Weak demand in Africa hits Nampak’s results

Weaker economic demand and increased competition in Nampak’s key markets in South Africa, Angola and Zimbabwe hit the canmaker’s results for the half year to the end of March.

Sales were down 17 per cent to R6.5 billion (US$372 million) and trading profit down 39 per cent to R633m ($36.3m). The canmaker also reported R3bn ($172m) of impairments for its operations in Nigeria and Angola.

“Overall weaker economic demand in our key markets, continued pressure on consumers’ disposable income and net impairments of R3bn negatively impacted these results,” said Erik Smuts, Nampak’s chief executive.

“Although the Nigerian outlook has since deteriorated, Bevcan Nigeria enjoyed volume growth, but Divfood, Bevcan Angola and Bevcan SA performed below expectations due to total market contractions and loss of a key customer. The SA Plastics business returned to profitability.

“While tough economic conditions have inhibited revenue and trading profit growth, cash generation improved. Capital expenditure was tightly controlled, with the most significant expenditure on the conversion of the steel beverage line in Angola to aluminium. The R1.6bn ($92m) net proceeds from the disposal of non-core assets, and healthy cash transfers from Angola and Nigeria will be used to reduce our debt.”

Nampak was designated as an essential services provider under South Africa’s lockdown regulations during the coronavirus pandemic, with plants continuing to operate in most markets, he added.

“The health of our employees has been prioritised and appropriate measures introduced,” said Smuts. “Where possible, employees continue to work remotely. We have been affected by reduced consumer demand, the shift towards preserving cash by customers and the ban on alcohol [now lifted]. Our employees’ contributions, in the form of salary sacrifices and taking leave, while remaining committed and resilient through this difficult time, have not gone unnoticed and we value them greatly.”

Over the period reported, Nampak’s portfolio rationalisation raised cash proceeds of R2bn ($115m) – R1.6bn ($92m) from the sale of Nampak Glass and R0.4bn ($23m) for Nampak Cartons Nigeria – to be used to reduce US dollar debt. Nampak Plastics Europe was sold for a nominal value. A net profit of R470m ($27m) was achieved from discontinued operations.

Capital expenditure for continuing operations increased 13 per cent to R407m ($23.34m), mainly for the conversion of the beverage can line in Angola from steel to aluminium. The forecast capex for the year is between R650 ($37m) and R750m ($43m) and will be kept to an absolute minimum for the short to medium term, without compromising the group’s asset base, the company reported.

Nampak implemented measures from the end of March to mitigate some of the pandemic’s impact. These included a salary sacrifice for all employees for a period of three months, ranging from 30 per cent for executive and non-executive directors, down to 15 per cent for junior management.

Other actions include a freeze on most capital expenditure, optimising working capital by bringing inventory levels in line with reduced demand, optimising trade finance arrangements, extending payment terms with suppliers, the rightsizing of operations in line with reduced demand, assessing alternatives to improve profitability and increased scrutiny of all expenditure. Nampak’s unionised employees have also agreed to forfeit their annual salary increase, previously scheduled for 1 July.

“Nampak’s strategy includes a significant simplification of the business and reducing overall earnings volatility through optimisation of our regional footprint, business portfolio and capital structure,” Smuts concluded. “We are prioritising cost saving measures, preserving cash, reducing capital expenditure and are considering fast tracking restructurings to improve profitability.”