Packaging manufacturer Nampak began the 2024 financial year under pressure to show appreciable progress its turnaround strategy.
The market was eager to see if the JSE-listed firm could maintain its positive momentum after it completed an oversubscribed R1bn rights offer, started a capital and debt restructuring programme, and adopted a new strategy centred on its core metals business in 2023.
This formed part of its bid to claw its way out of a R6bn debt pile incurred over a decade after its disastrous dollar-funded expansion into the rest of Africa.
After management shake-ups, including Michael Dorn’s appointment as chief restructuring officer, the firm began implementing a plethora of cost-containment measures, including job cuts, as it battled a cash crunch that eroded its share value over the past five years. It also merged two divisions, BevCan and DivFood, to simplify its structure and draw on efficiency gains to turn the company’s fortunes around.
In his debut address to shareholders this week, group chair Andre van der Veen, who replaced Peter Surgey, said Nampak’s debt-reduction programme, an integral part of the company’s transformation effort over the past two financial years, required a significant boost in cash generation to not only repay debt but also to sustain its operational capabilities.
“Our transformation programme also required that we make difficult decisions that included a reduction of staff, the restructuring of our business portfolio and revised commercial terms with key customers,” said the chair.
In its first quarter, Nampak achieved trading performance improvements through margin management, cost reduction and efficiency gains alongside reduced forex losses and a volume recovery in Bevcan Angola. However, volume contraction in Nigeria due to macroeconomic conditions continued, while the plastics and paper results remained turbulent.
Despite a cyberattack incident delayed publication of group half-year results, Nampak accelerated its asset disposal plan from the second quarter.
It announced the sale of its liquid cartons business in SA for R450m in March and signed a $68.5m (R1.25bn) deal to dispose of Bevcan Nigeria to Alucan Investments in May.
Nampak went on to conclude and use the revenue from the asset sale of the Liquid Cartons companies in SA, Nampak Zambia, Nampak Malawi, and Rigid Plastic SA to raise R720m to pay down interest-bearing debt by September, as required by the terms of its new funding package. It also disposed of properties in London, Nigeria and Tanzania.
In October, the group announced it would sell its 51.43% holding in Nampak Zimbabwe to Zimbabwe Stock Exchange-listed TSL for $25m. The disposal of the industrial inkjet printing, laser marking and case coding solutions (Nampak I&CS) business was sealed in November for a disposal consideration of nearly R143m.
R1.8bn from the sale of net assets will be used to pay down interest-bearing debt, which will significantly lower gearing.
With a 331% rise in earnings before interest, tax, depreciation and amortisation to R1.4bn from R343m in 2023, Nampak’s revamp has been paying off and the manufacturer is now a leaner and more agile company after its reconstitution.
Nampak swung back into profitability in the year ended December, tallying headline earnings of R278m after a loss of R1.34bn the year. Cash generated from operations before working capital of R1.6bn, increased by 114%. This coupled with net proceeds from disposals saw net interest-bearing debt, excluding lease liabilities, fall 4% to R4.4bn. The group’s financial position improved by converting all interest-bearing debt to long-term debt, with 98% of it denominated in rand.
“By and large, we have now reduced our debt to a level that is manageable, but still not optimal,” said Van der Veen. “The conclusion of the sale of Nampak’s Nigerian business will signal the finalisation of the debt reduction programme, bringing the resultant debt to within an acceptable range.”
Compared with the previous year’s operational loss of R1bn, Nampak reported an operating profit of R1.7bn. The board decided not to declare a dividend for 2024.
At year’s end, CEO Phil Roux was confident that Nampak was in a far better position than it was a year ago, having strengthened its balance sheet, lowered interest costs and simplified its funding model from 16 funders to one: Standard Bank.
Nampak’s share price surged 121% since the beginning of 2024 to R414.23 on December 24 , giving it a market cap of R3.5bn.
“The corporate activity and turnaround intensity over the past 20 months is largely behind us, allowing us to focus on extracting value from our core business,” the group told investors in a recent presentation. “The balance sheet is in a far healthier state, the assets well capitalised allowing for free cash flow generation.
“We will continue to act like owners, be frugal at all times, and sustain a bias for action guided by a well-articulated strategic framework.”
As its turnaround plan advances, the company is kicking into the second phase of the plan focusing on growth initiatives to be rolled out in the medium term throughout 2025.
Nampak has committed significant resources to resolving the line installation setbacks experienced at the Springs plant as it seeks to increase capacity to adequately service its customer base and provide additional capacity to service the growing market demand for the 500ml can.
It has set aside additional funds to support relocation of a spare line from Angola to SA, where demand is high and the landscape is fiercely competitive as a result of the 2018 introduction of new beverage can manufacturers.
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