Nampak’s lenders have given it nine extra months of breathing room to bring down debt by R1bn in light of a pickup in its trading performance, further relaxing conditions on how debt must be handled.
News that Africa’s biggest packaging group will not be forced to sell assets or tap shareholders to reduce debt caused Nampak’s shares to gain the most in eight months on Friday. The 17% gain to R3.93 further underscored progress in the turnaround of a group whose shares hit a record low of 54c a year ago.
Nampak, valued at R2.7bn on the JSE, had gross debt of R5.8bn to end-March, almost half of it dollar denominated. That had been racked up amid a push into Africa, with the group suffering the effects of hyperinflation and currency volatility in some of its markets.
Nampak’s lenders wanted it to reduce its interest-bearing debt by R1bn by end-September, through strategic asset disposals or the tapping of shareholders. It now only needs to reach the goal by end-June 2022.
Requirements had been further relaxed to allow any cash generated by the group to be used to reduce debt, CEO Erik Smuts said on Friday, adding the group had received a bump from some pandemic-related developments, though it was too soon to talk about 2021’s profits.
“We are very pleased about how the market has improved,” said Smuts, who added during an investor presentation that the group had also made progress in regaining investors’ trust. “I don’t think we are out of the woods yet. There is certainly a lot of work to be done.”
Nampak has been pursuing a strategy of simplifying its business amid criticism from some that it was overly diversified and debt-laden.
Trading performance
In a voluntary update for the 11 months to end-August, Nampak said group revenue for the period increased by more than 20%, boosted by stronger volumes in its key markets of Nigeria, SA and Zimbabwe. SA makes up two-thirds of the group’s revenue.
DivFood SA had returned to profitability amid a successful restructuring process that included a consolidation of its operating footprint, job cuts and simplification of its product offering.
BevCan SA, which benefited in Nampak’s first half from a bump in exports, was also boosted by improved local demand, even as exports taper off, said Smuts.
Bevcan Nigeria continued to perform better than expected, the group said, with double-digit volume increases over the comparative period.
“In the past year, as we reported, we managed to extend some long-term contracts, we regained market share, and I would like to believe we have built trust with our customers,” said Smuts.
The break from lenders was significant, as with the breathing room, it indicated lenders were pleased with the pace of restructuring, said Cratos Asset Management analyst Ron Klipin.
“Nampak is a big ship, and will take time to turn around, especially with the macrochallenges ... in SA,” said Klipin.
Rowan Goeller, director at Chronux Research, said Nampak may be able to trade its way out of its debt covenant constraints in the next year, as had been the case with a number of industrial companies, in which a market recovery had resolved balance-sheet issues.
“The chance of a required capital raise has probably fallen substantially as a result,” Goeller said.
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