JSE-listed packaging manufacturer Nampak has warned of mixed results across its commodities and businesses in the first five months of its 2023 financial year.

The company noted in a trading update on March 30 that it had achieved revenue growth of 5% relative to the first five months of the prior financial year, driven by a 9% increase in metals revenue, but offset by a 6% decline in plastic and paper revenue.

Pleasing revenue growth was recorded in the Bevcan Angola business, as well as in South Africa, which recorded revenue growth of 6%.

Revenue in the Bevcan Nigeria business also increased despite a reduction in volumes on the back of a recovery of higher foreign currency-related costs from customers. This while the DivFood business experienced a marginal decline in revenue.

Nampak says its plastic and paper operations in Zimbabwe were affected by a significantly weaker closing exchange rate at the end of the reporting period, and the requirement to translate all trading results at the closing rate.

Operating profit of the group is, therefore, significantly below trading profit, owing to a material increase in net foreign currency losses, up from R69-million to R436-million.

Nampak explains this was primarily owing to comparably higher secondary market spot rates related to cash transfers from Nigeria in the current period and the impact of the weaker exchange rates on the translation of monetary items.

Consequently, operating profit before net impairments decreased in the five months under review. Comparatively higher debt levels throughout the reporting period, coupled with increased interest rates, have resulted in a 45% increase in net interest paid, compared with the prior corresponding five months.

This has contributed to a loss after tax for the reporting period, compared with the prior comparable period.

OPERATIONAL VIEW

From a commodity perspective, the South African beverage can market has showed modest growth on the back of stronger demand for large can sizes, Nampak explains.

Bevcan South Africa’s volumes showed marginal growth in the five months under review but were constrained as a result of production of larger can sizes already running at full capacity.

Nampak says the continued focus on improving its operational efficiencies is delivering positive results at its South African operations.

In Angola, beverage can demand increased compared with the prior period, albeit at a slower rate than the latter part of the previous financial year. An improved trading performance was negatively impacted by a weaker exchange rate relative to the prior period.

In Nigeria, sales volumes continued to decline during the reporting period. The weaker overall Nigerian economic environment was further exacerbated by a shortage of physical banknotes in general circulation, which negatively affected consumers’ ability to purchase consumable goods.

In the DivFood business, Nampak explains that, despite strong demand for fish cans, flat year-on-year demand for deciduous fruit volumes – coupled with lower consumer spending on vegetable, meat and pet food products – adversely impacted performance in the reporting period.

Disappointing demand for diversified products was experienced owing to a slow start to the insecticide season and constrained consumer spending. Lower volumes negatively impacted overall profitability, but manufacturing efficiencies are improving.

In terms of plastic, Nampak states the weak South African economy has continued hampering demand for plastic products, with lower-than-expected volumes for bottles, drums and conical cartons. Fortunately, demand has remained stable for PurePak cartons and closures.

Nampak adds that demand for plastic packaging in Zimbabwe and Zambia remains strong.

Demand for corrugated cartons in Zimbabwe remains particularly strong, Nampak reports, with tobacco crops estimated to reach record highs this year.

Nampak continues to assess the returns for each of its cash-generating units and remains committed to implementing processes to improve returns.

The group has engaged with key customers and suppliers to agree on improved trade terms, in support of a sustainable industry. The anticipated benefits flowing from these discussions have been included in Nampak’s restructuring plan – which has been submitted to lenders.

RESTRUCTURING PROGRESS

Nampak has appointed Metis Strategic Advisors to assist the group with the development and implementation of a detailed debt restructuring and turnaround programme, which includes securing a long-term debt funding package from the group’s revolving credit facility and term loan lenders, as well as the US private placement noteholders.

The group has also appointed Michael Dorn as chief restructuring officer and he will oversee the implementation of a restructuring plan.

The purpose of the restructuring plan is to reposition the group to focus on its core business and to put in place a robust and sustainable capital structure.

The restructuring plan aims to have Nampak refinanced and restructured in terms of debt, assess all the costs of the group, sell noncore assets, divisions or subsidiaries, and complete a successful rights offer.

The restructuring plan has been submitted to the lenders for consideration in support of various debt extension requests for the half-year ending March 31, and the subsequent refinancing of the debt package ahead of a rights offer.

The rights offer remains an essential element of the restructuring plan and a condition for refinancing, Nampak says.

Nampak expects to announce the outcome of various debt extensions over the next few months, particularly as the group is due to release its interim results in May.

These negotiations with lenders, coupled with progress of the restructuring plan, will determine the size of the rights offer.

Nampak stated that experiencing problems over the last few years owing to reduced investor appetite and access to funding, had resulted in substantially reduced deal flow and transaction values.

However, the group remains confident that conditions to seek divestitures of certain divisions are improving and that a focused programme will realise a restructured group.