JSE-listed Nampak’s trading conditions improved for the 11-month period ended August 31, relative to the prior comparative period, as Covid-19 restrictions were eased in South Africa and most markets in the rest of Africa, resulting in significantly improved group operating results.
Group revenue for the period increased by more than 20%, boosted by stronger volumes in Nampak’s key markets of Nigeria, South Africa and Zimbabwe.
Trading profits and margins grew as the group successfully restructured two divisions, improved volumes as a result of export opportunities and continued its focus on reducing operating costs by consolidating operations and simplifying product offerings.
Bevcan South Africa volumes were boosted by export contracts and a recovery in the local market, despite the alcohol sales bans and ongoing restrictions on sporting events, Nampak says.
Divfood South Africa returned to profitability as a result of successful restructuring that simplified the business and reversed a significant loss in the prior period.
Diversified can volumes compared favourably with the prior period and overall food can demand was stable, even with lower-than-expected fish can volumes.
Performance in South Africa was somewhat limited in the second half of the 2021 financial year, mainly owing to the 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 goods exports.
Demand in Divfood Nigeria was noted as strong.
Rigids South Africa improved volumes for several segments, driven by increased home-consumption of certain staples, while liquid bottles were limited by milk shortages and lower spending on smaller pack sizes owing to lockdown restrictions.
Profitability improved, despite higher raw materials prices, as the division benefited from savings achieved through successful site consolidations.
Carton volumes in South Africa continued to recover from prior year lows caused by the pandemic with what Nampak says were pleasing profitability improvements.
Overall performance improved as demand was robust in Zimbabwe, with trading volumes also recovering in Zambia and Malawi compared with the prior comparative period.
While certain economies remained weak, the easing of Covid-19 restrictions has seen an improvement in trading activities and good growth from customers.
CASH TRANSFERS & FOREIGN EXCHANGE IMPACTS
Constrained availability of foreign currency at the official rate slowed cash transfers from Nigeria and had a negative impact on profitability.
Nampak says transfers from Angola were pleasing and did not limit its ability to operate.
Transfers from Zimbabwe were boosted by repayments totalling $4-million from the Reserve Bank of Zimbabwe related to historical debt.
Cash transfers from key markets in the rest of Africa remain a focus area for the group.
As previously reported, all quarterly covenants to date have been met within adjusted limits.
Moreover, covenants were within the original limits of less than or equal to three times for net debt:earnings before interest, taxes, depreciation and amortisation (Ebitda) and greater than or equal to four times for Ebitda:interest cover for the last reported quarter ended June 30.
BUSINESS DISPOSAL PROCESS
Nampak has successfully concluded an agreement for the sale of the Nampak Tubes business, which has previously been classified as held for sale.
Nampak says that for several reasons it has not been able to conclude the other anticipated business disposals to date, but as part of its strategic objectives to reduce risk and to simplify its business portfolio, it is still actively engaging with potential buyers. The group says this process is taking longer than originally anticipated.
In terms of the funding agreements negotiated in September 2020, the group’s debt funders required interest-bearing debt to be reduced by R1-billion by September 30, through a strategic asset disposal process or a combination of asset disposals and a capital raise.
Ongoing negotiations have been held with Nampak’s lenders to revise certain funding requirements in light of improved trading performance by the group to date.
After considering the group’s results for the period, the milestone date for assessment of the group’s ability to reduce debt by R1-billion has been deferred to June 30, 2022.
The restriction to reduce debt only through asset disposals and/or a capital raise has now been relaxed so as to allow the use of all cash flows generated through normal operating activities, inclusive of the repayments of historical debt by the Reserve Bank of Zimbabwe, but subject to the cancellation of available commitments.
Nampak’s lenders have agreed to a relaxation of the net debt:Ebitda covenant to 3.5 times from September 30 this year to September 30, 2022, returning to a covenant requirement of three times for the period starting on October 1, 2022.
Nampak will release its results for the financial year ending September 30 on or about December 6.