Wrap Text
Summarised consolidated financial results for the year ended 30 September 2019
Nampak Limited
(Registration number 1968/008070/06)
(Incorporated in the Republic of South Africa)
Share code: NPK
ISIN: ZAE 000071676
('Nampak' or the 'Group')
Summarised consolidated financial results for the year ended
30 September 2019
Salient features - continuing operations
* Revenue decreased 8% to R14.6bn
* Stringent cost control delivered cost reduction of R412m
* R1.0bn net devaluation loss in Zimbabwe
* Trading profit reduced by 21% to R1.6bn
* R3.2bn strong cash transfers from Angola and Nigeria
* Agreement completed for the sale of Glass for R1.4bn
* Cartons Nigeria disposed for Euro 26m (R440m)
* Nampak Plastics Europe for sale, indicative offers received
* Level 2 B-BBEE status improved from Level 6
* EPS down 76% to 42.2 cents
* HEPS down 69% to 54.1 cents
CEO comment
In 2019 Nampak, Africa's largest packaging manufacturer, has
focused on operational efficiencies, cost containment, right-
sizing of divisions and disposal of non-core and unprofitable
businesses, in a challenging macro-economic environment. 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. The
majority of our regions experienced constrained consumer
demand and concomitant pressure on volumes.
Nampak CEO André de Ruyter
Commentary
Overview
Nampak remains Africa's pre-eminent packaging manufacturer, with
significant competitive advantage and a strong and stable customer
base. Our factories have operated well, and we have managed to
mitigate the impact of weak macro-economic conditions and
increased competition by managing factors within our control
and produced good results while faced with protracted sub-par
economic growth and intensified competition in South Africa.
Revenue from continuing operations was down by 8% with Bevcan SA
performing commendably, despite the entry of new competitors in
South Africa, and delivered stable year on year trading results.
Bevcan Nigeria delivered a stellar performance, with double digit
volume and revenue growth. This partially offset the impact of
consumers' reduced purchasing power in Angola following a currency
devaluation, as well as increased competition in our Divfood and
Plastics SA businesses. The currency devaluation in Zimbabwe had a
severe negative impact on results in the Rest of Africa and
therefore the group. Owing to the devaluation of the Zimbabwe
dollar from 2.54 to 15.20 to the US dollar we had to absorb a
net devaluation loss of R1.0 billion through the income statement
which has made comparison to the prior year results difficult.
The past financial year was characterised by Nampak continuing to
optimise its portfolio in accordance with its stated strategy of
enhancing the focus on strategic substrates. Sale agreements were
concluded for the Glass division, Cartons Nigeria and intermediate
bulk containers in Plastics SA. Nampak Plastics Europe was also
designated for sale in August 2019, with an accelerated sales
process in progress and indicative offers being received. These
material divestitures will optimise and improve returns on capital,
and ensure better cash generation going forward. Proceeds from these
disposals will be used primarily to reduce interest bearing debt,
and in particular US dollar-denominated debt, which will strengthen
the company's financial position. This, coupled with vigorous
restructuring plans across the Group in the coming financial year,
will enable Nampak to compete from a stronger position.
Group performance for Continuing operations
Restated %
R million 2019 2018 change
Revenue 14 642 15 963 (8)
Trading profit 1 558 1 968 (21)
Net abnormal losses (267) (393) 32
Net impact of devaluation in Zimbabwe (1 037) —
Net foreign exchange losses in Zimbabwe
operations (1 945) —
Hyperinflation monetary gain 832 –
Gain on origination of Reserve Bank of
Zimbabwe (RBZ) financial instrument 795 —
Expected credit loss provision on RBZ
financial instrument (719) —
Operating profit 254 1 575 (84)
Profit before tax 6 1 356 (100)
(Loss)/profit for the year (390) 1 217 (more than 100)
Earnings per share (cents) 42.2 176.7 (76)
Headline earnings per share (cents) 54.1 173.3 (69)
Revenue
Revenue was down by 8% to R14.6 billion. Bevcan SA and Bevcan Nigeria
performed strongly to offset the impact of softer volumes in Angola,
resulting from the devaluation of the Kwanza and, to a lesser extent,
the loss of volume in Divfood. The impact of hyperinflationary
accounting on the Zimbabwean operations pulled back their performance
as a weaker closing rate was used to translate results as opposed to
the average rate used to translate results of foreign operations in
non-hyperinflationary economies.
