Nampak, the biggest packaging group in the country, in the midst of a financial turnaround plan has reduced its right issue plan to R1.5 billion from R2bn, after making some R500 million in cost savings.
But the good news ended there as the share reported the biggest fall on the JSE yesterday, with the price falling 11.5% to R1 by midday. A year ago the share price was R3.80 and five years ago at yesterday’s date it was trading at R15.80.
“It’s a dog’s breakfast,” Opportune Investments chief investment officer Chris Logan said of Nampak’s 2023 first quarter trading update, released yesterday.
Logan said while the reported quarterly turnover growth was not too bad, the other disclosed figures, including higher foreign exchange losses – which the group has had to contend with every year since 2016 – higher interest charges, debt and higher taxes, all indicated a deteriorating financial position… The likely reasons for the decline in the share price, he said.
The update also generated some social media commentary, with @hazelwood_dave tweeting: “R1.5 billion rights issue on a R750mn market cap. Very bad dilution for shareholders. That’s why you never buy these type of situations before the rights issue is completed. Just don’t.”
@alyssa_viljoen tweeted: “At FY 22, Nampak announced they had ‘significantly improved’ net debt:EBITDA ratio of 3.94x from 4.79x in FY21. In their trading update this morning they have again indicated higher debt levels… How close to the sun do they want to fly?”
In the trading update for the three months to December 31, Nampak said their turnaround plan which started in September, 2022 had already yielded an estimated working capital and liquidity improvement of more than R500m.
Revenue growth of more than 20% was supported by increases across most of the beverage can operations, and a small recovery at DivFood.
Trading profit growth was higher than revenue growth due to the partial recovery of higher cash-transfer costs, improving supply chains and internal efficiencies in the metals and paper divisions.
However, foreign exchange losses through increased transfers of cash from Angola and Nigeria and the devaluation of the currencies “significantly impacted operating profit”, the group said.
Higher debt and increased interest rates and a weaker rand to dollar exchange rate resulted in “significantly higher finance costs”. The group said it had operated within its debt covenants as at December 31, 2022.
A higher effective tax rate, mainly due to the effect of the weakening kwanza on deferred tax balances in Bevcan Angola “negatively impacted profitability”.
The group said demand in the South African beverage can market remained strong in the first quarter. Demand for large can sizes remained strong resulting in full capacity utilisation for these lines.
In Angola, an upwards trend in can volume demand continued on the back of an improved economic environment, although at a reduced rate compared to the last quarter of the 2022 financial year.
Beverage can volumes in Nigeria declined due to a weaker overall Nigerian economic environment, and increased cost of imported goods.
In the DivFood South Africa division trading results improved from a loss to a small trading profit. Better operational performances were reported at its Paarl and Epping operations.
The commodity price reduction for tinplate was expected to reduce the net working capital investment in DivFood over the coming months.
Fish can demand was strong from a stable import supply of frozen fish. However, this was offset by lower market demand in the vegetable and meat categories due to lower consumer spending.
Demand for most diversified products was disappointing due to a slow start to the insecticide season, and consumers having less disposable income. Shoe polish can sales remained strong. Demand from the wine and spirits industries for caps and closures remained stable.
A decision had been made to exit Nampak Metals Nigeria. Discussions with interested parties were in progress, the group said.
In the plastic businesses, raw material cost increases necessitated product pricing increases to the market. Demand for conical paper carton volumes in South Africa reduced, following strong demand in 2022.
Load shedding remained a concern across the South African operations.
Several initiatives to turn around underperforming businesses were still under way, Nampak said.
BUSINESS REPORT