Nampak interim profit declines sharply to R395m

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FINANCIAL RESULTS

Nampak interim profit declines sharply to R395m

21st May 2009

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

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JSE-listed packaging specialist Nampak on Thursday reported a sharp drop in interim profit, falling to R395,2-million from R645,9-million.

Headline earnings a share were down to 66,9c a share in the six months ended March 31, compared with the 109,9c a share in same period in 2008. The trading margin declined from 8,6% to 7,7%.

Nampak reported that the late commissioning of the new paper mill at Rosslyn had impacted significantly on the performance of the Africa paper segment and together with lower trading income from Europe, limited the group’s trading performance. Profit from operations decreased by 14% owing mainly to a loss on the fair value of financial instruments compared to a gain in the similar period last year.

Andrew Marshall, who took over as CEO on March 1, said that performance in South Africa was in line with last year.

“Increased trading income was offset by additional costs from the late commissioning of the Rosslyn paper mill. In Africa, trading income improved significantly due mainly to Zambia and Nigeria. European trading income was lower owing to higher polymer costs as well as a poorer performance by the Leeds UK carton operation.”

In South Africa, the weaker economy, which has seen lower retail sales growth, resulted in there being no packaging volume growth in the period under review. Acceptable demand in the first quarter was offset by weaker demand in the second quarter.

However, there was good demand for all forms of beverage packaging, most forms of plastic packaging and food cans, but there was reduced demand for paper packaging. Polymer prices decreased in line with lower oil prices, while paper prices increased at the beginning of the financial year, but the prices of some grades have since reduced.

Nampak noted that in many cases, the additional cost could not be fully recovered.

Additional costs associated with the late commissioning of the Rosslyn paper mill negated what would otherwise have been a good improvement in trading income. This decreased marginally from R574-million to R569-million, while the trading margin fell from 9,7% to 8,6%.

In the rest of Africa, the increase in trading income was partly owing to the nonrecurrence of the write-off last year in Nigeria following the accounting irregularities as well as an improvement from Zambia which is beginning to generate higher returns on newly commissioned capital projects. Rand-translated results from the region were, however, negatively affected by declining exchange rates, particularly in Nigeria.

The company reported that trading income increased from R28-million to R62-million and the trading margin from 5,6% to 7,5%.

In Europe, sales were 3% ahead of last year at £190-million, while trading income decreased from £11,1-million to £10,0-million. The average exchange rate to the pound was R14,93 compared with R14,40 last year.

Trading income was affected by higher imported polymer costs, lower performance from the Leeds folding cartons operation as well as increased supply chain costs arising from the weakness of the pound against the euro.

Going forward, the group expected current difficult economic conditions to continue in all the markets in which it operated.

“We shall therefore focus on improving or disposing of underperforming operations, the reduction of costs, management of working capital and reduction of capital expenditure,” said Marshall.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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