Trading profit
Trading profit declined 21% to R1.6 billion due to the Metals and Paper
division's performance. Softer demand experienced both by Divfood in
South Africa and Bevcan in Angola impacted overall profitability for
the Group. Various operations in the Rest of Africa also reported
lower trading profits due to challenging economic conditions. These
were partially offset by improved profits at Megapak in Zimbabwe.
Group trading profit margins declined from 12.3% to 10.6% primarily
due to a weaker performance by the Divfood and Bevcan Angola offset
by improved trading margins in the Plastics divisions.
Abnormal items
Net abnormal losses before Zimbabwe adjustments reduced by 32% to
R267 million compared to R393 million in the prior year which largely
related to devaluation foreign exchange losses and provisions for
onerous contracts. Abnormal items included devaluation losses of
R212 million from foreign exchange rate movements in Angola, net
impairment losses of R148 million on assets, retrenchment and
restructuring costs of R44 million and cash repatriation costs
of R48 million were offset by a profit on disposal of equipment
of R67 million and other items of R118 million.
Operating profit
Net foreign exchange losses of R1.9 billion primarily relate to
the Zimbabwe financial instrument due to a significant decline
in the Real Time Gross Settlement dollar against the US dollar
and had a significant adverse impact on the Group's reported
results with this devaluation not occurring in the prior year.
In April 2018, in order to mitigate the build-up of credit
extended by Nampak Limited to Nampak Zimbabwe management
informed Nampak Zimbabwe that Nampak Limited would no longer
extend further credit to Nampak Zimbabwe. In order to protect
shareholder interests in the investment in Zimbabwe, on
27 September 2019 Nampak entered into an agreement with the
Reserve Bank of Zimbabwe to endeavour to secure the repayment
of the USD67 million over three years, commencing two years
after signature of the agreement on a 1:1 basis to the US dollar.
In terms of IFRS 9 Financial Instruments, Nampak is required to
take the asset to book and recognise a gain in profit and loss
on the basis of the economic substance of the contract. However,
in view of the prevailing economic conditions in Zimbabwe a
conservative expected credit loss ratio of 85% of the discounted
value of this agreement was applied resulting in a net gain to
the income statement of R76 million.
Given the abovementioned agreement with the RBZ was concluded on
27 September 2019 and was intended to facilitate repayment of the
US dollar funding owing by Nampak Zimbabwe, this funding is
regarded by IFRS as repayable and cannot be treated as part of
the group's net investment to Nampak Zimbabwe. Accordingly, the
foreign currency translation loss on the funding to Zimbabwe
was recognised in the group's income statement within earnings
and not as part of the group's other comprehensive income.
Despite this IFRS treatment, it is believed that appropriate
action was taken by management to enter into the agreement with
the RBZ in order to achieve the best possible economic outcome
in difficult circumstances.
This led to operating profit, after taking the net devaluation
loss in Zimbabwe, declining by 84% to R254 million.
Profit before taxation
Profit before tax fell to R6 million primarily as a result of
lower operating profits after accounting for foreign exchange
losses in Zimbabwe. Net finance costs were 10% higher at
R246 million due to lower finance income earned as a
consequence of the requirement for all Angolan imports to
be supported by cash backed letters of credit.
Taxation
The group's effective tax rate has been adversely impacted by
the change of tax laws in Angola in the second half of the
year limiting the deductibility of foreign exchange losses
to 7% of total foreign exchange losses. The group's effective
tax rate before the impacts of the Angolan change in tax laws
and the net foreign exchange loss in Zimbabwean was 13.5% down
from 10.3% in the prior year. The change in the Angolan tax law
resulted in the inability to raise a deferred tax asset in
offset of deferred tax liabilities arising from translation
of the tax base of non-monetary assets resulting in a permanent
difference and increasing the tax rate by 25 percentage points.
