Nampak Plunges as it Cuts Dividend to Save Cash, Reduce Debt

  • African canmaker to raise $112 million in property sales
  • Company seeks to preserve funds amid tough economic climate

Nampak Ltd. shares slumped after Africa’s biggest beverage-can maker said it won’t pay an interim dividend and will raise 1.7 billion rand ($112 million) in property sales as the company seeks to preserve cash and cut debt.

Nampak is also reducing operating costs and converted 1.3 billion rand of short-term borrowings into long-term funding, the Johannesburg-based company said in a statement on Wednesday. Nampak is struggling with foreign-exchange constraints in Nigeria and Angola and had 1.5 billion rand of cash tied up in those countries at the end of March, the company said.

The shares fell 13 percent, the biggest drop in a year, to 17.91 rand at the close in Johannesburg, the lowest since Feb. 29. The stock is down 28 percent in 2016, the fourth-worst performer on the FTSE/JSE Africa All-Share Index.

“We have announced measures to significantly improve the robustness of our balance sheet so that should stand us in good stead in uncertain macroeconomic times,” Chief Executive Officer Andre de Ruyter said in a phone interview on Wednesday. “We think that we are being prudent in how we manage costs and cash.”

Nampak has expanded in Africa to take advantage of wider profit margins than in its home market, where De Ruyter is focused on cost cutting and improving efficiency. Now, with subdued growth and volatile currencies across the continent, the company has reduced its spending plans for the year and will be “circumspect” regarding further capital investment, it said.

Profit Declines

Nampak net income declined to 664.2 million rand from 686.6 million rand in the six months through March, while sales gained 10 percent to 9.4 billion rand. Capital expenditure for the full financial year is expected to be 1 billion rand to 1.4 billion rand, compared with a previous target of as much as 1.6 billion rand. Most of the spending in the first half was on previously-approved projects, the company said.

A 45 percent rise in trading profit in African countries excluding South Africa justified the company’s strategy of expanding into the rest of the continent, De Ruyter said. The region remains a “high growth and high margin” market for Nampak, he told reporters on a conference call.

Nampak would be “comfortable” with a net debt to earnings before interest, taxes, depreciation and amortization ratio of 40 percent to 60 percent, and expects to be within that range after using the proceeds of the sale and lease-back of properties to repay borrowings, De Ruyter said. The company has agreed to sell 15 of its industrial properties and lease them back for periods of between three and 15 years, and will sell a 16th outright, it said in a separate statement.

Net debt in rand terms has risen partly as a result of the weaker South African currency, and stood at 7.4 billion rand at the end of the first half. The company will consider future dividend payments based on the prevailing economic conditions, liquidity constraints in the rest of Africa and its cash flow requirements, Nampak said.

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