Market unhappy after depreciation of Zim dollar hits operating profit |
Net devaluation loss of R1bn in Zimbabwe
SHARES in Africa’s largest packaging manufacturer Nampak plummeted nearly 15 percent yesterday after it said it had suffered a net devaluation loss of R1 billion in Zimbabwe, due to a depreciation of the Zimbabwe dollar by more than 100 percent compared to the US dollar in the year to end September.
The shares closed 15.95 percent lower at R5.27 on the JSE yesterday.
The devaluation of the Zimbabwean dollar led to Nampak reporting an 84 percent decline in operating profit to R254 million and a profit before tax of R6m compared to a profit of R1.36bn reported last year.
Outgoing chief executive André de Ruyter said the hyper-inflationary environment in Zimbabwe, coupled with the rapid depreciation of the Zimbabwe dollar by more than 100 percent in just nine months, has created an environment where the remaining cash balances had to be written down to reflect the new reality of a much weaker currency.
“We put in place a hedging agreement with the Reserve Bank of Zimbabwe to protect some R800m of the cash balances, but took a prudent view on this hedge and have provided for an expected loss on this amount of 85 percent. If we recover more than this, shareholders will benefit in future years,” De Ruyter said.
Nampak also faced headwinds in Angola, with the devaluation of the kwanza hitting its profits by R212m from foreign exchange rate movements in that country.
In 2019 the group put its focus on operational efficiencies, cost containment, right-sizing of divisions and disposal of non-core and unprofitable businesses.
As a result, it expected its balance sheet to improve going forward as it forecasts that the sales of Nampak
Glass and Nampak Nigeria Cartons to raise a total of R1.9bn, which will be used to reduce its debt.
Revenue declined by 8 percent to R14.6bn while headline earnings per share fell by 69 percent to 54.1 cents a share and headline earnings declined by 69 percent to R349m.
Its trading profit declined by 21 percent to R1.6bn, due to weaker performance in metals and paper divisions, while softer demand at Divfood SA and Bevcan Angola impacted overall profitability.
The board decided not to resume dividends until debt levels were significantly reduced. Its core Bevcan business performed well in Nigeria, with double digit market share gains and increased sales volumes.
In South Africa, Nampak managed to retain a market share in excess of 80 percent in the beverage can market, despite the entry of two new competitors. “Not only was Bevcan SA able to deliver stable profits for the year thanks to cost saving and efficiency gains, but we also successfully developed new market categories in wine, water and craft beer,” De Ruyter said.