This adversely impacted the tax charge by R438 million. These
deferred tax liabilities have no cash tax implications and will
reverse over time. The group's overall effective tax rate is
primarily distorted by the tax impacts of the net foreign
exchange losses in Zimbabwe.
Earnings
Basic earnings were 76% lower at R272 million and earnings per
share reduced 76% to 42.2 cents. Headline earnings and headline
earnings per share both fell 69% to R349 million and 54.1 cents
respectively.
Financial position
The group's covenants are within the covenant limits with net
debt: EBITDA of 2.9 times, below the covenant threshold and
interest cover of 4.5 times was above the 4 times requirement.
The new revolving credit facilities exclude 100% of cash
balances from Zimbabwe.
The Group's gearing ratio of 68% at year-end increased from
37% as a result of the impacts of equity adjustments and
reduced reported cash balances post the currency devaluation
for the operations in Zimbabwe. Gearing continues to be
closely managed and is expected to improve upon receipt of
anticipated proceeds from disposals of R1.9 billion,
including the sale of Glass for approximately R1.4 billion,
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.
Capital expenditure
Capital expenditure for continuing and discontinued operations
amounted to R735 million for the full year, in line with
guidance. We continue to focus on ensuring that our factories
are well-maintained and capable of producing high-quality
products. Where opportunities arise for smaller high-return
projects, these will be assessed and capital allocated as
appropriate. Capital expenditure (excluding expansion capex)
is expected to remain at this level for the medium term.
Liquidity and cash transfers in the Rest of Africa
Nampak has seen continued strong foreign currency liquidity
in Angola and Nigeria. Cash balances in these countries have
halved to R1.3 billion at year-end from R2.6 billion at the
end of September 2018. A further R1.4 billion was transferred
from Nigeria and Angola in the second half of 2019, with a
total of R3.2 billion transferred for the year. R1.7 billion
was transferred from Angola and R1.5 billion from Nigeria.
There is currently no restriction on the transfer of cash
from Nigeria and liquidity remains satisfactory in Angola.
71% of cash in Angola remains hedged to protect against
further devaluations through USD-linked Kwanza bonds.
Hedging levels have decreased compared to the 2018 financial
year, due to the new requirement for all imports to be
supported by cash-backed letters of credit. Hedging
instruments have proven to be highly effective during the
devaluation of the Kwanza, and have protected Nampak
shareholders against potential losses of some R1.9 billion
since the inception of the hedging programme.
The availability of foreign currency in Zimbabwe remains
challenging and only R43 million (or 4% of the opening
cash position of R1.2 billion) was transferred for the
period. Rand equivalent cash balances have devalued to
R57 million due to the weakening of the RTGS dollar
against the US dollar. Raw material inputs into Zimbabwe
are being funded by US dollars provided by customers,
as well as from exports to neighbouring countries. Nampak
has not extended any further credit to Zimbabwe since
April 2018.
Foreign exchange rate movements
Nampak has sizeable operations outside of South Africa
and is exposed to various foreign currency movements.
The Nigerian Naira remained fairly stable while the
Angolan Kwanza devalued by 30% over the period. The
Zimbabwean RTGS dollar devalued by more than 100% in
February 2019 and as a result Nampak experienced foreign
exchange losses upon adoption of the RTGS dollar, for
reporting purposes, from the US dollar used in previous
periods. The results of Zimbabwean operations were also
translated using the closing rate at year-end instead of
the average rate for the year in line with IFRS requirements
for hyperinflationary economies, further reducing results
from these operations.
US dollar functional currency operations in the Rest of
Africa have benefitted from a 9% weakening in the average
exchange rate for the period. US dollar denominated debt
was adversely affected by 7% weakening of the South African
Rand closing rate since September 2018.
No ordinary dividend declared
The board has decided not to resume dividends to shareholders
until debt levels are significantly reduced.
Appointment of chief executive officer
Following the resignation of Mr. AM de Ruyter as an executive
director and Chief Executive Officer of Nampak Limited with
effect from 14 January 2020, a process is well underway to
appoint his successor. An announcement will be made by
mid-December 2019.
