Packaging company Nampak's shares plummet 17% as it bleeds R390m

Africa's largest packaging manufacturer, Nampak [JSE:NPK], reported a loss of R390m (down 132%) compared to last year's profit of R1.2bn, according to its annual financial results for the year ended September 30, 2019.

The share price, which opened at R6.62 on Wednesday morning, plummeted 17% during the morning session to R5.46 following the release of the results. As at 12:35 shares were trading 3.67% weaker compared to the previous close at R6.04.

The company had warned shareholders on Monday of its plummeting losses, saying its results would be impacted by a R1.9bn net pre-tax foreign exchange loss in Zimbabwe, and a higher-than-expected tax rate in Angola, Fin24 previously reported.

Headline earnings per share (HEPS) declined more than two-thirds (69%) from 173.3c to 54.1c, while revenue declined 8% from R15.9bn to R14.6bn and operating profit declined by 84% from R1.6bn to R254m. No ordinary dividend was declared – the board has resolved not to pay out dividends until debt levels are "significantly" reduced.

According to outgoing CEO André de Ruyter, who has recently been named as the new Eskom CEO, during the period the group focused on operational efficiencies, cost containment, the "right-sizing" of divisions and the disposal of non-core and unprofitable businesses.

According to the annual report, cost control measures yielded cost reductions of R412m.

On the revenue front, the performance of the group's beverage can manufacturer Bevcan SA reported stable results, with Bevcan Nigeria delivering "stellar performance" with "double digit volume and revenue growth," the results announcement read.

"Our Bevcan business in Nigeria has performed well and delivered significant growth, while in South Africa we responded positively to the challenge posed by competition," De Ruyter said.

However, the performance of Bevcan Nigeria was offset by reduced purchasing power of consumers in Angola, following currency devaluation and increased competition in the Divfood Plastics SA businesses, according to the report.

"The majority of our regions experienced constrained consumer demand and concomitant pressure on volumes," De Ruyter said.

Zimbabwe currency devaluation

The group's overall performance was negatively impacted by the currency devaluation in Zimbabwe. "The currency devaluation in Zimbabwe had a severe negative impact on results in the rest of Africa and therefore the group," the report read. The group had to absorb the net devaluation loss of R1bn, which impacted profits. 

The group has also worked to consolidate its business and reached sales agreements for its glass division, Cartons Nigeria, and intermediate bulk containers in Plastics SA. Nampak plastics Europe has also been designated for sale.

The group said it has received offers since the announcement in August 2019.

In September, the group announced it had sold its glass business in a deal worth R1.4bn. The proceeds of the deal are meant to be used by Nampak to settle its debt, Fin24 previously reported.

In the results announcement the group echoed views that the disposal of these businesses will help settle US-dollar denominated debt and strengthen the group's financial position. The sales of these businesses are expected to help the group improve returns on capital and ensure better cash generation going forward.

The gearing ratio (debt to equity) increased from 37% to 68%, due to equity adjustments and reduced reported cash balances following the devaluation of operations in Zimbabwe.

"Gearing continues to be closely managed and is expected to improve upon receipt of anticipated proceeds from disposals of R1.9bn, including the sale of Glass for approximately R1.4bn, currently awaiting approval from competition authorities.

"Reduction of gearing remains a priority for management and proceeds will be applied to reduce debt levels once received," the report read.

The group said that a successor for De Ruyter is expected to be announced in mid-December, before the outgoing CEO leaves the company on January 14, 2020.

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