Nampak, Africa’s largest packaging group that has been trimming and simplifying its business, is confident that it will generate enough cash to cut its debt without forced asset sales or tapping shareholders.
Nampak’s R4.7bn net debt pile compares unfavourably with its R2.8bn market value, but CEO Erik Smuts told Business Day the group is now more confident about the size of its footprint. Current focus is growing the trust and confidence of both customers and the market.
“When we were much bigger people loved to see competitors enter the market,” he said.
The group returned to profit in its 2021 year after strong export sales and surprising growth in Nigeria, while an improved performance has already seen lenders push back a R1bn reduction target by nine months, as well as relaxing conditions about how this should be achieved.
Nampak generates about two thirds of its revenue in SA, but had racked up debt in its push into the rest of Africa, where it operates in 10 other markets. It battled with currency volatility and the related headache of dollar-denominated debt, while also facing criticism for its sheer size and diversity.
Nampak has been pursuing a strategy of simplifying its business, consolidating its operating footprint and pursuing asset sales, which became more difficult during Covid-19.
Demand recovery
Revenue rose 24% to R14bn in Nampak’s 2021 year to end-September, it said on Monday, primarily due to a good performance by its metal division, which also benefited from recovery in SA demand and exports to North America.
The metals unit makes up over 70% of group revenue and more than three quarters of trading profit, which surged 159% to R1bn.
Nampak reported group profit of R377m, from a loss of R4.3bn previously, benefiting from the lack of repetition of a number of one-off costs in the prior year, including restructuring charges.
In the previous year Nampak had seen R4bn in writedowns, which included R2.2bn for BevCan Nigeria, as the group factored in the economic effects of Covid-19 and increased country risk as energy prices slumped.
Nampak said on Monday that Nigerian growth had exceeded all expectations, growing by double digits, and strong demand there was expected to continue, though its production line is already operating close to full capacity.
Smuts said though expectations are that overall market demand will exceed supply from 2024 onwards, the group is not planning to invest in more capacity, and wants to make sure any new line would be sufficiently utilised first. In addition, focus is on the balance sheet, he said.
BevCan SA also fared well with local demand improving in the second half as trade restrictions eased relative to 2020.
Nampak opted not to declare a dividend, however, saying it was trying to get debt back to more sustainable levels. Net debt fell almost 11% to R4.7bn, with the proportion of the group’s debt that is in dollars falling to 41% from 65% in 2020.
The results showed a healthy recovery in earnings, while the reduction in both absolute debt and the exposure to dollars was particularly pleasing, said 36One Asset Management analyst Nhlakanipho Mncwabe.
“Nampak is one of the few remaining diversified packaging companies in the world and a further simplification of the portfolio would be well received by the market in our view,” he said.
“Balance sheet risks have largely abated with the likelihood of a capital raise looking very low as things stand,” said Mncwabe.
In afternoon trade on Monday Nampak’s shares were down 6.41% to R4.09, but they have more than doubled so far in 2021.
Update: December 7 2021
This article has been updated with industry comment
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