JSE-listed packaging manufacturing multinational Nampak achieved headline earnings a share of 62.3c, a 109% year-on-year increase in trading profit to R1.4-billion and a 24% increase in revenue to R14-billion for the financial year ended September 30.

These numbers reflect the company's having focused on reducing risks and improving profits, Nampak CEO Erik Smuts said on December 6.

Earnings improved to R207-million from a R3.5-billion loss in the prior financial year. In line with the group’s strategic focus to reduce dependence on dollar funding, dollar debt fell from 65% to 41% at R4.7-billion.

Nampak complied with all funding covenants as earnings and cash generation improved during the year. The net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) ratio was 2.74 times, below the maximum threshold of 3.5 times.

Similarly, the Ebitda to interest cover ratio was 4.79 times, which is greater than the required minimum of 4 times.

“We have been successful at achieving most of our goals during the year. From a risk point of view, our share price staged a good recovery, indicating that the market views us as a lot less risky than we used to be, and lenders have relaxed the terms of debt covenants and agreements, which is testament to our reduced risk,” Smuts said.

The company also focused on simplification, and completed the restructuring of its food division (DivFood) in South Africa, which contributed significantly to the improvement in profitability. The group’s reduced exposure to dollar debt and renegotiated covenants reduced the need to dispose of businesses at less than full value. This led the company to refrain from selling assets identified for disposal in situations where the group felt it would not receive fair value, he said.

Capital expenditure of R313-million was 53% lower than the prior year and included unbudgeted expenditure to leverage export opportunities.

Operating profit before net impairment losses increased significantly to R1.2-billion from a loss of R283-million in the prior year. Profit for the year improved significantly to R377-million from a R4-billion loss.

Cash generated before working capital changes of R1.7-billion increased by 133%, owing to increased volumes and significantly improved profitability. Cash generated after working capital changes was stable at R1.1-billion despite the additional investment in working capital to fund growth.

“Overall, it has been a successful year for us, which has proven that we can generate the cash required to repay debt. While we have not completed this, the numbers have improved and we are confident the next year should be a good one for us using the momentum gained in the 2021 financial year,” Smuts said.

Nampak’s results were driven by strong growth in the Metals division, as a result of a solid performance by Bevcan operations in South Africa and Nigeria. Revenue increased by 24% to R14-billion, driven primarily by strong results from the Metals division, export sales to North America and a boost to performance resulting from strong growth in Nigeria.

Revenue from the Plastics division also grew materially owing to good results from Zimbabwe and easing of pandemic restrictions in South Africa.

“The strong performance was achieved against a backdrop of global supply chains' shortages of raw materials, as well as civil unrest in July in South Africa that led to the temporary closure of some key customers’ operations and the disruption of supply chain routes.”

Meanwhile, revenue from the Metals division, which constitutes 71% of group revenue and 77% of trading profit, grew 26% to R9.9-billion and trading profit rose 159%, while trading profit margins improved to 11% from 5.4%.

“Local demand for beverage cans improved in the second half with the easing of trade restrictions with higher demand for larger can sizes for beer and energy drinks. Shortages of other packaging substrates contributed to the higher demand. Performance was limited by restrictions on large group gatherings and ad hoc bans on the sale of alcohol, which remained largely in place throughout the financial year,” Smuts said.

Export contracts for beverage can bodies and ends were concluded by the end of the financial year, while a new export contract has been negotiated for the supply of can ends during the 2022 calendar year, he added.

Further, Bevcan Nigeria experienced a surge in demand and delivered double-digit volume and revenue growth for the year, exceeding all expectations. The manufacturing facility operated at close to capacity for the duration of the 2021 financial year.

“An additional body maker was installed in May 2021 to increase output and accommodate higher demand. This momentum in growth is expected to continue into the coming year, albeit at a reduced rate as our production line is already operating close to full capacity.

“Positive momentum is expected in Nigeria as Bevcan benefits from the supply chain dynamics to the extent that raw materials are available,” he said.

In South Africa, DivFood’s performance improved significantly as it successfully restructured its operations and reversed a significant loss made in the prior year. The recovery in revenue was driven by good demand for some products.

DivFood will continue to benefit from the restructuring in 2021, with additional savings in 2022. The operational improvements and specific focus on food safety and quality should support volume growth in the 2022 financial year. Fish can volumes are expected to recover owing to improved availability of frozen fish and low stocks in the industry.

“During the fourth quarter [of the financial year], shipping delays and supply chain disruptions, following the social unrest in July 2021, caused raw material shortages and, as a result, we were unable to fully meet customer demand for food cans and metal closures,” Smuts said in the company's financial results statement.

Bevcan South Africa’s improved demand is expected to continue if restrictions on large events are further eased. The renewal of various local long-term supply contracts during the past 12 months will secure beverage can volumes for the coming two years, while the new export contract will support can end volumes for 2022.

Plastics division revenue grew 21% to R3-billion, driven by very strong demand in Zimbabwe and the recovery of the South African businesses. Trading profit doubled to R287-million and boosted trading margins from 5.7% to 9.6%.

Plastics South Africa performed in line with expectations and concluded the operational consolidation, although more work is still required to make this business sustainable.

“The performance of Zimbabwean operations exceeded expectations. Market demand was serviced to the extent that foreign currency was available and raw materials could be sourced. These operations continue to self-fund their operational and capital requirements. Cash generated is reinvested in operations and equipment to limit exposure to currency fluctuations,” said Smuts.

Further, Paper division revenue grew by 9% as pandemic restrictions eased in most markets and trading conditions improved, leading to trading profit growth of 18%.

“The volumes from Zimbabwean operations grew materially, although volumes in Malawi and Kenya were negatively impacted by the pandemic. Demand for all products in Zimbabwe was robust with double-digit growth in revenue and trading profits. The operations supplied as much as they could amid raw material and foreign currency shortages,” Smuts said.

Demand for Nampak's products in Zambia was boosted by a diversified customer base as the market recovered.

Additionally, demand for Nampak products in Zimbabwe may be volatile, depending on economic recovery, while strong demand from other Central Africa countries is expected, albeit off a low base.

Further, demand for paper and plastics products in Southern Africa should improve as consumption of milk, juice and traditional beer products increases. An improved operating cost structure will benefit Plastics, he said.

“Nampak is now in a better position to service customers using an improved cost base and will continue building trust with all stakeholders,” Smuts said.