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Voluntary trading update for the 11 month period ended 31 August 2018
Nampak Limited
(Incorporated in the Republic of South Africa)
Registration Number: 1968/008070/06
Share Code: NPK
ISIN: ZAE 000071676
(“Nampak” or the "Group")
VOLUNTARY TRADING UPDATE FOR THE 11 MONTH PERIOD ENDED 31 AUGUST
2018
Highlights
- Improved cash transfer of R3.1 billion from the Rest of Africa,
including Angola
- Long-term funding package of R12.8 billion secured
- Angolan hedging programme protected cash against R1.5 billion
devaluation in the Kwanza
- Further investments of R300 million in Angola and Nigeria to be
announced
Macroeconomic environment in key markets
The major economies in which Nampak operates continue to deliver a
mixed performance.
The South African gross domestic product (“GDP”) growth data for the
first half of 2018 recently released by Statistics SA point to
negative growth for the first two quarters of the year. Household
consumption, for the first time in two years, was negative in the
second quarter of 2018 due to the currently challenging general
economic environment. As pressure on disposable income builds as a
consequence of the sugar tax, fuel price hikes and higher
unemployment, previously reported trends of consumers trading down
in terms of both brands and content (in particular opting for
cheaper sources of protein) have become more pronounced. Municipal
services have deteriorated to the extent that they have made
operations challenging, particularly in Ekurhuleni and Emfuleni.
The Nigerian economy continued to grow albeit at a lower year-on-
year (“y-o-y”) GDP growth of 1.5% in the second quarter of 2018,
driven by developments in the non-oil segment, as the services
sector recorded its strongest positive growth since 2016. While
inflation levels continue to ease, consumers are experiencing
pressure as y-o-y GDP growth in the manufacturing sector slowed to
0.68% for the second quarter. The Naira foreign exchange rate to the
US dollar remained stable supported by an improved crude oil price,
with US dollar liquidity remaining unfettered, and no concerns
around either cash transfers or regulatory compliance.
The Angolan Government introduced a series of foreign currency
auctions in late 2017 to devalue the Kwanza in order to stimulate
liquidity. To date, the Kwanza has devalued in excess of 60% and
liquidity has recently improved significantly, following USD3
billion raised in Eurobonds and a relatively improved oil price. As
a consequence of the Angolan government’s commitment to honouring
invoices previously presented for payment, and the active hedging
programme pursued by Nampak management, Nampak has been able to
transfer in excess of R1.6 billion from Angola for the financial
year to date. The Group’s hedging through the USD linked Kwanza
bonds has shielded the Angolan cash from a potential loss of
approximately R1.5 billion due to the devaluation of the Kwanza with
these hedges proving to be highly effective.
Customer demand in Zimbabwe remains resilient despite ongoing
foreign currency shortages. In order to set Zimbabwe on a path to
economic recovery, the newly elected president is expected to
introduce a range of economic and political reforms to attract
foreign direct investment to improve liquidity.
Divisional update
METALS
After strong first half market growth to March 2018, volumes in
Bevcan South Africa have softened in the second half of Nampak’s
financial year, as expected volume allocations to the new entrant
were effected by customers, as well as significantly weaker consumer
demand. As a result, volume growth is likely to decline for the full
financial year. Internal operating efficiencies and cost savings
have borne fruit and trading profit is expected to be better than
prior year. The closure of the Epping beverage can line was
successfully implemented and further overhead cost rationalization
opportunities are under investigation. Divfood’s volumes have
continued to improve on the back of a better fish catch and strong
vegetable volumes in both halves of the year. These will lead to a
significant improvement in trading profit for this business in 2018.
Nampak will be investing R100 million in a new food can line in
Lagos, Nigeria, to take advantage of increased demand for food cans
in that country.
Volumes in Bevcan Angola in the second half of the financial year
were lower as a result of limited in-country foreign currency
impacting the purchase of raw materials and can ends previously
supplied by this entity now being supplied to customers directly by
Bevcan South Africa. Trading profit will be impacted accordingly as
improved liquidity has not yet translated into improved market
demand. Following the restoration of liquidity, Nampak has restarted
the project to invest some R200 million (USD13 million) in
converting its tinplate production line to manufacture slender
aluminium cans to meet market demand.
Volume growth in Bevcan Nigeria was sustained into the second half,
and is expected to be higher by double digits compared to the prior
year, with margins somewhat moderating the trading profit for the
year. Market share gains also led to higher utilisation rates of the
beverage can line for the financial year. In anticipation of further
volume growth, studies have commenced to add more can sizes to the
operation, and to debottleneck the line to add more capacity.
PLASTICS
As indicated previously, the volumes in Plastics South Africa remain
subdued following the full impact of the loss of a key customer
during the financial year. Loss of volume and once off costs
resulting from site consolidation projects will negatively affect
trading profit in the second half. The cost reduction project is on
track and the first plant and depot closures have been implemented
as planned.
Backward integration, consolidation of customers and an overall
weaker economy have led to softer demand at Plastics Europe in the
second half. Trading profit will be close to break-even, as guided
previously.
