Chief financial officer's review

Glenn Fullerton

Achieved consistent financial ratios; operations to now deliver off sound platform.

  Focus area How we did
in 2017
  Capital expenditure management
  Cash generation
  Working capital management
  Managing overheads/improving profitability
  Managing Rest of Africa liquidity, cash repatriation and hedging  
  – Nigeria
  – Angola
  Balance sheet management
  Good progress made
  Some progress, more to come




  • Revenue down 2% at R18.8 billion but up 6% in constant currency, despite market pressures and depressed consumer spending
  • Trading profit of R2.0 billion up 3% (12% in constant currency) due to improved gross profit and overhead control
  • Trading profit up 11% after adjusting for external rent paid pursuant to the 2016 sale and leaseback transaction
  • Rest of Africa trading profit up 27% following strong performance from Bevcan Angola
  • Operating profit of R1.0 billion down 56% on 2016 due to capital profit on sale and leaseback of property portfolio in South Africa in prior year, but up 14% net of this once-off item
  • Net finance costs down 19% due to strengthened balance sheet on the back of the sale and leaseback
  • Goodwill impairment of R321 million and R114 million impairment of intangible asset at Glass with an adverse impact on earnings per share and group effective tax rate
  • Nampak Plastics Europe in-plant impairment and onerous contract provision negatively impacted earnings and group effective tax rate
  • Significantly lower foreign exchanges losses, improved cash repatriation and increased hedging of Angolan exposures
  • EPS down 86% due to 2016's capital profit on sale and leaseback, 20% down net of this once-off item
  • HEPS up 15.0%
  • Balance sheet remains strong with gearing down to 45% from 49%
  • Capital expenditure well managed, down 50% from R1.4 billion to R0.7 billion in 2017
  • Defined benefit obligation down 16% from prior year
  • Covenants, acid test ratio and current ratio remain strong and well controlled
  • Working capital management focus maintained
  • Effective tax rate increased to 37.5% from 11.9% due to impairments with no tax shield but in line with guidance at half-year before impairments


The year under review was characterised by challenging market conditions due to depressed consumer demand as a result of low consumer confidence in various markets. We adopted a prudent approach to managing the group's finances in uncertain markets with new entrants. We paid increased attention to operations excellence, cash management, the judicious allocation of funding for capital expenditure and the rigorous evaluation of the carrying value of various assets. These activities required some bold decisions which we detail in this report. Nampak's balance sheet remains strong with growth potential.

In 2016, the balance sheet was restructured primarily through the sale and leaseback of the group's property portfolio, focus on working capital, capital expenditure management and a cessation of the dividend to provide 2017 with a sound platform with improved gearing, strong short-term liquidity and adequate funding. This theme continued in 2017, with operating profitability, cost control, cash management and the review of the group's portfolio being focus areas. Driven to deliver advanced manufacturing, Nampak is well positioned to leverage off its recently modernised asset base and to benefit from further operations excellence initiatives and turnaround plans in operations that have not performed to expectations during 2017.

With an extremely pleasing performance from the Bevcan businesses across the continent, the overall results at a HEPS level achieved expectations. EPS in the prior year were boosted materially by the once-off capital profit on the sale and leaseback of the South African property portfolio which was not repeated in 2017.

Profit for the year
Revenue 18 822   19 139   (2)   
Trading profit 1 967    1 905    3   
Abnormal items# (1 006)    (1 076)    6   
Trading profit before property-related items 961   829   16  
Other abnormal items*   1 334      
Operating profit 961   2 163   (56)  
EBITDA** 2 460    3 435    (28)   
EBITDA*** 2 798    2 817    (1)   
PBT 570    1 677        
PAT 356    1 478        
EPS – cents 36.6    254.5        
HEPS – cents 123.8   107.6      
Ordinary dividend – cents        

# Excluding net capital profit on disposal of property sale and leaseback.
* Net capital profit on disposal of property sale and leaseback.
** Adjusted for impairments.
*** Based on trading profit.

