regard. We did see, again, tinplate cost increases from the 1st of April, but we have seen a bit of stabilization in tinplate cost, but it's obviously -- we'll have to see what that entails. The -- specifically, the Greeks, from a can food perspective, they'll start to pack their product in the next 6 weeks. And obviously, that will also have an implication on the importation of tinplate. But that -- not that easy to cover that specific cost. And we hope that we get a bit of stabilization in that regard.

Then a question from Thapelo Mokonyane at HSBC. He asks, should we worry about the 6.3% margin as a base in the regional business when we think about the potential margin pressures going into H2 and beyond?

Yes. I think obviously, from our side, we would like to increase that margin obviously. So we've still got the target of getting closer to the 10%. But to be straight up in the short term, that's going to be extremely difficult. We would need to see what the implication of price increases in the market will have on consumers and customers. So I think it's going to be difficult to open up margins. Obviously, we'll continue to drive operational efficiencies as well, and we'd love to open up margin, but difficult to say at this stage to really understand what the impact of these use cost increase or cost increases will be on consumers and, obviously, customer resistance that we clearly see with regards to price increases. But we will continue to drive that. I think to the contrary, again, the advantage that we've got is that we are -- we will ensure that we're competitively priced in the market with our high-quality products. We don't stand back from a quality perspective and our products against any of the competitors. And I think that is one of the main reasons why we are getting these gains in certain categories, that we've got the high-quality products that we set at a competitive price and, as I also made mention, continue to execute in trade where I think we really did extremely well over the Christmas period and also over the Easter period to be able to get these volumes -- volume turns.

Thanks, Pieter. And then a final question that comes from Vik Sharma at RMB Morgan Stanley. He asks, could you please elaborate on objectives of the business with regards to net debt? What net debt-to-EBITDA or net debt-to-equity ratio do you want to [ maintain ]? Also, the free cash flow overall at [indiscernible] has not been great and yet in acquisitions. Now with further new acquisitions and new CapEx and new acquisitions, the balance sheet gearing doesn't seem to be coming down. Is Rhodes committed to bringing the net debt down by focusing on existing cash generation as acquisitions still remain one of the pillars of your outlook?

Yes. I'll make a couple of comments, and then I'll ask Tiaan to also make some comments. Thank you, Vik. It's -- as made mention in our outlook, it's one of our big focus areas that we need to look at. Obviously, one is recovering cost in the market to ensure that we drive our margins higher. And so that's an important one for us. And obviously, as we also made mention, we are really committed to work hard on our working capital. We did pack a bit of extra products in -- at our food plants on the one. If you look at specifically at Tulbagh, due to the fact that we had the 3 crop failure, obviously, our demand of the product is exceptional. And we also managed to get those good price increases in the market. So quite comfortable with the stock that we've got in the system. But obviously, we need to convert that stock as quickly as possible to cash. So that is a big driver for us, but we need to get that out. It's good stock that we've got, and it is profitable stock. So on the international side, we're really driving hard to get our containers up. And also, obviously, on the pineapple side, we're growing volumes there as well. Market also still look at good pricing that we're currently achieving. So also good start there. The more difficult one for us to manage is the additional rolls and packs that we need to keep in our business due to the fact that it's really a struggle to ensure that you've got your rolls and pack. The last thing that you want is to be in a position where you don't have rolls and packs available to be able to manufacture your products. And that is the more difficult one for us to manage. But obviously, we're working hard with our suppliers in that regard to see whether we can -- between the 2 of us, between us, have a bit of a partnership with regards to getting stock down. So we've got discussions with them. And to assist in that regard, although also from their perspective, a lot of the input costs are also imported. And obviously, they're also keeping additional stock. I'm sure you would read the -- not only our competitors but also our suppliers making mention of higher stocks. But we're absolutely committed to drive that down. Obviously, we've acquired that Today's business. You would have seen the impact on cash in that regard. Obviously, we had some initial cost -- restructuring cost by closing the [indiscernible] facility. And we've got the additional stock that we bought, although as you would have seen from a CapEx perspective, from an asset perspective, it was extremely low. We've also sold off some of those assets. So there will be a bit of income coming our way. And we also -- but we also had to invest a bit from a CapEx perspective. But I think all in all, if you look at the top line and the opportunity, I think it was a good acquisition for us in that regard, but maybe Tiaan can also give a bit of insight into managing our working capital and increasing our cash flow.

Yes. Vik, you will recall that each time we get asked this, we would stress how important for us as management is to manage that well because we are in a working capital-hungry industry, particularly so with the seasonality in the export business or the international business. But we have always said in terms of ratios, debt to equity, we -- our ideal is probably at 50%, 60%, but there were times where we've pushed it beyond that to make acquisitions. And in terms of debt to EBITDA, we said probably top-ish is 2x. But again, depending on the circumstances, we wouldn't be irresponsible, but we would push it, and we've done it in the past. And now ever since 2018 when both of those ratios were on the north side of their kind of theoretical limits we set for ourselves, we've made good strides reducing those -- improving those, reducing debt and improving those returns. At the moment, granted with everything that's going on and, in particular, this inventory situation, our debt is higher than where we would want it to be, but we are cognizant of what we need to do, and we are focusing on that. Our debt to equity, and it's a half year result, a bit of -- not the ideal time, obviously, to calculate it because you're looking at a point in time where our investment in working capital is near its peak. But it was about 500 basis points more than last year. But as I've explained in response to Stuart's question, there's valid reasons why we are sitting on a lot of stock. And if our plans materialize to the extent that we believe it would, then by year-end, I'm confident we would show some improvement compared to last year on those. Again, last year, with free cash flow, it was lower than the year before but still reasonable. But there were specific reasons that they rise to a lower free cash flow compared to this year. But we've always said, we're not a mature business. We've [ decided ] on our growth aspirations. And our track record often speaks for itself in terms of how we find this type of bolt-on acquisitions that we've made. So yes, point taken. But we, as management, if we -- it's under control.

Pieter, we have 2 further questions come in. One, from Thapelo, is a follow-up. Are you expecting pressure on margins half-on-half?

Yes. As I made mention, it's a bit difficult now to say what will happen because we need to ensure that we manage our margin volumes as well. So as I made mention, we've seen some pricing going through, and we need to increase prices again in the next half. So yes, a bit difficult to say, but the situation will be with regard to the reaction of the consumer and also the reaction of the customer. So yes, a bit of a difficult one. Do I expect pressure on the margin? There will be pressure on the margin due to the increases of cost. But to what extent, that is going to be dependent, obviously, also on our margin volume management, and we will carefully look at that. As I made mention, we would love to continue to get growth into the rest of Africa. And we would also love to continue to get growth in our regional business. So yes, I think a bit of a difficult one at this stage, and time will tell what we -- what the impact of these extraordinary cost increases will be.

Thanks, Pieter. And then a question for Tiaan from Paul Steegers. What [indiscernible] do you currently use?

Yes, Paul, it's in the ballpark of 14%.

Thank you. Pieter, Tiaan, there's no further questions on the webcast.

Thank you. I just want to again thank you -- thank everybody, for attending, and have a good day. Thank you very much. Thank you.