Nampak Limited (NPK) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Nampak pre-close period conference call. [Operator Instructions] Please note that this event is being recorded. I'd now like to hand the conference over to the Chief Executive Officer, Mr. Erik Smuts. Please go ahead, sir.

Thank you. Good afternoon, ladies and gentlemen. Welcome to Nampak's voluntary trading update for the 5 months to the end of February 2022. Maybe just something to note that the main focus of this update was not on Nampak's financial results or any specific numbers, but rather the underlying trading conditions that are prevailing in the market. So if I can maybe move to the highlights from this update, I would say, it includes, first of all, very strong demand in most of our key markets, resulting in revenue growth as stated in excess of 20%. This also resulted in strong growth for all our other profit metrics, and of course, the operational cash generation, but we experienced abnormal pressure on working capital requirements as a result of the growth and sharp increases in commodity prices. We can confirm that the group complied with all our funding covenants at the end of December '22. And the key focus areas for management remain, first of all, of course, covenant compliance and then the assessment of the sustainability of our long-term debt and capital structures. In terms of trading conditions for our different substrates, our Metals division experienced very good growth with the Rest of Africa, again, showing very good increase in profitability. In Bevcan South Africa, demand for larger packs exceeded our capacity and overall demand was boosted by the continued growth in the energy drinks market, while the ongoing glass shortage supported beer and cider volumes. Bevcan Nigeria again performed particularly well, while Angola benefited from the easing of COVID-related trading restrictions. In South Africa DivFoods, we are very pleased to finally see the return of high demand for our fish cans, which, as you know, there was a big lack of availability of the imported frozen fish, that has now arrived, and we are filling cans at speed. Overall, the division improved profitability and more benefits are expected to follow during the remainder of the year resulting from some of the restructuring that was done last year. Growth in our Plastic businesses came mainly from Zimbabwe, where we had very good performance, while our liquid cartons business in South Africa in Isithebe, benefited from the removal of the restrictions related to alcoholic products that was in place, as you know, last year. In our Paper businesses, they also performed well, particularly at our larger sites, and these, I can remind you, are situated mainly in Zimbabwe and Zambia. So that's a very brief update on conditions in these markets. And as you've heard, I think in most of these markets, we've seen very strong demand. But of course, the impact on working capital came from that. So I'm now going to ask Glenn maybe to talk you through some of the remaining funding metrics in the rest of the update. Over to you, Glenn.

Thank you, Erik, and good afternoon to everybody. I will talk through the cash transfers and capital expenditure as well as certain impacts on our working capital and also address asset disposal and debt reduction program. So if I can first start with the cash transfers. Cash transfers from Angola during the period relative to the trading activity in that region have been satisfactory. What we have seen is in Nigeria, foreign currency availability at the official spot rate market has slowed compared to the prior year comparative period. And this is due to in-country shortages on the spot market. Very, very good control over our capital expenditure is a feature of the numbers year-to-date, and we would see that continuing to be the case for the full year. A big feature of the numbers and the impact on our funding at the moment have been unprecedented increases in commodity prices and global supply chain challenges, where we've had to be rather conservative and prudent in ensuring that we have continuity of supply in certain of our geographies that we operate in. While we have got very strong cash generation from our operations, that is as a consequence of healthy trading conditions, there's certainly a pressure on our cash flows and our funding levels due to a high utilization of cash in our working capital cycle. The significant higher working capital impacts due to those commodity prices. There've also been large increases in shipping prices and also certain global supply chain disruptions. And that has led us to being in a higher-than-planned working capital position to date. The newly added geopolitical risk of the Russian-Ukrainian war has also added to certain of those supply chain stresses, and we continue to deal with those on a day-to-day basis. From an asset disposal and debt reduction point of view, the disposal that we identified as noncore assets has continued to be challenging in the current market conditions. And therefore, we are considering other asset disposals as we progress through the current financial year. Approximately ZAR 400 million of the nonrecourse trade finance facility that has a capacity of ZAR 1 billion has been utilized to date, and we've utilized ZAR 206 million of that to permanently reduce the group's existing banking facilities. We are having negotiations with both downstream and upstream trading partners in the South African supply chain given these increases in commodity prices, which we are hopeful will reduce our investment in working capital -- in our net working capital. I'd like to remind you that in line with existing funding agreements, the group's ability to reduce its net interest-bearing debt by ZAR 1 billion by the 30th of September 2022, will be assessed by other funders on the 30th of June 2022. Cash proceeds from the disposal of assets internally generated cash. The use of the nonrecourse trade finance facility and/or proceeds raised from the capital raise will be considered in determining the group's ability to repay the ZAR 1 billion by September 2022. Erik, that covers the section that you asked me to cover.