Short form announcement
This short form announcement is the responsibility of the
directors and is only a summary of the information in the
full announcement.
Any investment decisions made by investors and/or
shareholders should be based on consideration of the
full announcement as a whole and shareholders are
encouraged to review the full announcement which is
available on the JSE website:
https://senspdf.jse.co.za/documents/2019/JSE/isse/NPK/FY2019.pdf
and on Group's website http://www.nampak.com. The short form
announcement has not been audited but is extracted from
audited results.
Copies of the full announcement may also be requested at the
company's registered office, at no charge, during office hours.
27 November 2019
These results and a presentation to shareholders and analysts
are available on the Group's website http://www.nampak.com
Administration
Registered office Nampak House, Hampton Office Park,
20 Georgian Crescent East, Bryanston, Sandton, 2191,
South Africa; PO Box 69983, Sandton, 2021, South Africa;
Telephone +27 11 719 6300
Directors
Executive directors
AM de Ruyter (Chief executive officer) resigned with effect from
14 January 2020, and GR Fullerton (Chief financial officer)
Independent non-executive directors
PM Surgey (appointed Chairman with effect from 10 October 2018),
RC Andersen (resigned with effect from 6 February 2019),
E Ikazoboh, RJ Khoza (resigned with effect from 30 May 2019),
J John (resigned with effect from 1 November 2019), NV Lila
(resigned with effect from 30 May 2019), PM Madi (resigned
with effect from 6 February 2019), IN Mkhari, K Mzondeki
(appointed with effect from 1 September 2019), CD Raphiri
(appointed with effect from 1 March 2019), SP Ridley
(appointed with effect from 1 March 2019) and LJ Sennelo
(appointed with effect from 22 November 2019).
Company secretary
IH van Lochem
Sponsor
UBS South Africa (Pty) Limited
Share registrar
Computershare Investor Services (Pty) Limited, Rosebank Towers,
15 Biermann Avenue, Rosebank, 2196, South Africa; PO Box 61051,
Marshalltown, 2107, South Africa. Telephone +27 11 370 5000
http://www.nampak.com
Forward-looking statements
Certain statements in this document are not reported financial
results or historical information, but forward-looking statements.
These statements are predictions of or indicate future events,
trends, future prospects, objectives, earnings, savings or plans.
Examples of such forward-looking statements include, but are not
limited to, statements regarding volume growth, increases in
market share, exchange rate fluctuations, shareholder return and
cost reductions. Forward-looking statements are sometimes, but
not always, identified by their use of a date in the future or
such words as 'believe', 'continue', 'anticipate', 'ongoing',
'expect', 'will', 'could', 'may', 'intend', 'plan', 'could',
'may', and 'endeavour'. By their nature, forward-looking
statements are inherently predictive, speculative and involve
inherent risks and uncertainties, because they relate to events
and depend on circumstances that may or may not occur in the
future. If one or more of these risks materialise, or should
underlying assumptions prove incorrect, our actual results may
differ materially from those anticipated. There are a number of
factors that could cause actual results and developments to
differ materially from those expressed or implied by these
forward-looking statements. These factors include, but are not
limited to: changes in economic or political conditions and
changes to the associated legal, regulatory and tax environments;
lower than expected performance of existing or new products and
the impact thereof on the Group's future revenue, cost structure
and capital expenditure; the Group's ability to expand its
portfolio; skills shortage; changes in foreign exchange rates
and a lack of market liquidity which holds up the repatriation
of earnings; increased competition, slower than expected customer
growth and reduced customer retention; acquisitions and
divestments of Group businesses and assets and the pursuit of
new, unexpected strategic opportunities; the extent of any
future write-downs or impairment charges on the Group's assets;
the impact of legal or other proceedings against the Group;
uncontrollable increases to legacy defined benefit liabilities
and higher than expected costs or capital expenditures. When
relying on forward-looking statements to make investment
decisions, you should carefully consider both these factors
and other uncertainties and events. Forward-looking statements
apply only as of the date on which they are made, and we do
not undertake any obligation to update or revise any of them,
whether as a result of new information, future events or
otherwise.
Date: 27-11-2019 07:05:00
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