Nampak’s share price increased more than 15% yesterday afternoon after it pitched a much-reduced R1 billion rights offer proposal to shareholders, from R1.5bn previously.
The rise in share price to 76 cents yesterday afternoon was also in spite of the debt-burdened, biggest packaging group in Africa reporting a R342 million headline loss for the six months to March 31. A meeting is scheduled for May 31 for shareholders to vote on the rights offer proposal. Shareholders typically don’t favour rights issues because it can dilute a company’s earnings and dividend payouts.
“The rights offer will enable management to further reduce the company’s debt, resulting in a more appropriate capital structure,” interim CEO Phildon Roux said in a statement yesterday.
The results generated comment on Twitter with, for instance, Zinathi Gquma (@Zinathi_Gquma) tweeting: “Watching the Nampak results presentation. Some big calls being made as (the) company enters a re-organisation phase. A reduction of the head office & head count across the organisation. And salaries reduced & with the CEO saying that they will be reinstated when cash generation allows.”
Karin Richards (@Richards_Karin) tweeted: “Nampak is an unfortunate example of how high debt will kill you in a rising rate environment. And if layered with African ops that have high forex risk, and/or are unprofitable, the mix is even more toxic. My rule is: avoid co’s with high debt or material exposure to Africa.”
The Passive Income Guy (@hazelwood_dave) tweeted: “Nampak. Rand has weakened 8% since 31 March. Means their foreign debt has increased by a further R250 million.”
“2023 is a defining year for Nampak. Our group is a formidable business that is faced with unsustainable debt levels. Our strategic imperative is to focus on a new business model that aims to unlock value in the short to medium term with a glide path that is configured to be fit for growth,” Roux said in the results.
The group produced strong operational results, with revenue up 4% to R8.4bn and trading profit up by a much higher 17% to R899m. Despite this, a 54.5c per share headline loss was reported compared to headline earnings of 35.6c per share in the comparative period.
The profit was impacted by R571m of devaluation losses from Angola and Nigeria exchange rate movements, as well as a whopping 77% increase in finance costs to R494m, and impairments of R2.4bn, which then resulted in a R2.1bn operating loss.
Interest-bearing debt excluding lease liabilities was 23% higher at R5.9bn. The interest cover ratio is also above debt covenants.
Roux said a rigorous cost reduction programme, business remodelling and significant reduction in net working capital would be fundamental to their efforts in the short term.
He said their divestiture programme required increased impetus as an enabler to reduce debt to manageable levels.
“The medium term will deliver an optimal portfolio of assets and consequently a reinvigorated Nampak as an outcome,” he said.
Revenue growth of 4% to R8.4bn was due to increased volumes in Bevcan South Africa and improving volumes in Angola, partially offset by volume reductions in Bevcan Nigeria and DivFood. The Rest of Africa’s market volumes were stable.
Net impairment losses included a R1.5bn goodwill impairment in Bevcan Nigeria and asset impairments in Angola and South Africa of R0.9bn. The impairments in Nigeria and Angola were increased due to the higher weighted average cost of capital. A decline in current and future expected volumes in Nigeria was also a factor.
Bevcan South Africa grew volumes aided by a consumer preference for large cans in the energy drink and beer markets.
The Plastic and Paper division had mixed fortunes.
Green shoots in Angola were reappearing as volumes improve after a period of contraction.
The business in Nigeria saw worsening economic conditions which, with a need to increase prices to recover higher import costs, caused a decline in volumes.
BUSINESS REPORT