Nampak's trading profit increased by 3% to R1 967 million in 2017 from R1 905 million in 2016, with trading margins improving to 10.4% from 10.0%. A commendable result from Bevcan South Africa and Angola assisted in delivering a 32% increase in trading profits from Metals off a 7% increase in revenue. DivFood had a challenging year. It is pleasing to note that Glass achieved a 7% increase in revenue compared to the prior year. However, during the second half, Glass experienced electrical supply issues which adversely impacted its performance and resulted in a 40% reduction in trading profit from R105 million in the prior year to R63 million in 2017. Glass incurred abnormal items of R79 million attributable to lost production as a consequence of the electrical supply issue and fire on one of the lines. Plastics' trading profit declined 58% off a revenue decline of 17%, with most of the revenue decline being attributable to the loss of certain customers in the United Kingdom who chose to vertically integrate. South Africa Plastics experienced tough trading conditions with depressed demand and pressure on trading margins. With the exception of our Zimbabwean operations, Paper reported pressure on revenue with a concomitant reduction in trading profits and trading margins. Corporate costs were well controlled with a reduction of R57 million in operating expenses at the South African head office. The overall increase of R29 million in corporate costs was primarily attributable to a lower post-retirement medical aid curtailment gain in the year compared to the prior year.

From a geographical perspective, the South African contribution to revenue increased from 57% to 60% while its contribution to trading profit declined from 49% to 46%. The Rest of Africa contribution to revenue increased marginally from 31% to 32% but due to an extremely strong performance from Bevcan Angola, the segment's contribution to trading profit increased from 52% to 64%.

Profit on sale and leaseback

EBITDA inclusive of impairments declined by 28% from R3 435 million to R2 460 million mainly due to the prior year including a capital profit of R1 334 million on the sale and leaseback of the South African property portfolio. EBITDA of R2 798 million (based on trading profit) declined by 1% from R2 817 million in the prior year.

Constant currency revenue and trading profitTrading profit

In constant currency terms, revenue in 2017 increased by R1.4 billion or 6% off the back of a 9.5% appreciation in the average exchange rate of the US dollar to the rand. Non-South African sources contributed 40% (2016: 57%) to the group's revenue with the strengthening of the rand impacting the group on consolidation of these foreign operations. Significant revenue growth in the Bevcan business was offset by a general decline in several sectors across the continent and the UK experiencing a 36% revenue decline in 2017 due to the loss of a major customer that chose to vertically integrate. Group trading margins, which have declined since 2014, increased for the first time in 2017, through improved operating efficiencies in certain operations and strong cost control.

Trading profit in constant currency terms reflects growth of 12% or R163 million compared to 3% in comparative terms. In 2017, we paid external rental of R150 million following the sale and leaseback transaction in September 2016, thereby reducing trading profit compared to the prior year, but with a compensating reduction in net finance costs. Adjusting for this external rental payment, trading profit for true comparative purposes increased by 11%.

Key issues during the current year:

Revenue   Trading profit

Abnormal items

The year was characterised by various abnormal items. We fully disclose and comment on these to assist users of the financial statements in their analysis and understanding of the group's results.

Abnormal items of R1 006 million excluding the capital profit on the sale and leaseback of land and buildings decreased by 7% from R1 076 million.

Abnormal items 2017
Net impairment costs 668   360  
Devaluation of financial instruments 160   681  
Glass power and fire – loss of production 79    
Nampak Plastics Europe in-plant onerous contract and related costs 82    
Retrenchment costs 57   30  
Gain on acquisition of business (27)    
Profit on disposal of investments (25)   (4)  
Restructuring/rationalisation expenses 16   4  
Other (4)   5  
Sub-total 1 006   1 076  
Profit on sale of property/sale and leaseback of land and buildings   (1 334)  
Total 1 006   (258)  
Net impairment costs

In 2017, Nampak recorded impairments of R668 million compared to R360 million in 2016. Significant items of impairment include R321 million goodwill and R114 million intangible assets impaired in Glass, a R112 million impairment related to the Nampak Plastics Europe in-plant, site closures associated with the decision by major dairies in the UK to vertically integrate which resulted in asset impairments of R82 million as well as R35 million related to the Bevcan Cape Town tinplate can line.

