JSE-listed packaging company Nampak, in a voluntary trading update on its operational performance for the first quarter of its 2024 financial year, said reduced foreign exchange (forex) losses contributed to an improvement in its operating profit.

Management was focused on the divestiture programme to reduce debt to sustainable levels and would continue to optimise the operating efficiency of the remaining business units. The reduction of head office cost and the implementation of a lean operating model were high priorities, which would be reported on in the next period, the company said on February 15.

Bevcan SA and DivFood delivered operational and trading performance improvements through margin management, cost reduction and efficiency gains for the three months ended December 31, 2023.

"The South African Metals operations improved profitability, with Bevcan cost and efficiency gains being the key enablers. Beverage can volumes were in line with the comparable period, which is encouraging in light of constrained consumer spending. The business model evolution towards Nampak Metals is on track.

"The installation of the incremental 500 ml capacity at Bevcan Springs is on track for commissioning ahead of time and within budget. This capital project will enable volume growth," the company said.

Muted South Africa turnover growth was experienced owing to sustained macro-economic headwinds, port congestion impacting raw material imports and customer factory closures occurring sooner and for extended periods. Slower-than-expected consumer demand was exacerbated by surplus inventory in the market.

However, demand was expected to normalise in the second quarter as customers replenished their inventory holdings. The lower-than-expected turnover did not detract from the newly merged Bevcan South Africa and Diversified division performing well and generating strong operating leverage, it noted.

The demand for canned goods remained positive, with growth within the fish and infant food categories supported by demand for fruit cans, with the fruit season yielding a good crop. The turnaround plan for DivFood was ahead of expectations with profitability improvements expected for the year, Nampak said.

Across Nampak, planned cost and efficiency savings were realised in line with previous guidance. Labour costs remained unsustainably high and discussions with labour representatives to limit increases were underway, it said.

"An improvement in cash generated before working capital changes was achieved. Working capital disciplines remain robust, however, cash flows were negatively impacted by seasonality. A recovery to normalised levels of working capital is expected for the half year ended March 31."

Further, its plastics and paper division results remain turbulent.

Plastic closure sales were stable although demand for drums, bottles and tubes was lower than the prior year. A competitive dairy market resulted in volume losses with an adverse impact on revenue and profitability.

In paper, the demand for conical and PurePak cartons reduced in South Africa, albeit from a strong base in the prior year. Zambia and Malawi were negatively affected by lower demand for conical cartons and crates and foreign exchange losses. The Zimbabwe operations continue to perform well in local currency.

Nampak concluded several smaller disposals and proceeds were used to repay debt. In terms of the restructured lender agreements, the group is required to reduce debt by R243-million by March 31. Its divestiture programme was proceeding in line with its previous guidance.

The group was on track to meet this repayment obligation, with R180-million already repaid from the proceeds on the disposal of the Nampak Nigeria Metals property and the UK apartment. The company achieved lower comparable net debt levels during the quarter, it said.

Additionally, the Nigerian economy continues to face high levels of inflation, lower disposable income and a weakening Naira which has impacted demand. Beverage can demand in Angola has improved, which is encouraging. The volume contraction in Nigeria was owing to macroeconomic conditions.

In Angola, beverage can demand had increased. Bevcan Angola had seen a volume recovery. However, the dollar shortage in the Angolan market was impacting the ability to settle dollar liabilities for offshore procurement, Nampak noted.

Currency markets in Nigeria and Angola remain dysfunctional with dollar shortages in Angola restricting transferability and resulting in a higher-than-normal kwanza operational cash position.

The naira devalued during the first quarter as the Nigerian Central Bank closed the gap between the official and secondary market naira exchange rate. No effective hedging instruments were available in Angola, Nigeria and Zimbabwe, it added.

The board has resolved to appoint Andre van der Veen as chairperson when Peter Surgey steps down after the annual general meeting. The board thanked Surgey for his leadership through challenging times.

Nampak will release its interim results for the six months ending March 31 on or about May 29. Nampak will be in closed period from March 31 until the release of its interim results.