Nampak gets temporary relief from weak rand

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Nampak gets temporary relief from weak rand

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Published Date: 2020-03-31 | Source: Stephen Gunnion | Author: Stephen Gunnion

Nampak gets temporary relief from weak rand

The diversified packaging group has also warned that prolonged disruption to its supply chain could impact future operating results and cash flows.

Nampak says its bankers have agreed to a temporary relaxation of its debt covenants, which are in danger of being breached due to a significant slowdown in the Angolan economy and the weak rand. In a trading update for the period to end-February, Africa's largest packaging group said while it was waiting for the proceeds of the recent sale of its Glass business, its funders raised its net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) to 3.5 times from 3.0 times.

As part of a rationalisation of its business, it also sold its Nigeria Cartons business and Nampak Plastics Europe. The disposal of its Glass operation became effect in 28 February and it had expected to receive the proceeds of about R1.5 billion by today. It will use the cash to reduce interest-bearing debt, which will result in lower finance costs in the second half of the year.

In the meantime, the group says most of its divisions reported weaker revenue in the first five months of its financial year, with the coronavirus pandemic likely to add pressure to its businesses.

Bevan Nigeria was the exception, with demand continuing to grow at a healthy rate. At home, Bevcan SA defended its market position while reducing costs. However, it said the total beverage can market contracted in line with restrained consumer spending. The bank on alcohol sales for the duration of the lockdown would make that worse. Divfood, which manufacturers cans for food producers, remained loss making after losing a big customer last year. Although it now expects a short-term spike in demand for tinned food due to Covid-19, Nampak said it was going ahead with a rationalisation of the business that would result in retrenchment costs this year.

In Angola, Nampak said it continued to reduce employee and other fixed costs as beverage can volumes remained very weak, resulting in a big decline in trading profit. It expects demand to pick up once wage inflation catches up with the impact of currency devaluations in that country.

Trading margins at the group's Plastics SA business picked up as a result of a restructuring, while its Rest of Africa Plastics operation - largely Zimbabwe - suffered from reduced demand due to challenging economic conditions and a limited supply of raw materials. Raw material supply management was also challenging for its Hunyani paper packaging business in Zimbabwe due to the lack of foreign currency liquidity in the market. However, it said demand and profitability in the business remained strong.

Nampak said its performance for the six months to end-March would be affected by foreign currency movements due to the size of its operations outside SA. While Nigeria's naira remained stable, Angola's kwanza devalued by 32% over the year. And the weak oil price is likely to lead to further currency devaluations in both markets. Zimbabwe's dollar depreciated by 18% in the five months to end-February, which would result in foreign exchange losses for the period.

It said its full-year performance would depend on how long the pandemic affected global supply chains as a large portion of the material used in it producing its packaging comes from foreign suppliers. Delays in production or shipping of product could have a negative impact on future operating results and resultant cash flows.

Nampak's shares fell 19% to R1 yesterday.





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