Plastics Zimbabwe continued to perform well with strong cash
generation led by a strong performance from Megapak. In-country US
dollar liquidity remains challenging.
PAPER
Hunyani in Zimbabwe continued its strong performance into the second
half despite lower volumes in other territories in the Rest of
Africa. Improved trading profit is expected as a result. The
contract with a major customer in Cartons Nigeria was successfully
extended with good demand from this and other customers in the
second half. Following a successful market intervention in Zambia,
monthly sorghum beer carton sales volumes have increased six-fold
from their low point, and a much stronger 2019 is expected from this
region.
GLASS
The disposal of this division is progressing as planned. The
information memorandum was issued and non-binding offers have been
received from potential acquirers. The detailed due diligence
process is about to commence and discussions will be entered into
with one or more selected bidders with a view to evaluate the
offers.
Operationally, the plant’s performance continues to improve and
production output has improved by 11% in the second half.
Electricity supply from Ekurhuleni municipality remains extremely
inconsistent, with ongoing fluctuations and supply disruption being
experienced throughout the winter months. The rotary uninterruptible
power supply system which regulates and stabilizes electricity
supplied to the plant has functioned well and mitigated these
interruptions. The assistance of the Minister of Cooperative
Governance and Traditional Affairs has been requested, as the
response from senior municipal officials has been poor.
The glass market was softer in the second half as result of weaker
consumer demand and a loss by this division is expected for the
period.
Liquidity and cash transfers in the Rest of Africa
Liquidity in Angola improved significantly during August 2018 and
has continued to remain strong. Nampak has been successful in
repatriating USD117 million to date. Foreign currency amounting to
USD23 million has been made available by Angolan authorities for
confirmed letters of credit for future importation of raw material
purchases.
Liquidity in Nigeria remained positive in the second half with a
further USD33 million being transferred to August 2018. Minimal US
dollar foreign exchange movements related to Nigerian monetary items
are expected to impact the results in the second half as foreign
exchange rates were stable throughout the period at around USD1 to
NGN361. Management is closely following developments as a result of
the recent scrutiny by Nigerian authorities of foreign exchange
transactions in Nigeria. We have reviewed our own cash transfer
practices and are comfortable that due processes were followed.
The availability of foreign currency in Zimbabwe remains challenging
and minimal cash was transferred for the period.
In total USD231 million (R3.1 billion) has been transferred from
Angola, Nigeria and Zimbabwe to date.
Foreign exchange movements
The relatively weaker Rand that prevailed in the second half of
Nampak’s financial year means that unrealised foreign exchange
losses reported in the first half to March 2018 will in all
likelihood convert into realised and unrealised gains, depending on
the closing rate at the end of the financial period. The translation
of the results and the financial position of foreign operations will
also be impacted by these foreign exchange rate movements.
The devaluation of the Kwanza against the US dollar, which commenced
in the second quarter, is expected to lead to further foreign
exchange losses, which will, however, only apply to unhedged
monetary items.
During the second half of the year, further US Dollar linked Kwanza
bonds were acquired in line with the Group’s stated strategy of
hedging against the expected devaluation of the Kwanza. These bonds
have acted as a highly effective hedge against the devaluation of
the Kwanza against the US dollar. They have protected the value of
these monetary items and have provided a hedge of at least R1.5
billion. The bonds mature over the next three years with 21%
maturing in FY2019, 22% in FY2020 and the remaining 57% in FY2021.
Debt restructuring
Nampak will conclude, before 30 September 2018, an agreement with
various banks, both locally and internationally to implement
committed revolving credit facilities and term facilities (“RCF”)
with respective terms of four and five years which will replace the
Group’s existing loan facilities. The RCF will address the Group’s
maturing debt profile over the next four to five years. The RCF
comprises two major facilities including USD540 million to fund the
Group’s Rest of Africa and European operations and R4 billion for
the South African operation. This RCF includes provision for
repaying the first tranche of US private placement lenders amounting
to USD115 million, which falls due in May 2020. Pricing on the RCF
has been keen and we are satisfied that the group statement of
financial position will be secure for at least a five year period
with the new banking facilities further strengthening the Group’s
financial position.
Capital expenditure
Capital expenditure for the full year is expected to be between
R500-650 million, with some 66% being replacement or sustenance
capital, and the balance being expansion capital. Maintenance
expenditure is not compromised by cutbacks on capital expenditure,
as this forms part of the operational expenditure. A clear focus on
the maintenance of the integrity of the property, plant and
equipment remains.
Pre-close conference call
Nampak management will hold a pre-close telephonic conference call
on Thursday, 27 September 2018 at 14:30 Central Africa Time (GMT+2)
to discuss this trading update and address questions from the
investment community.
Nampak will release its annual results for the 12 months ending 30
September 2018 on the Stock Exchange News Service on or about 26
November 2018. Nampak will be in closed period from 1 October 2018
until 27 November 2018.
Shareholders are advised that the financial information contained in
this announcement has not been audited, reviewed or reported upon by
Nampak’s external auditors.
Bryanston
20 September 2018
Sponsor: UBS South Africa (Pty) Ltd
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: 20/09/2018 02:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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