In terms of International Accounting Standard (IAS) 36: Impairment of Assets, the group tests the carrying value of goodwill annually. The goodwill impairment model is highly sensitive to small changes in key variables that have a material effect on the valuation of Glass. We rigorously tested this model and after careful consideration, management fully impaired goodwill of R321 million related to the purchase of the remaining 50% of the business from our joint venture partner in 2012. In addition, the carrying value of the intangible asset of R114 million was impaired.

Devaluation of financial instruments

We experienced losses from the currency devaluation of financial instruments in Nigeria where the naira depreciated by 14.0% during the year from 315 to 359 to the US dollar, resulting in additional foreign exchange losses of R160 million compared to R507 million in the prior period. The foreign exchange loss of R174 million in Angola in 2016 was not repeated in 2017. Total abnormal foreign exchange losses for the year represent a significant reduction from the losses of R681 million incurred during 2016.

Significant attention continues to be placed on the liquidity issues in the Nigerian, Angolan and Zimbabwean foreign exchange markets. Our businesses in these respective countries continue to produce cash with growing cash balances. The table below clearly sets out the cash held, the proportion hedged and the cash repatriation rates. These operations are funded on loan accounts using US dollars by the group's offshore procurement and treasury operation that continues to play an extremely important strategic role in funding the Rest of Africa. Where possible, cash balances in countries with poor dollar liquidity, have been hedged.

During the year under review US$127 million was extracted from Nigeria and Angola with cash repatriations of US$79 million and US$48 million respectively. This was a pleasing result in challenging market conditions with the offshore treasury company being adequately funded.

Cash repatriation and hedging

30 September 2017              
Cash on hand 2 188 654    2 843   828     3 670  
Hedged 1 954 # 1 954   –** 1 954  
Net unhedged cash 234 654    889   828     1 716  
Cash repatriation rate (%)* 47 –      93      
Percentage of cash on hand hedged (%) 89 –    65   –      114  
31 March 2017              
Cash on hand 1 436 426    1 863   954     2 817  
Hedged 1 107 # 1 107   344     1 451  
Net unhedged cash 330 426    756   610     1 366  
Cash repatriation rate (%)* 80 40      80      
Percentage of cash on hand hedged (%) 77 –    59   36     52  
30 September 2016              
Cash on hand 1 004 290    1 294   984     2 278  
Hedged 614 # 614   376     990  
Net unhedged cash 390 290    680   608     1 288  
Cash repatriation rate (%)* 95 56      57      
Percentage of cash on hand hedged (%) 61 –    47   38     43  


Cash repatriation rate = cash extracted as a percentage of invoices presented for payment in the period.


Not hedged due to US dollar liquidity provided by the NAFEX.


No suitable hedges available.


US dollar

In April 2017, the Central Bank of Nigeria introduced the Nigerian Autonomous Foreign Exchange (NAFEX) market which allowed importers and exporters to conclude foreign currency trades outside of the Nigerian Inter-bank Foreign Exchange (NIFEX) market rate. The graph demonstrates the positive effect that the introduction of the NAFEX market had in Nigeria.

At 30 September 2016, the group translated its naira monetary items to US dollars at the NIFEX closing rate of NGN315 to the dollar. The introduction of the NAFEX market significantly improved dollar liquidity in Nigeria during the year with in excess of US$4 billion being traded on the NAFEX market. Monetary items held at 30 September 2017 were translated at the NAFEX rate compared to NIFEX in the prior year.

Nampak has extracted US$79 million from Nigeria during the year with 94% being used to repay the offshore group treasury company and the balance to settle South African funding provided on the trade account.


After a promising first half of the financial year, cash repatriations from Angola slowed in the second half as a consequence of the government elections with a total of US$48 million being extracted for the year. The group continues to acquire dollar indexed kwanza bonds (bonds) that provide a hedge against the potential devaluation of the kwanza against the dollar. On maturity, or should the bonds be sold before maturity, the group will receive kwanza. Accordingly, these bonds were never intended to be investments but rather a mechanism of providing downside protection in the event of a devaluation in the kwanza.

