Nampak has become the latest South African company to be afflicted by a currency crisis in the lucrative but volatile West African market of Nigeria, after it reported R1 billion in foreign exchange losses from the populous country.
MultiChoice and MTN are among the other South African companies to suffer exchange rate headwinds in Nigeria. The exchange rate losses for Nampak amounted to R1bn in the year to end September, it reported yesterday.
The bigger Nigerian foreign exchange rate losses brought Nampak’s total forex losses for the period to R1.2bn. At the centre of the Nigerian exchange rate losses has been a persistently weaker naira currency and a dollar shortage that has impacted a wide variety of companies.
“The Nigerian losses were caused by a consistently weakening Naira in a forex market that was increasingly dysfunctional as foreign exchange became scarcer and dealings in the secondary currency market were commonplace at punitive rates,” the company said.
Nampak imports most of the raw materials for its Bevcan Nigerian business and pays for these in US dollars, but suffers mismatches in exchange rates owing to high volatility and mismatches between the official and unofficial exchange rates.
The company made cash transfers of R1.3bn compared to R1.7bn a year ago to cover for raw material costs. In Angola, where the kwanza currency devalued by 47% during the period under review, Nampak has started to see “a tightening in dollar availability”.
During the period under review, Nampak recorded operating net profit before impairment losses of R276 million, reflecting a 76% decline compared to R1.2bn in the prior year.
Forex losses were the “major contributor to this decline” in profitability. Impairment losses of about R2.8bn recognised for the year also adversely impacted profitability and reduced the group’s shareholder equity base by 61% to R1.6bn from R4.7bn a year ago.
Phil Roux, Nampak CEO, said doing business in the rest of Africa has become particularly onerous given pedestrian economic growth, currency vagaries, leadership changes and policy uncertainty.
In addition to the forex losses, directors in Nampak have noted “material uncertainty relating to going concern with reference to the group’s ability to execute the asset disposal plan and raise R2.7bn” in the next 18 months.
“We are required to raise R2.7bn through asset disposal in the next 18 months to repay interest-bearing debt,” said Roux.
This comes against the backdrop of a macroeconomic environment that is likely to remain tough with sustained low growth and hard currency constraints in key markets. Headwinds in 2023 had left the company with a R4bn loss attributable to owners of Nampak Limited compared to a loss of R147m in the comparative period.
A headline loss of R1.6bn has been recorded for the September 2023 year end compared to R229m in headline earnings in the prior year, translating to a headline loss of 46 811.7 cents per share.
This was after revenues declined by 2% to R16.6bn on volume reductions primarily in Bevcan Nigeria, DivFood and Bevcan SA. A further 5% decrease in Nampak’s metals revenue was partially offset by increases of 2% and 28% in the plastic and paper divisions respectively.
“Bevcan South Africa performed strongly, improving its trading profit by 28% and DivFood returned to profitability with an improvement of R77m in its trading profit.”
Net finance costs were 109% ahead of prior period, at R1.2bn, inclusive of once-off refinancing advisory costs of R335m. Rising interest rates coupled with an on average higher investment in working capital and the extension of maturity dates on existing funding led to a significant increase in interest cost, the company explained.
Cash generation was, however, higher at R1.6bn, aided by a working capital improvement of R905m, “in part due to a step change in working capital” disciplines. Shares in the company shed 1.26% to R159.9 in yesterday’s afternoon trade session on the JSE.