Thank you, Glenn. I think that covers the trading update. As you've seen, it was a fairly short one, and we will now open the floor for questions from the audience.

[Operator Instructions] The first question comes from Mark Narramore of Excelsia Capital.

Can you hear me?

Yes. Please go ahead, Mark.

Just around the working capital. I mean, obviously, you can't make the call where the aluminum price is going to go. Just assuming sales kind of -- the sales growth slows a bit. How are you quite comfortable that work capital should unwind or any reasons why it shouldn't?

The market at the moment -- of course, the additional working capital requirements are twofold. First of all, the positive side, which is growth in our volumes and so on, and that hopefully will not unwind because that is a very positive side. The negative side is the commodity cycle where, as we mentioned, -- if I look for instance at aluminum, aluminum started out the cycle at about $1,800 per tonne. It literally went through $4,000 a tonne at one stage, luckily only briefly and has settled so for well in excess of $3,000. So it's almost doubled in price; where on steel, it's also been in the order of 60%, 70%, depending on where you start the measurement. So I think both of these will unwind over time, but it will not be in the short term. So if you consider, for instance, in the case of steel, the increase in prices related to China removing some of the, let's call it, dirtier plants from the supply chain. So where China used to be a massive exporter of steel, they've removed some of these plants that's not considered to be environmentally friendly, which has put additional pressure on the system. And with some of the supply chain disruption from COVID, that just made steel prices showed through the roof. So until additional capacities added expect those prices will remain fairly high. If we look at aluminum, a little bit of the same. Also some supply reduction in availability from China. But that's also largely been driven by the huge global swing towards aluminum, not only for packaging, but for all sorts of different reasons, because aluminum is just such a good product for not just recycling, but overall packaging, et cetera. So I don't think aluminum prices will remain that high. It's much more linked to the cost of energy, which we all know is currently very high because of the situation in Ukraine. So -- and I'm not -- listen, I'm not a commodity specialist, but I do hope that aluminum prices will come down a bit quicker perhaps than steel. But I think for the short term and for that, I would say, at least a year or so, we need to ready ourselves to have to cope with these very hard prices. I hope that answers your question, Mark?

Yes, that's useful. And maybe just moving to just some commentary around the asset disposals and debt reduction. You say other asset disposals are being considered. Can you maybe elaborate on that, what you guys are willing or able to tell us just yes, it will be useful?

Okay. So as you know, there were a number of bigger businesses that we considered for disposal. And I think top of that list was part of our liquid paper business, which we had to withdraw from the market because of licensing issues and so on. Sadly, all the other big businesses that we had on the market and where we had buyers that literally went through all the due diligences and some of these, we have signed agreements, et cetera, the buyers walked away either right at the end or couldn't secure the funding to go through with the transaction. So as it stands right now, I don't think we should put any sort of reliance on proceeds from the sale of these big assets to come and prop up our capital structure. So for the moment, when we talk about other assets, it could be some of the smaller properties that we still have in some parts of Africa. It includes the trade finance facility, some of the debtors that, that up to ZAR 1 billion that we can have from there. But the problem, of course, is that with working capital, to some extent, the trade finance facility won't solve that permanently. At some stage, of course, you have to pay back whatever invoices you sell, you can do that for a long period of time. But I think the structure that we have at the moment or the structural problems in terms of the commodity has really put the cat amongst the pigeons. And as a result, some of the opportunities that are available to us, we can't consider. So unless we have adequate capital to look at some of those investments. Then to some extent, we will not be able to defend ourselves to not just, I want to say, attacks from our competitors, but some of these opportunities are available to us as a really good growth project where at the moment because of this commodity cycle, we have to sit on the sideline and potentially see those opportunities go by. So it's a very uncomfortable position in to be at the moment to be in such a strong trading position, but to have the squeeze on liquidity because of the commodity cycle.