Pleasing progress was made during the year in increasing the group's hedged position from 61% at 30 September 2016 to 89% at the end of the current financial year. These bonds have varying maturity profiles ranging from one to three years. However, there is a secondary market that would allow these bonds to be converted back into kwanza in the short term with no significant change in value should this be required. This has been confirmed with several of our Angolan banking partners. In terms of IFRS, the portions of these liquid bonds that mature within 12 months from 30 September 2017 have been disclosed as liquid bonds as part of current assets with the balance that matures more than a year as liquid bonds but as other non-current assets.


Dollar liquidity in Zimbabwe remains tight given the economic conditions facing Zimbabwe. At year-end the group held cash balances in this 51% held subsidiary of US$48 million. It is not possible to obtain a suitable hedge for these funds.


The group continues to focus on further cash repatriation from these countries.

Glass power and fire – loss of production

Poor operational performance in the second half, resulted in trading income of R63 million being 40% lower than the R105 million reported for 2016. Glass incurred abnormal items of R79 million attributable to lost production as a consequence of the electrical supply issue and fire on one of the lines. This electrical matter is now the subject of an insurance claim. Given the uncertainty of the outcome of the insurance claim at year-end and the date of this report, no insurance claim has been brought to book as this process had not progressed sufficiently for there to be certainty regarding the amount and timing of the insurance claim.

Nampak Plastics Europe in-plant impairment and onerous contract

During 2015, Nampak Plastics Europe commenced with the construction of a property attached to a customer's dairy and the installation of an in-plant facility on this site. We entered into a contract for the supply of bottles for a period of nine years. Given project overruns and certain manufacturing difficulties the project has been unsuccessful to date. The contract is now assessed as an onerous contract given the contracted pricing. While we continue to negotiate with the customer to find a solution to the pricing mechanisms, we have impaired assets to the value of R112 million related to the operation as well as accounting for the unrecoverable portion of the contract as an onerous contract and disclosed this as an abnormal item.

Costs related to onerous contractual obligations and related costs in Nampak Plastics Europe's in-plant amounted to R82 million, with a provision being raised in this regard at year-end.

Retrenchment costs

Retrenchment costs across the group continued as sites were rationalised and restructured, with the most significant cost in this regard relating to the UK due to vertical integration by certain customers resulting in various site closures.

Profit on sale and leaseback of land and buildings

In 2016, the sale and leaseback property transaction resulted in a once-off capital profit of R1.3 billion. This was not repeated in 2017.


In 2017 we reduced finance costs by 19% to R391.0 million from R485.5 million in 2016 due to the positive effect of the proceeds from the sale and leaseback being applied to reduce interest-bearing debt in South Africa. No finance costs were capitalised during the year compared to R37.9 million capitalised in 2016. Adjusting for the capitalised interest costs in the prior year, finance costs reflect a net reduction of 25.3%.

Effective tax rate


Nampak has a good record of managing the group's taxation affairs and prioritises compliance in all respects across several jurisdictions while optimising allowable deductions and taking opportunities to the full extent possible. During the year we continued to benefit from the pioneer tax status in Nigeria and the tax holiday in Angola. It should be noted that the Nigerian pioneer status ends on 31 December 2017 while the tax holiday in Angola will be available until 31 December 2018. Taxation years in these respective countries are based on calendar years. The group benefits from tax incentives granted in relation to our beverage can lines and Glass business in South Africa with management actively managing the requirements to benefit from these favourable tax laws that encourage investment.

The effective tax rate for the year increased from 11.9% to 37.5% and exceeded the half-year effective tax rate of 8.5% primarily due to the material asset, goodwill and intangible asset impairments in the second half of the financial year that do not offer a tax shield. In addition, an agreement was reached with the Bevcan Angola minority shareholders to charge interest on the trade loan account representing funding provided by Bevcan South Africa which had the effect of increasing the effective tax rate with compensatory credit on the profit attributable to minority shareholders on consolidation. The reconciliation that follows highlights the material reconciling items from the group's statutory tax rate to its effective tax rate.

