Nampak’s lenders relax debt covenants as trading conditions improved
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Nampak has been granted a reprieve from its lenders from further asset disposals or a capital raise until June 30, 2022, due to improved trading conditions at the packaging group.
In terms of funding agreements negotiated in September 2020, the groups debt funders had required interest-bearing debt to be reduced by R1 billion by September 30, 2021, through the sale of assets and/or a capital raise.
The share price surged 8.9 percent to R3.67 on the JSE Friday morning after the group’s trading update was released.
The group said its lenders had provided the deferral of the milestone date, after considering Nampak’s results for the 11 months to August 30, 2021.
“The restriction to reduce debt only through asset disposals and/or a capital raise has now been relaxed, so as to allow the utilisation of all cash flows generated through normal operating activities, inclusive of repayments of historical debt by the Reserve Bank of Zimbabwe, but subject to the cancellation of available commitments,” the group said.
Nampak’s lenders had agreed to relax the net debt: EBITDA (earnings before interest, tax, depreciation and amortisation) covenant to 3.5 times from September 30, 2021 to September 30, 2022, returning to a covenant requirement of 3.0 times for the period commencing on October 1, 2022.
In the 11 months period, the group said trading conditions had improved as COVID-19 restrictions were eased in South Africa and most markets in the Rest of Africa division.
Group revenue increased more than 20 percent, boosted by stronger volumes in the key markets of Nigeria, South Africa and Zimbabwe.
Trading profits and margins grew as two divisions were restructured, volumes improved as a result of export opportunities and the focus on reducing operating costs continued through the consolidation of operations and simplification of product offerings.
Demand was healthier in South Africa, there had been a stronger performance in Nigeria, and partial recovery in the Rest of Africa.
Bevcan South Africa volumes were boosted by export contracts and a recovery in the local market, despite alcohol bans and ongoing restrictions on sporting events.
Bevcan Nigeria performed better than expected, with double digit volume increases. Demand at Bevcan Angola remained subdued, due to a weak economy and pandemic restrictions. Profitability in Angola was higher than expected as operating costs were contained in line with lower demand.
Divfood South Africa returned to profitability, as a result of restructuring that reversed a significant loss.
Performance in South Africa was somewhat limited in the second half of the financial year, due mainly, to civil unrest, in July, that led to the closure of some operations of key customers, and the disruption of supply chain routes.
Congestion and the temporary closure of ports delayed raw material imports and finished good exports.
Rigids South Africa improved volumes, driven by increased home- consumption of certain staples, while liquid bottles were limited by milk shortages and lower spending on smaller pack sizes, due to lockdown restrictions.
Profitability improved, despite higher raw materials prices, as the division benefited from savings from site consolidations.
Carton volumes in South Africa continued to recover from prior year lows caused by the pandemic with pleasing profitability improvements. Volumes at Zimbabwean operations increased.
Overall performance in paper packaging improved, as demand was robust in Zimbabwe, with trading volumes recovering in Zambia and Malawi.
Nampak had concluded an agreement for the sale of Nampak Tubes, and talks with potential buyers of other businesses held for sale were ongoing.
BUSINESS REPORT ONLINE