Maybe I'm hogging the mic a bit but I've just got 2 more, then I'll go off it. Just -- the other thing you guys had mentioned in these results are the repayments from the Reserve Bank of Zimbabwe, I know it's quite small, but any -- is that anything kind of material there that could help? Or is that going to be relevant? And what are you seeing there? And then maybe just my last question, so I can give the other guys a chance. Just around the FX moves coming through. I mean, I was looking at the Angolan funds, it looks like it's a lot stronger. I mean I think the is devalued slightly over this period. But what kind of FX moves would you expect to see kind of in H1, I would assume that be kind of net gains coming through the income statement? Those are my questions for now.

I'm just going to respond partly to that, then I'm going to ask Glenn to also -- so first of all, the, as you know, not depreciated at all that, we've actually -- the kwanza actually appreciated. So that's very welcome. And as we said, cash flows out of Angola is really not a problem. It's on the naira side where -- it's not the depreciation of the naira as such, but the fact that you cannot buy any significant dollars on the official spot market. And as a result, you have to pay higher premiums for that, most of which is passed on to customers in the pricing. But it does put a lot of pressure on the repatriation of funds for -- to support our loans, et cetera. I'm not sure, Glenn, do you want to add anything to that maybe?

Erik, I think what we may be going to look at is that as we mentioned in the trading update, the availability of kwanza's fund, and we've seen a strengthening in the kwanza versus the dollar. So where there are monetary assets in terms of reporting them back into our results that would be positive. In the -- on the naira side, there's very limited availability on the spot market. So when you can get availability in the spot market, there's only been a very marginal weakening in the naira from a closing rate of around 413 to maybe 460 now. But to get dollars on a secondary market, there's quite a significant gap. So to the extent that there's maturing positions and we need to repay the treasury business and have that to secure funding in that other market, there would be obviously a certain amount of pain one has to take in transferring that cash back to [indiscernible]. So I would think directionally, Nigeria would be a foreign exchange loss and offset by strengthening in the kwanza being a profit.

That's correct. Then, Mark, the other part of your question related to the Zimbabwe debt. We have not seen any additional cash coming through from that. The Zimbabwean Government have now announced a block framework through the parliament. And therefore, all old debt are now classified in terms of that system, and we will have to see what that means in terms of the recoverability of that debt going forward. But although it's a massive amount, again, we've seen very good sort of funds coming from the follow-up agreement we had, but that debt stopped just short of our year-end from what you might recall, and we have not seen any additional funds coming from that, which has been quite disappointing.

The next question comes from [indiscernible] of Prescient Securities.

Can you guys hear me?

Yes, we can.

Just a quick one from my side. Why do you think that Bevcan in SA are strong? Is that a form of restocking or most of your continuing?

I think there's a number of reasons. It's not restocking. The -- so Bevcan locally -- so let me maybe expand a little bit. So you might recall last year, we had very good export volumes into North America. That those contracts were concluded at the end of last year. So we don't have those large export contracts into this year, which potentially could have created quite a sizable gap for the current year. But the current year, the market is actually so strong that we are not experiencing -- to date, we did not experience that gap. So that gap has essentially been pulled. And as we -- as I mentioned during my updates, there are 2 main contributing factors. The first one is the very strong growth in energy drink cans. So typically, your 500 mL energy drinks, still very good performance there. And I suspect that's got to do with very competitive price points in the South African market. And then the second one is the glass shortage that will still be with us for quite some time. That contributed to a very good demand from the beer and cider sector. I hope that answers that question?

[Operator Instructions] The next question comes from Cobus Cilliers of All Weather Capital.

Can you hear me?

Yes, go ahead Cobus.

Two questions from me. The first one is, have you guys seen any contract wins in the past 5 months? I mean, I know that there's been very strong growth, but I assume that's from existing clients on the existing base. But is it -- is there any additional contract wins that you've had in the...

