JSE-listed packaging specialist Nampak on Monday reported a 53% drop in headline earnings a share for the 2009 financial year, owing to a loss on the fair value of financial instruments compared with a gain in the previous year, as well as an increase in finance costs.

Headline earnings a share dropped to 83,8c a share in the year ended September 30, compared with the 177,3c a share in the previous financial year.

Profit for the year was down more than 59%, to R202-million, compared with the R495,3-million in the previous year.

Trading income decreased by 27% to R843-million, primarily as a result of a R250-million loss in the corrugated business, partly owing to the late commissioning of the new Rosslyn paper mill, and a decline of 6% in volumes across the group, Nampak reported.

The trading margin fell from 9,9% to 6,3%.

Losses at the UK-based Leeds folding cartons operation and in some smaller businesses in South Africa also impacted negatively on trading income.

Profit from operations decreased by 37% owing to impairments of assets, the most significant of which related to the corrugated business, a loss on the fair valuation of financial instruments, as well as retrenchment and restructuring costs.

Nampak reported that net finance costs increased by 24% to R328-million following the completion of several capital projects in the prior year and the ongoing funding of the Angolan beverage can factory.

In South Africa, the weaker economy had a “major impact” with sales volumes down by 6% year-on-year.

“Demand for food and beverage packaging held up relatively well but demand for household and industrial packaging fell substantially,” the company said.

In the rest of Africa, there was pleasing volume growth in the region. Overall, trading income was in line with last year, with good performances from Nigeria and Zambia, but Kenya made a loss.

Despite softer volumes in Europe, sales in pounds were unchanged from last year at £346-million, while trading income decreased from £11,5-million to £7,6-million.    

Trading income was impacted by higher imported polymer costs, the liquidation of a major customer and a loss at the Leeds folding cartons operation. A major restructuring at the Newport Pagnell plastics factory was successfully undertaken.

Nampak CEO Andrew Marshall noted that despite the challenging economic conditions, trading income in Nampak’s core businesses was similar to last year.

The metals and glass division was slightly down, while rigid plastics was marginally up, and the tissue division had a good year. The cartons and labels, flexibles and sacks were also in line with the previous year.                                                                         

“The strategic review completed after I joined the group in March concluded that 80% of our operations are profitable and have sustainable competitive advantages. We aim to grow these businesses. The remaining 20% are either loss-making or earning low returns and will be fixed, sold or closed,” Marshall noted.

Capital expenditure in recent years had been “very high”, and Marshall said that the company planned to reduce this to a level below its depreciation. In addition, the company would focus on the reduction of debt and costs across the group.

“The state of the economies in which we operate is still a cause for concern and there has been no noticeable improvement in volumes since year end. The strength of the rand will continue to hamper an improvement in trading conditions in the South African businesses. Volatility of input costs may negatively impact trading income in the early part of the year.

“The expected turnarounds in the South African Corrugated and UK Leeds cartons business as well as the exiting of some of our underperforming businesses should enable the group to improve profitability for the year ahead,” he concluded.