JSE-listed Nampak reported a “disappointing” set of results for the financial year ended September 30, with the group facing some operational headwinds, but also leveraging the available tailwinds in the period, CEO Erik Smuts comments.

He says the South African beverage can market experienced unprecedented growth and that volumes in Angola grew by nearly 30% in the last quarter, exceeding the group’s expectations.

Smuts describes the South African operating context for the period as one with robust sales volumes and demand in Bevcan South Africa; a disappointing operational performance at DivFood; an under-recovery of funding costs for higher working capital; prolonged industrial action at key customers; and the group being able to maintain high customer service levels despite electricity shortages.

“Revenue increased by 21%, lifted by higher volumes and unusually high commodity prices. Despite the strong contributions from our beverage cans and liquid paper business to a pleasing trading profit, an increase in foreign exchange losses, higher interest rates and increased impairments contributed to a lower net profitability,” he adds.  

“Our efforts to dispose of certain assets yielded no tangible results as potential buyers cited hesitance in volatile market conditions preventing us from reducing debt and requiring the extension of certain maturity dates and relaxation of covenants.

“As previously announced, in order to refinance the group debt package and repay R1.35-billion to lenders in March 2023, we are planning to approach shareholders for such approvals as are required to proceed with a rights issue. With a strengthened balance sheet, we can focus on our operations to leverage growth opportunities for the benefit of our stakeholders,” he notes.

In the financial year under review, Nampak delivered “pleasing” revenue growth, assisted by improved volumes in selected markets and pass-through pricing mechanisms linked to elevated commodity prices.

The group says trading conditions were challenging, but green shoots of recovery were evident in some of its markets. Cost of sales was impacted by high metals prices owing to challenging supply chains with concomitant increases in logistics and shipping costs.

Group revenue increased by 21% to R16.9-billion, underpinned by stronger volumes in Nampak’s South African, Angolan and Nigerian beverage can operations and the pass-through of higher commodity prices.

Smuts says trading profit grew well, with the Metals division boosting this, despite a “disappointing” performance from DivFood. Although pricing mechanisms in most of the group’s businesses allowed for the recovery of increased input costs, it did not fully compensate for the incremental cost of funding higher working capital.

Trading profit was up 13% to R1.6-billion.

Operating profit before net impairments was down 4% to R1.2-billion. Smuts reports that the company experienced higher foreign exchange losses and R512-million of net impairments.

The group had headline earnings of R229-million compared with R402-million the prior year, while headline earnings a share were 35.9c compared with 62.3c in the prior financial year.

The loss attributable to owners of Nampak was R147-million compared with a profit of R207-million in the prior year.

Nampak posted a loss a share of 23.1c, compared with earnings a share of 32.1c the year before.

Cash generated from operations before working capital changes was down 11% to R1.5-billion.

The board has decided not to declare an ordinary dividend for the year.

RIGHTS OFFER

As previously announced, a circular will be published on or about December 15, calling for an extraordinary general meeting to seek the relevant authorisations required to enable the company to proceed with a rights offer of up to R2-billion during the course of the first quarter of 2023.

Smuts says the capital raise is being undertaken because, despite being the largest packaging business in Africa, Nampak has come under pressure as a result of legacy decisions and deteriorating macroeconomic conditions.

The group’s independent auditor Deloitte & Touche conducted an audit of the consolidated annual financial statements for the group for the year. Deloitte has issued an unmodified audit opinion in terms of the International Standards on Auditing, with a paragraph on material uncertainty relating to going concern.

Nampak outlines that R6.88-billion of the group’s core funding package is repayable on or before December 31, 2023, with R1.35-billion of this funding repayable by March 31.

This condition, along with the management’s plans to reduce and restructure the debt, as well as launch the proposed rights issue, indicate that a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern.

Notwithstanding the material uncertainty relating to going concern, the directors have, based on the information available to them, considered the financial plans and forecasts, available funding facilities, the actions taken by the group, cost reduction and optimisation plans, the management of working capital and capital expenditure, as well as the plans to refinance the group and raise capital through a proposed rights offer.

OUTLOOK

Smuts says that for the Metals division, Bevcan is expected to benefit from strong demand for environment-friendly packaging; there would be a continued growth of energy drinks; and focus is required to improved DivFood’s operational performance, profitability and net working capital.

He outlines that for the Plastics division, Nampak would look to reduce operational costs; launch a new internally developed polyethylene terephthalate bottle; and leverage trusted brand and customer service to grow its market share.

For the Paper division, Smuts says demand for conical cartons is expected to improve as customer convert from bulk to hygienically packed traditional beer; demand for corrugated cartons will remain strong in tobacco and commercial markets; and Nampak will focus on improving constrained supply of raw materials.