The effective tax rate for the year before impairments was 8.5% in line with the 8.5% forecast at the half-year.

Statutory tax rate 28.0   28.0  
   Sale and leaseback   (21.4)  
   Government incentives (21.1)   (6.4)  
   Tax rate differential 20.1   (10.3)  
   Impairments and other losses – Glass, UK and Ireland 29.0    
   Forex losses not protected 7.9   21.2  
   Withholding and other foreign taxes 8.5   3.0  
   Other 5.3   (2.2)  
   Effective tax rate 37.5   11.9  
Adjustments in second half        
   Impairment and other losses – Glass, UK and Ireland (29.0)    
Forecast tax rate 31 March 2017 8.5   11.9  



HEPS grew by 15% in 2017 to 123.8 cents per share compared to 107.6 cents per share in 2016. This is attributable to an improved trading margin, increased trading profit, reduced finance costs and the reduction in foreign exchange losses related to the depreciation in the kwanza and naira compared to the prior year. This was partially offset by the higher minority share of profits in Bevcan Angola following a significant increase in profitability from this entity in 2017.

EPS declined 86% to 36.6 cents per share compared to 254.5 cents per share in 2016. It should be noted that the once-off R1.3 billion capital profit on the sale and leaseback transaction in 2016 contributed 208.5 cents or 82% to the 2016 EPS. In addition, the impairment of R321 million of goodwill and impairment of intangible assets of R114 million in Glass reduced the 2017 EPS by 68.0 cents.

HEPS and EPS reconciliation
Unadjusted HEPS 161.6    215.3    (24.9)  
Abnormal forex devaluation (25.0)   (107.6)   (76.7)  
Sub-total 136.6    107.6    26.9   
Impact of UK onerous contract (12.8)   –       
HEPS 123.8    107.6    15.0   
Unadjusted EPS 170.4    210.8    (19.1)  
Other asset impairments (23.8)   (57.0)   (58.1)  
Gain on asset disposals 12.2    0.6    100.0   
Abnormal forex devaluation (25.0)   (107.6)   (76.7)  
Sub-total 133.7    46.7    186.1   
Impact of sale and leaseback –    208.3    (100.0)  
Sub-total 133.7    254.5    (47.4)  
Impact of UK onerous contract and impairments (30.2)   –       
Impact of Glass impairment (goodwill and intangibles) (63.0)   –       
Impact of Bevcan Cape Town closure (3.9)   –       
EPS 36.6    254.5    (85.6)  
Impact of sale and leaseback –    (208.3)   (100.0)  
Adjusted EPS 36.6    46.2    (20.8)  


We critically assessed capital expenditure to ensure that capital was allocated only after careful consideration and an understanding of true returns and growth opportunities. This was facilitated by the implementation of a capex assurance committee. Capital expenditure reduced by 50% from R1.4 billion in 2016 to R0.7 billion in 2017. Capital expenditure in DivFood amounted to R209 million and in Glass to R178 million, being the only significant capital expenditures in the group. Expansion capex amounted to R358.3 million in 2017 compared to R964.3 million in 2016. Capital projects commenced in the prior year were completed during the current year. Replacement capex amounted to R377.0 million in 2017 and R479.3 million in 2016.


The table below highlights the group's cash flows with a focus on cash generated from normal operations:

Cash generated from operations before working capital changes 2 395    2 264       
Cash flows from operations 1 391    1 942      (28)  
Cash utilised in investing activities (2 571)   (202)        
Cash generated before financing activities and dividends (1 181)   1 740         
Non-operational adjustments            
Add: Increase in liquid bonds (included in investing activities) 1 337    618         
Add: Post-retirement medical aid buy-out 569    –         
Deduct: Proceeds from the sale and leaseback –    (1 701)*      
Normalised cash generated before financing activities 725    657      11  

* Proceeds net of transactional costs.