No. There's not been additional contract wins, but what we have seen is there's a number of the smaller customers that do not have specific contracts with any of the suppliers. And there, typically, you, sometimes they buy from us sometimes from our competitors and so on. But what we have seen is that the whole market is tight at the moment. There's a tightness in supply. So therefore, we haven't seen any of these guys moving away from us, where people are not under contract, they've actually begged us to supply more of those gains. So at the moment, the -- there's very strong demand in the market and not enough capacity for the specific sizes that are required.

Perfect. And then just maybe a more question in regards to working capital and obviously how that working capital cycle on your different -- whether it's your inventory days or your debt-to-days and so on, how that translates into your EBITDA. As your customers that you've supplied to more, how does those -- how are those terms? Are they just a normal average terms that you have in the business? Or are they slightly better? And given the tightness of the market, are you able to negotiate quicker payment terms with them? Or was it more the bigger guys that's got the very longer term with you?

Yes. So Cobus, first of all, it's difficult to say. I didn't quite understand the initial bit of your question in terms of whether we have average terms or not. We -- the terms are what they are and some of the bigger customers, of course... Sorry, you want to clarify, go ahead...

Yes. All the people in the same terms -- yes. So let's say there's a 60-day terms for the customer to pay. I mean the people that's taken more supply of the cans, is it the bigger guys that have the 60- or 90-day terms? Or is it more the smaller guys that needs to pay you quicker or more of them at the same terms?

It tends to be, as you all know, some of the bigger customers in the market has got very strong financial muscle and negotiation power. And a result, they tend to have better terms, longer terms than some of the other customers. And because we have particularly large allocations from those customers that of course has put additional pressure on us. Our ability to negotiate better terms, well, of course, that can only happen formally during a contract negotiation. So unless those contracts come up for renegotiation, in theory, you can't renegotiate it. We are operating under abnormal conditions at the moment. And therefore, we have seen sympathy from some of our customers to accommodate sort of earlier payments. They do understand that these commodity prices are abnormal. And in some cases, they did come to the party, but we are in ongoing negotiation not just downstream, but also upstream to make sure that we get the whole supply chain to support the growth that we're currently experiencing.

The next question comes from [indiscernible] of [ Business Day ].

I just had a quick one for you. With regards -- could you please expand on the group's growth strategy going forward, notwithstanding the strong demand in cans that you spoke about as well as the return on the fish cans?

Thank you, [ Michele ]. So [ Michele ], there's a number of areas where we can grow. So first of all, in South Africa, we have a very strong position in beverage cans. So it's unlikely that we'll see a massive expansion of our market share in South Africa, although we are in a very strong position at the moment with the flexibility that we do offer to customers. So one of the areas where we've lost market share in the past has been in our food operation in our food cans part of the business. And there, we hope to secure some new contracts in the next couple of months, and we hope to update the market tune on some of those possibilities. But of course, there's nothing yet concrete that we can report on about that. So in South Africa, I think the biggest opportunities for growth at the moment is in our beverage can side, where we do have an additional line where we can expand capacity, but we will need some additional capital for that. Outside of South Africa, we then look north to the rest of Africa and the biggest opportunities for growth at the moment are where we already established, which is both Angola and Nigeria. Angola comes from a very low base at the moment due to some of the economic conditions there. So there's definitely opportunity for growth in Angola. We are very well capitalized in that market. And therefore, any pickup in more normalization of that market we are very well poised to benefit from that growth. Then the next market, while north in Nigeria, that is where we already said we are operating very close to full capacity on the one line we have there. We've seen continued growth in that markets during this period under review. And therefore, we are really now getting to the end of our available capacity. So there's definitely opportunity to invest in another line. We've always said we first wanted to see how sustainable the growth or the demand is in that part of the market. It is starting to look more and more solid. So that is certainly an opportunity for growth. And then I think we made it clear that outside of Africa is really the next opportunity for growth. So -- and that would be in our beverage can market. The whole world is experiencing enormous growth in demand for beverage cans, mainly as a result of a move away from single-use plastic towards more sustainable aluminum packaging and that growth is still continuing. And that's when I say at the moment, we have to sit on the sideline until we get appropriate levels of capital or our balance sheet in order to be able to capitalize on those opportunities. The biggest opportunities at the moment are sitting outside of the continent of Africa, but there's definitely still enough opportunities available in our traditional market that we certainly would like to benefit from. I hope that answers your question, [ Michele ]?

