SOUTH AFRICA – Africa’s leading diversified packaging manufacturer, Nampak, expects its headline earnings per share to decrease to between 33c and 37c for the year ended September, compared to headline earnings per share of 62.3c in the prior year, representing a decrease of between 41% and 47%.
While releasing the trading update, the packaging company also revealed that it is seeking relevant authorisations to enable the company proceed with potential rights offer of up to R2.0 billion (US$112.6m) during the course of the first quarter of 2023.
The proposed financing will be challenged towards repaying lenders R1.35 billion (US$76m), and upgrade a beverage can line in South Africa with R350 million (US$19.72m) to add needed production capacity to satisfy the unprecedented growth in beverage can demand.
In addition to that, the company seeks R150 million (US$8.45m) to provide operating flexibility, as the group is currently operating with inadequate capacity to handle seasonal fluctuations in working capital requirements.
A further R150 million (US$8.45m) will be channelled towards to cover the estimated transaction costs of both the refinancing and the proposed rights offer.
Nampak has highlighted that it has preferred the rights issue due to its current debt package and US private placement funding maturing in December 2023 and May 2023 respectively, coupled with the requirement to repay R1.35 billion (US$76m) of net debt by 31 March 2023.
“If successful, will enable management to focus on delivering on Nampak’s growth strategy and result in a simplified, more robust capital structure,” highlighted the group.
Explaining the rationale of the company’s preference to the right issue, Tongaat highlighted that historical decisions to fund the African expansion mainly through US dollar debt has resulted in macroeconomic and operational pressures significantly straining its balance sheet, subsequently requiring it to seek relaxations from its funding partners.
“This has resulted in an increase in funding costs, which has been more acute in the context of the rising commodity prices and interest rate environment that has emerged since the onset of the war in Ukraine,” it stated.
Added to that, Nampak says several historic impairments, including the goodwill in Nigeria and asset impairments in Angola, with an expected credit loss raised in 2019 against the debt from the Reserve Bank of Zimbabwe, have all resulted in elevated levels of gearing.
“As pressures on the group’s fiscal position increased, the group has undertaken a number of self-help initiatives to de-lever the balance sheet and improve capital allocation. As a result, Nampak has become a small and more focused business,” it adds.
However, it says a high level of complexity remains with its operations spread across 10 African countries, many of which it says depends on commodities and are therefore vulnerable to price changes, currency instability and a lack of availability of foreign exchange.
“The group is also being disproportionally funded by a complex consortium of lenders with gearing levels exceeding shareholders’ equity,” stated Tongaat.
Moreover, it says self-help measures have not fully yielded the desired results for the year ended 30 September 2022.