Nampak reports operating loss and reduces debt in challenging period

South African packaging company, Nampak, has recently reported a headline loss of 78 cents per share for continuing operations, a sharp decline from the 54 cents per share it earned in 2019. The company's CEO, Erik Smuts, cited lockdowns impacting progress in restructuring initiatives and mentioned that group results were adversely affected by the currency devaluation of the Zimbabwean dollar and hyperinflation. In a recent interview with CNBC Africa, Smuts shed light on the impairments the company took in Angola and Nigeria, the challenges faced in these markets, and the strategies Nampak is implementing to navigate the difficult period. In Nigeria, Nampak incurred a significant impairment due to currency weakness and liquidity shortages. The business, acquired seven years ago for $300 million, experienced declining profits following the drop in oil prices in 2014 and 2015. Similarly, in Angola, the company had to write off part of its asset base as volumes dwindled amidst a weak economy. Despite the challenges in these markets, Smuts expressed optimism about the outlook. In Nigeria, the company has seen a resurgence in volumes since July, even reaching record levels by August. On the other hand, operations in Angola continue to face difficulties, leading to significant retrenchments and reduced activity. Nampak remains cautious but hopeful, anticipating improvements in these markets with the news of a potential vaccine. While some companies have exited African markets due to disappointing outcomes, Nampak is committed to weathering the storm and exploring strategies to mitigate operating risks. The company has put a pause on further growth initiatives in Africa, focusing on optimizing existing investments. Shareholders can expect Nampak to prioritize debt reduction in the medium term. The company's lenders have granted leniency but require a billion rand debt reduction through asset sales by the end of the next financial year. Smuts reassured that Nampak has received offers for assets exceeding the minimum requirement, indicating progress in debt reduction efforts. Despite the recent operating losses and impairments, Smuts highlighted that the restructuring costs incurred position Nampak for a better future. Efforts to streamline operations and enhance profitability in the de-food and plastic segments are expected to yield positive results in 2021 and beyond. While challenges persist, Nampak remains focused on its turnaround strategy and navigating the complexities of the African markets.