Absolutely, Erik. I just have one more follow-up for you, please.

100%.

You guys spoke about how demand for certain Bevcan product had exceeded available capacity. Was this worth Nampak running at full capacity?

Yes. So Michele, if I can explain to you, so we've got 5 different lines in South Africa and our competitors has got 2. Most of those lines can do multiple sizes. And when I say multiple sizes, that includes the slender diameter cans as well as the larger 500 mL cans. So -- but one of our lines, Line 2 in Springs is an older line. It can only do a standard 350 mL can, which is the standard diameter, sort of the older looking can. And that line historically or previously was used to service some of the export market into North America. Now that demand -- as you know, those contracts has now come to an end. And therefore, we have quite significant spare capacity on that line. But in order to utilize that, we will have to reinvest in that line on longer-stroke bodymakers, that will take some significant capital, but that will still be at significantly lower cost than investing in a new line. So we have the ability to sort of capitalize on this local opportunity by, let's just say, modernizing Springs Line 2, and that will be the quickest way for the markets to release some of this pressure on supply right now, and that's certainly something we would like to do.

The next question comes from Nhlakanipho Mncwabe of 36ONE Asset Management.

Can you hear me?

Yes, we can. Please go ahead.

Yes, I just wanted to ask -- I don't know how to put this, Erik. So it sounds like trading is quite strong, but you are coming out of some sort of constraints or feeling pressure in terms of cash flows and balance sheet. So I mean, how do you approached us when speaking to your funders when -- I mean, do you see yourselves getting into similar situations that you were before, where the funders kind of said you have to get this -- all of these things done by a certain date? Is there some sympathy for the funders in that working capital might be a timing issue more than anything else? And that -- I mean, the strong trading is representative of maybe your balance sheet being okay. I'm just curious as to how you're thinking or how those conversations are going as things are?

Yes, that's a very difficult question to answer because it touches on many different aspects. So overall, there are covenants that we have to comply to. So even if we experienced good growth, any business has to fund its own growth, and that is generally referred to as your sustainable growth rate. So if it's a short-term issue, I think there will probably be more sympathy from the lenders. But if they find that it is more medium, long term, then you would expect -- they would expect you to have adequate funding or profitability levels to make sure that you can get back within your covenant levels. So when you have an abnormal increase in working capital like this, unless there's a commensurate increase in your EBITDA or your profitability, it certainly would result in pressure from the lenders to ask you to bring more capital to the party.

[Operator Instructions] The next question comes from Mila Mafanya of Afena Capital.

Am I audible?

Mila, we can't quite hear you.

Can you hear me now?

It's very soft, but please go ahead.

Just a couple of questions on the debt. So just the first question, if you can confirm whether or not for the first 5 months, you were actually free cash flow positive after CapEx? The second one is whether or not the newly identified assets that are being considered for disposal, whether or not they get you to the $400 million? And then I wanted to find out whether or not the funders, I know the evaluation happens on the 30th of June, but will they consider any cash flows during the period July to the end of September? I'll just leave it there for now.

Okay. So Mila, the first one -- see, I'm not trying to remember all 3 now, but okay, maybe let me go to the second one. The ZAR 400 million has got nothing to do with other assets. The ZAR 400 million we mentioned is the utilization that we've already done of that ZAR 1 billion trade finance facility, and we can still get up with another ZAR 600 million if we find that, that is the right thing to do. So when we talk about other assets, it will take time, of course, to get through that. So the exact value, I can't comment on right now. But of course, when the assessment is done by the banks, we will put all those on the table, and they will consider that in terms of deciding then whether they believe that equate or not. Your first question related to, are we cash positive for the first months or not? That is not something that we can disclose at this point in time. I think that will come through as part of our results at the end of May when we do our first 6 months. And then was there another question, Mila? I can't recall if I've addressed all your questions.

