Nampak halts capex to focus on battling units
November 24, 2009
By Florence de Vries
Packaging maker Nampak would close its capital expenditure tap for the rest of the financial year as it focused on restoring units to profitability, chief executive Andrew Marshall said yesterday.
He was positive about future prospects as the group yesterday declared revenue growth of 6 percent to R19.5 billion for the year to September.
"We see some progress with a lot of our divisions in the current financial year, but we've decided to hold back on capital expenditure for now," he said.
Trading income fell 27 percent to R1.1bn, due to the results of the group's loss-making divisions. A substantial loss in the group's corrugated business, lower volumes across the group, the liquidation of a large dairy customer in the UK as well as losses at the Leeds carton operation painted a dismal picture for Africa's largest packaging producer.
Even so, the nodes of profitability have started showing. "We've thrown a lot of resources into the corrugated unit and it just turned profitable in October," Marshall said.
The group lost R44 million at its Leeds unit in the past year, but Marshall said the division had made a profit in November. Nampak sold its Flexpack business to Astrapak and shut its phone business during the review period. "We are trying to sell four other businesses or close them down," Marshall added, not wanting to disclose which groups these were.
Warren Buys, an analyst at Cadiz Asset Management, thought it prudent for the group to hold back on expansionary capex, as volumes still seemed strained by demand dropping.
"It may take longer than anticipated for volumes to normalise with the economy recovering slower than expected. The packaging industry generally also has a tough time with increased imports when the rand is so strong," he said.
The amount of cash the group used this period and the increase in gearing probably had a bearing on Marshall's move to hold back on capex.
"I was encouraged that some of the underperforming businesses have been exited and we would like to see more of this happening," he said.
Despite dismal trading conditions, Marshall said trading income remained similar to last year. "Metals and glass were slightly down, rigid plastics was marginally up, tissue had a good year while cartons and labels were in line with the previous year," he said.
"Capex has been very high in the past few years, so we plan to reduce this," he said.
In the past year Nampak spent R1.1bn on capital expenditure, bringing the total amount of capex in the past five years to R5.6bn. In the review period Nampak spent capex on a R750m paper mill in Pretoria as well as a R1bn beverage canning plant in Angola. With the economic downturn, demand for non-durables presented the group with a mixed bag.
While local volumes were down for discretionary items, other African countries had higher volumes due to the lower base. Marshall said European volumes were down too. The group operates in 11 African countries and six European countries.
Nampak shares closed unchanged yesterday at R16.30.
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