JSE-listed Nampak’s headline earnings and headline earnings a share from continuing operations increased by 11% and 10% to R849-million and 132c, respectively, for the six months ended March 31.
Presenting the company’s results, on Thursday, CEO André de Ruyter said the performance from continuing operations was pleasing, despite a mixed economic and political environment.
“Our focus on strengthening our financial position and prudent capital allocation has resulted in improved cash generation, reduced gearing and improved margins,” he noted.
Revenue from continuing operations grew by 2% and trading profit rose by 7% as a result of robust demand in the metals and plastics divisions.
Gearing reduced to 39% from 51% in the comparative period and 45% at 2017 year-end.
“The balance sheet remains strong with adequate facilities to fund all activities,” De Ruyter said.
Capital expenditure more than halved to R206-million from R470-million owing to more stringent capital allocation by management, and is expected to be similar to the 2017 amount of R735-million.
Revenue in the metals division increased by 5% owing to robust demand in South Africa and Nigeria.
“Bevcan in South Africa and Nigeria experienced pleasing sales volume growth, and Divfood recovered from low volumes. Strong volume growth in Bevcan Angola was tempered by a much stronger rand to the dollar, which resulted in a modest increase in revenue,” De Ruyter pointed out.
Bevcan Nigeria’s volumes grew significantly, driven largely by the malt category.
“The recent introduction of excise duty on alcohol beverages has not had a discernible impact on volume to date. The feasibility of a food can line in Lagos, Nigeria, is being investigated to cater for anticipated growth in the food sector as the economy recovers,” he added.
Closures in the plastics division in South Africa grew market share, and a strong performance by Zimbabwean entities delivered a good performance.
Stringent cost management in Europe, capacity filling initiatives in South Africa and the strong performance in Zimbabwe saw trading profit for this division grow by 36% to R121-million from R89-million.
The paper division, meanwhile saw a pleasing recovery in carton sales in Nigeria, which led to improved profitability.
Tobacco case sales in Zimbabwe were moderately lower considering limited availability of foreign currency, but contributed to improved profitability.
“Ongoing initiatives to service this region collectively continued and Malawi was restructured to function as a depot to improve profitability of this region going forward,” he stated.
Volume growth in the glass division led to higher revenues, but performance was impacted on by internal production inefficiencies.
“While energy supply challenges were resolved, operational challenges and high depreciation reflective of the capital intensity led to a trading loss of R55-million,” De Ruyter said, adding that the company has decided to dispose of the glass operation to free up cash for other uses, including growth, debt reduction and enhancing free cash flow, by April next year.
With improving business confidence and higher economic growth forecasts for South Africa, demand for packaging is expected to grow at increased rates in 2018 and 2019.
“This, together with improved consumer sentiment, will boost beverage can market growth,” De Ruyter noted.
He added that Nampak anticipated that additional capacity by a new entrant in the beverage can market will be absorbed in the medium term as the beverage can market continues to show strong growth.
The momentum at Divfood is expected to continue for the rest of the year and plastics is expected to benefit from a vigorous turnaround programme.
“Operations in the rest of Africa are anticipated to continue generating cash as demand in Angola, the recovering economy in Nigeria and good prospects in Zimbabwe drive demand for packaging products,” he said.