Capital expenditure

Cash generated before working capital changes of R2 395 million increased by 6% from R2 264 million in the prior year primarily due to a 3% increase in trading profit off improved operating margins that were assisted by a reduction in impairment losses and good cost control. During 2016, a R561 million reduction in the investment in net working capital was achieved from an elevated investment at 30 September 2015 resulting in a net release of cash of R561 million in 2016. Inventory holdings in Nigeria and Angola were significantly reduced during 2016 and contributed R488 million to the release of cash from the net working capital cycle in that year.

During 2017, additional inventory levels were required to meet customer demand and to provide adequate raw material supply headroom given constraints that arose at the respective ports during the year. Accordingly, a further R621 million was invested in inventories during the year with the majority of the funding being allocated to Angola to fund its record sales level and in Nigeria to replenish the low inventory levels at 30 September 2016.

The quality of trade receivables remains exceptionally good with a net reduction in the funding of trade and other debtors of R168 million being achieved. This inflow was augmented by an increase of R127 million in the use of funding provided by trade creditors. The net outflow of R327 million, therefore, relates primarily to the funding of additional inventories in Angola to meet record demand.

Normalised cash generated before financing activities of R726 million increased 11% compared to the prior year.

R133 million of cash generated during the year was utilised to augment the R436 million, being 25% of the sale and leaseback proceeds of R1 744 million in 2016, to fund the top up of the post-retirement medical aid buy-out.


Return on net assets

The 3% improvement in trading profit coupled with reduced net assets has resulted in RONA of 12.2% increasing from 11.2% in the prior year.


Net gearing

We applied 75% of the sale and leaseback proceeds of R1.3 billion received during September 2016 to repay South African interest-bearing debt. The downward trend in the net gearing ratio was pleasing, with net gearing declining to 45% from 49%. Managing down the gearing ratio remained a focus area during the year with the final ratio well within the indicated range of 40% to 60% targeted by the board.

Current ratio

Short-term liquidity remained a focus area and was successfully managed through an active management of the working capital cycle. The current ratio of 1.5 times was consistent with the prior year and one that reflects the strength of the group's balance sheet.

Acid test ratio

The acid test ratio of 1.0 times showed an improvement from the 0.9 times in the prior year and indicated the group's ability to settle all short-term creditors without having to liquidate any of its inventory holdings.


At 30 September 2017 the group's exposure to US dollar interest-bearing debt amounted to US$413 million (2016: US$378 million). The closing rand/US dollar exchange rate of R13.56 strengthened 1.2% from R13.72 in the prior year. The application of 75% of the proceeds from the sale and leaseback transaction on 1 September 2017 is reflected in the reduced gearing with significant headroom in the interest-bearing debt/EBITDA covenant at year-end. The group continues to operate well within the EBITDA/interest cover covenant.

Net debt EBITDA


Total funding capacity tenors excluding overnight
Group long-term

The group is reviewing its long-term maturity debt profile with a view to securing term funding with profiles that are more appropriate to the group's requirements.


In line with the prior year's decision to suspend the payment of a dividend, the group maintained this stance for 2017 in the interests of further strengthening the balance sheet and taking into account the geographic profile of the group's available cash.


We achieved head office cost savings of R57 million during 2017. This was largely due to the significant impact of the reduced cost of post-retirement benefits following the buy-outs completed in the prior year and initial part of 2017 and other cost-saving initiatives.


There were no significant reportable events after the reporting period.


Our focus will remain on maintaining and improving our balance sheet structure and continuing to enhance our capital expenditure controls to ensure capital is employed for maximum return and growth. We will prudently review capital allocations, supported by the multidisciplinary capital assurance committee that has been established to review all capital expenditure.

The finance function plays a significant role in assisting operations to drive profitability and to prudently allocate capital. We will continue to closely monitor liquidity issues in the Rest of Africa and build on successes achieved in this regard during the year.

I would like to thank the finance team for their diligence and resourcefulness in a challenging year, and the group executive committee, board and other group committees as well as our providers of capital for the support during the year.

We look forward to meeting the challenge of remaining the largest diversified packaging company on the African continent, delivering value to all our stakeholders.

Glenn Fullerton
Chief financial officer

28 November 2017