Yes, Erik, the third question was just -- I know the evaluation happens on the 30th of June by the funders, but I want to understand whether or not any cash flow that's realized between July and September will be taken into account?

Yes. Listen, I don't want to talk on their behalf, but they would consider anything that is reasonable. So therefore, they will look at our trading up to that point in time, and they will also look at the forecast for the rest of the period. And I guess, to some extent, our compliance to -- or to what extent we achieved our forecast up to that point in time. So if they find that we've overshot on our actuals every month, and I guess they will place higher reliance on those cash flows. But essentially, they will take anything into account in their assessment that is reasonable. I mean they -- one shouldn't be expected or one shouldn't expect that they will be unreasonable about it. If we can make a good case for that being a reasonable request, then they will consider funding from any source.

The next question comes from Charles Boles of Titanium Capital.

Two questions, if I may. The first one is you're speaking about commodity pressure, maybe for in excess of a year. And whilst you've got some up and downstream support, with the disposals becoming more challenging, at what point do you decide that a capital raise to enable you to fix the balance sheet and enable you to pursue these growth opportunities is appropriate? So what would get you to that decision? And secondly, if you could just help us understand the nonrecourse facility. Is it a receivables facility and you still got ZAR 600 million of availability? Are there any conditions or criteria that limit your ability to draw on that?

Okay. So the first one, how long has this commodity cycle going to last? We don't have a crystal ball, so we can't say. And therefore, our lenders will, I'm sure, have their own view on that, but they will make the call on whether they require a capital raise or not. So we can put forward our case as to why we believe it is not required or why we believe we can trade through this. But in the end, the call -- now of course, it will always be the decision of our Board to execute a capital raise or not. But whether it is a requirement or not, that decision will be made by our lenders, that I can't talk on their behalf. They will consider, of course, the capital or sort of the commodity cycle. But some of the factors that our Board would certainly also take into account includes the growth opportunities that we simply cannot get into unless we have adequate funding to do that. And like I say, some of those are not just fewer growth opportunities, but it is also if you don't do it, somebody else will and then you might go backwards. So there's a lot of complicated decisions to be taken into account. But by far, the biggest one in the current scenario certainly is the capital -- the working capital requirements. Your second question, and Glenn, please feel free to jump in as well. But we still have ZAR 600 million available on the trade finance facility. It is a receivables. So it's typically the invoices to our customers that we essentially discount by selling them and drawing down the cash earlier. So you will always -- if you draw down on it, you have to keep on replacing some of the invoices that you've sold by new ones as they come due. So typically, our debtors book run well in excess of ZAR 2 billion of, let's say, available invoices. But of course, the bank will only consider invoices from high-quality customers. So that would bring that down. Now of course, we've only applied for a ZAR 1 billion facility. So one would expect that you can draw down up to the full ZAR 1 billion. But of course, that we're continuously looking at how trading conditions evolve as well as the cyclical nature or the seasonality within our debtors book. So all of that is being assessed all the time. Like we said, we've only drawn down ZAR 400 million so far. That does not mean that we can't draw down more than that. But it does constrain you in a way. And eventually, you have to buy it back. This is not something that is permanent. So eventually, I think it would be good to, I want to say, a role that the selling of those invoices and eventually, you have to get off the roller coaster. But I know many companies have done that for many, many years. And Glenn, I know can talk, particularly he's got very good experience on doing that at the company where he used to work. So Glenn, if you maybe want to add anything to that?

