Nampak to close capex tap

Johannesburg - Packaging manufacturer Nampak's newly appointed CEO Andrew Marshall on Thursday said the group plans to reduce capital expenditure until the economic environment improves.

Nampak is in the final stages of completing a R750m paper mill in Rosslyn, Pretoria, and a beverage canning plant for R1bn in Angola. This plant will be used to supply SA Breweries (SAB) with cans.

"We are pulling back on capital expenditure, but the Angola project was planned a long time ago and SAB Angola is putting up additional brewing capacity," said Marshall.

He said the group does not have any other capex project planned in the foreseeable future.

Commenting on the group's interim financial results to end-March, Marshall said Nampak's debt will start to fall once it reduces capital expenditure. "We are able to cover our debt well because we generate a lot of cash," he said.

Nampak's balance sheet showed loans and borrowing of R1.9bn. Its net finance costs increased by 38% to R157m, due to interest rates and additional capital expenditure.

Group revenue rose 14% to R10.1bn and trading income increased 3% to R781m. The trading margin dropped from 8.6% to 7.7% and headline earnings per share dropped 39% to 67c per share.

The profit margin of the group's paper business dropped from 4.6% to 2.7%, and 14.7% to 13.7% for metals and glass.

Demand a mixed bag

With the economic downturn, demand for non-durables has been a mixed bag. "Overall food and beverages volumes are good and demand is holding up quite well. However, we've seen a significant drop in areas where consumers have discretion, such as paint cans."

Marshall described the results as a mixed performance. "I don't think we're satisfied with the earnings, but in the circumstances they're reasonable.

"We're hoping Nampak will benefit when the economy starts to recover. We supply a huge range of products," he said. Nampak manufactures paper, metals, glass and plastics in 11 African and six European countries.

Nampak has already consolidated most of its activities; 140 manufacturing sites have been reduced to 100. "The main consolidations have been achieved, there's not much we can do now except fine-tuning here and there," said Marshall.

Analyst at Coronation Fund Managers Jason Kombo said: "Despite the overall result being poor, Nampak's African Plastics division put up a decent performance."

Kombo said the packaging industry is geared for consumption expenditure. "In a downturn when intuitive spending is subdued, volumes are expected to be muted," he said.

Kombo said difficult economic conditions are expected to continue and Nampak's "focus should be on removing assets or divisions that have been performing sub-optimally, and removing excess costs in the business".

"The closure of those factories is an indication of moving in the right direction. I think more needs to be done to convince the market of a recovery," said Kombo.

Nampak's shares closed 0.15% higher at R13.27 on Thursday.

- Fin24