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Tuesday, June 28, 2022

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Nampak delivers robust interims but shareholders voice unease on potential rights issue

Nampak decided not to resume dividends until debt was at a more sustainable level.

Nampak decided not to resume dividends until debt was at a more sustainable level.

Published May 26, 2022

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SHAREHOLDERS yesterday grilled Nampak directors about whether it was considering a rights issue as the packaging manufacturing group delivered a robust set of interim results yesterday amid what chief executive Erik Smuts said was a challenging first half.

Headline earnings per share were up 102 percent at 35.6 cents per share in the six months to March 31, 2022, while earnings per share increased 105 percent to 34.9c from the prior comparative period.

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The share price was up 2.91 percent at R2.83 in midday trading, but down 85.63 percent over the past five years.

Hanging over strong results was the company’s debt situation, with shareholders voicing concern over rising working capital costs, while the sale of non-core assets appeared to have stalled.

Nampak needs to settle R1 billion of interest-bearing debt by September 30 and funders will assess the situation on June 30.

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Smuts, answering shareholders in a webinar, said the management team up to now had tried to avoid a rights issue and were doing all they could to avoid it.

However, he could not rule it out.

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He said Nampak had demonstrated to markets and lenders that it was able to repay debt. The banks had given it more rope and had been accommodating to date.

“We are very confident we are resolving some of these issues. We have addressed those things within our control ... but lots of work lies ahead. We have to plan to address those things not in our control,” he said.

“Why have a rights issue if the company is strong?” he said, but he highlighted that the reality was that it had been tough over the past few years.

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The firm said R400 million had been drawn from a R1bn non-recourse trade finance facility, with R267m used to repay debt in the first half, while R653m was invested in working capital during period – representing 13 percent of group net debt.

Net interest-bearing debt of R5bn was 9 percent higher, an additional R433m was drawn during the period to partially fund increased working capital requirements and improve cash reserves.

Net debt remained within covenant thresholds.

While cash generated from operations, before working capital, was 30 percent higher at R1.1bn, R65m was used to fund increased working capital requirements given higher demand and significantly elevated commodity prices.

The board opted not to resume dividends until debt was at a more sustainable level.

Nampak said it had a rewarding yet challenging first half, with improved trading conditions.

But the firm said it had been impacted by unprecedented global shipping challenges and supply chain disruptions.

Smuts said: “We have worked closely with various stakeholders to navigate this unique period in order to ensure continuity of supply to our customers and sustainable profitability for the group going forward.”

Its revenue increased by 24 percent to R8.1bn driven by healthy demand in key markets coupled with higher selling prices caused by elevated commodity and raw material prices.

“Our beverage can businesses achieved remarkable performances, providing the foundation for a strong improvement in overall results, supported by resilience from our Zambian and Zimbabwean operations. Revenue, profitability and cash generation improved significantly,” he said.

Revenue from the metals division increased by 27 percent to R6bn as demand increased in South Africa, Nigeria and Angola.

Revenue for the plastics division grew by 10 percent to R1.6bn, largely driven by the strong performance of the group’s Zimbabwean operations.

Looking ahead, Smuts said: “Despite the impact of the conflict in Ukraine, increased commodity prices and a higher interest rate cycle on global inflation, we expect continued growth in the local beverage can market while improved demand for fish cans is expected to drive growth at DivFood.

“Given the ongoing global supply chain challenges the Plastics businesses will continue focusing on reducing complexity and right-sizing operations to improve profitability. The Liquid Cartons business is expected to benefit in the second half as delayed export volumes are expected to resume and boost local production volumes.”

He said inflationary pressures on consumers’ disposable income was expected to contribute to a softer market for the general metals packaging business for the rest of the financial year.

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