Thanks, Erik. How we structured this is to look at the kind of credit worthiness of our customers and where the funding rate on a look-through basis is actually cheaper than what we can borrow directly from. So the facility that we put in place creates both flexibility and cost benefit for us in our funding. And to the extent that we have got available invoices, we certainly have got the flexibility to go up to the ZAR 1 billion. What we have done has been quite conservative in the use of it, the initial drawdown of the ZAR 206 million, which happened, I think, on the 26th of October, shortly after year-end. We have topped that up a little bit now to test using it at a higher level. And as we indicated in the document, we've used approximately ZAR 400 million of it. And we found it to be a very efficient mechanism. In the previous business as with -- which was an IT distribution business, we ran the thing for over 1.5 decades. That was very, very useful in that as the value of the invoice has increased because we were importing goods that were linked to the rand-dollar exchange rate. It became a very flexible funding mechanism that funded our growth in that area, and hence, why we provide to this business as well because a lot of our invoicing is obviously linked to commodity prices and rand-dollar exchange rate. So we certainly have got the capacity to do it. And it is, in essence, an evergreen funding arrangement that unless the counterparties better status changed or the bank's view on the structure change, we could keep using this for a long time going forward.

Yes. But I think the key thing also just to remember, to be cautious of is to keep in mind, this is not a -- it's not meant to be a long-term capital structure. It's there to assist liquidity, but it does not replace your requirements for long-term funding.

Just to extend analogy Glenn is referring to his previous life, so if I can adopt that analogy, the business was constrained by its capital structure. And I just wonder if -- despite resistance, if not sorting out the balance sheet, properly through a capital raise doesn't ultimately impinge on being able to run the business properly. I mean I get that the funders will have a strong determining, say, in the funding. But it would seem that there would be a very strong argument as a Board to bite the bullet and fix the balance sheet so that it's a durable and it's a stable fix?

I have to be very cautious how I answer this because I don't want people to jump to conclusions to say that is a decision made or that's the answer and so on. We -- I think we've made it very clear in the past that we want to avoid a rights issue as far as practically possible. But we have to remain sort of -- or we have to keep on reevaluating the situation based on current conditions. And there are 2 things that has changed quite dramatically, I think since the last time we had an update, one is the commodity cycle and the other side is the opportunities that are presenting themselves. And so right now, yes, we can continue to operate the business maybe at a static level. But I think if we want to grow and if we want to exploit some of the opportunities that are available right now, we will have to look at additional funding, whether that's from our lenders and you can imagine yourself their appetite for additional funding at this stage, or through a capital raise, both of those will have to be considered. But on both of those, there are pros and cons. The Nampak share price traded at a significant discount a year or so ago because of the perceived risk of a rights issue. Of course, what's changed since is that our trading levels are now significantly better and you've seen some of that at our last year-end results. And hopefully, when we put forward our half year results, maybe the markets can see how we've progressed. So I think that's one thing. And then, of course, these opportunities that are now presenting themselves. So I think if one has to consider a capital raise, there is definitely a point in time when it is the right thing to do. But we will -- like we said in the update, we will keep on reassessing the sustainability of our capital structure. But maybe sustainability is not even the right word because it is backward looking only. Maybe we should focus more on some of the forward-looking requirements because at the moment, like I say, yes, the capital or the commodity -- sorry, working capital cycle is working against us, but we also have to fund real growth, and that is it is putting us our liquidity and the squeeze at the moment.

[Operator Instructions] The next question comes from Rajay Ambekar of Excelsia Capital.

I just wanted to just touch on -- you talk about these opportunities. Maybe you can just elaborate a bit more on what these opportunities are? And maybe also just talk about when you think of sort of additional capital for these opportunities, is it to fund more working capital? Or is it to fund the CapEx and increase capacity? And maybe just linked to that as well, can you just talk also about -- I think in the past, you've discussed solution in terms of possibly bringing partners into some of your businesses. And maybe you can just talk a little bit about whether that remains an option to sort out the capital structure?

Okay. Rajay, there's, okay, a number of answers. So the first one, yes, to some extent, it is to working capital growth because of the growth. But that is not the only one. Maybe let me make it more practical. So you would know that we have an opportunity, a big contract that's coming up for renewal or renegotiation with one of the food can customers, that is a very significant contract. And if we were to win this contract, we will, of course, have to fund the working capital associated with that. So it's historically been a very good contract. We hope to regain some of that business. So that will be pure working capital. At the same time, when we lost this contract, we closed one food can line in Rodland. So we will have to spend capital on getting that line up and going again. So there's a bit of capital. It's not a massive investment. So that's the first one. The second one is, like I said, to -- if we -- if you look at the immediate demand that's available right now is on the beverage can side, for larger format cans, we have a line available that underutilized right now by giving it long-stroke bodymakers, we can really, not just, I want to say, cement our position in the beverage can market, we can strengthen it even further. So people like the service they get from us. Our customers, I think now that they've had experience from all the different suppliers for a longer period of time, we are seeing more of them coming back to us and asking us to supply a higher allocation to them. Right now, we cannot do that because we are full. So if we invest in more long-stroke bodymakers on that line, we can release some additional capacity on our beverage can line locally. And then the third immediate opportunity, and that's maybe not as immediate is the investment in a second line in Nigeria. The market right now there is reaching its full capacity. And maybe just to give you an idea, any significant investment in equipment for beverage can lines. If you place the order today for a new line, it will take 2 years before you get the equipment and then you still have to install it. So the opportunity we have for Springs Line 2, we can probably do it in half that time. So it is something that the markets, I think, would appreciate, and it would be good for Nampak, but we cannot put our covenants under pressure or even bridge any of our covenants in order to capitalize on this opportunity. And then, of course, the one in Nigeria, is a much bigger investment additional line just in rough terms would be in the order of ZAR 1 billion. But of course, as you know, we do have significant profitability coming from Nigeria even after you consider the issues around the cost of extraction, et cetera. So it is a very good opportunity. But unless we do it, somebody else will. And at the moment, we just don't have the financial means to capitalize on those -- on all those opportunities. I hope that answers the question, Rajay?

Yes. Just maybe the second part was on partners, bringing partners into some of your operations to...

So that we're continuously looking. We've had many discussions with many potential partners. There's been stages where we thought we're very close to getting to a deal and then suddenly it's gone cold again. So it's always very difficult to say whether you have a deal in the making or not. But we're continuously looking at people that might be potential partners. At the same time, you're going to be very careful you let go of some of your most profitable assets. So it's always very difficult assessment to make, but we are continuously looking at potential partners for ways how we can bring additional funding to look at you're selling, let's say, a portion of a specific asset.

Okay. And maybe just in terms of sort of sorting out the balance sheet and requiring more capital. What is that actual number? If you had to -- if you had -- if you could...

Rajay, I'm not even going to give any comment on that right now. I think that we will determine in conjunction with our Board and our lenders if required.

Ladies and gentlemen, at this stage, we have no further questions from the lines. I will now hand over back to management for closing comments.

Okay, thank you very much. So maybe I'm actually going to pass to Glenn maybe to give some closing remarks first, and then I'll finish off thereafter.

Erik, thank you, and thank you to everybody for your questions and your attendance. I think it's pleasing that the trading is strong. In a recovery phase, one would expect to utilize working capital. I think utilization of additional working capital has been exacerbated by unprecedented increases in commodity prices. And we are dealing with those internally and within our existing banking facilities and in conjunction with upstream and downstream partners. And we will be presenting obviously our results to our lenders and the market at the interim release date at the end of May. And I think further assessments can be made once those results become public. But directionally, I think trading is looking good.

Thanks, Glenn. So if I can add to that, the -- at the moment, you almost have to look at 2 sides to our business. If you look at how well is the business doing? It is doing tremendously well. Or at least from our side, we are very happy with the growth we're seeing in profitability. So of course, we have revenue growth that is that, to a large extent, has been driven by the price increases. But we also, as we reported, have seen to date very good growth in profitability and cash generation before you take into account working capital requirement. And then the other side of the cycle is really this requirement of working capital. So it's really 2 extremes that we are seeing here that we have to carry. And given that we are heading towards a very specific date being the 30th of June for the assessment of our ability to repay debt, we are having very interesting discussions, as you can imagine, with our lenders. I'm sure we will still have for the next couple of months. And hopefully, we can give more clarity on this when we update the market at the end of May. So thank you very much for your attendance today. I know there's been some competing potential sessions that you could also attended. So thank you for attending the Nampak session, and I wish you all the best for the rest of your day. Thank you very much, and goodbye.

Thank you, gentlemen. Ladies and gentlemen, that concludes today's event. Thank you for joining us. You may now disconnect your lines.