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NPK
NPK
Nampak - Interim Report & Cash Distribution: Six Months Ended 31 March 2006
Nampak Limited
(Registration number 1968/008070/06)
(Incorporated in the Republic of South Africa)
Share code: NPK & ISIN: ZAE000071676
Website: www.nampak.com
INTERIM REPORT AND CASH DISTRIBUTION FOR THE SIX MONTHS ENDED 31 MARCH 2006
HIGHLIGHTS
* HEPS up 10%
* Profit before abnormal items up 9%
* Positive impact from restructuring
ABRIDGED GROUP INCOME STATEMENT
Unaudited Audited
6 months ended year ended
31 March 30 Sept
2006 2005 Change 2005
Notes Rm Rm % Rm
Revenue 7 844.6 7 909.6 (0.8) 15 481.1
Profit before abnormal 1 798.2 733.6 8.8 1 311.0
items
Abnormal items 2 (4.7) 217.0 (63.8)
Profit from operations 3 793.5 950.6 (16.5) 1 247.2
Finance costs (81.3) (105.2) (200.6)
Finance income 24.5 53.5 93.2
Income from investments 3.6 3.5 33.8
Share of (loss)/ profit of (1.4) 15.3 0.9
associates
Profit before tax 738.9 917.7 (19.5) 1 174.5
Income tax 257.7 308.4 519.4
Net profit for the period 481.2 609.3 (21.0) 655.1
Attributable to:
Equity holders of the 478.3 606.1 651.3
company
Minority Interest 2.9 3.2 3.8
481.2 609.3 655.1
Number of ordinary shares 684 434 645 126 707 171
in issue (000)
Number of ordinary shares 580 080 641 316 641 888
in issue - net of treasury
shares (000)
Weighted average number of 579 126 638 155 638 262
ordinary shares on which
headline earnings and
basic earnings per share
are based (000)
Weighted average number of 583 081 642 670 642 385
ordinary shares on which
diluted headline earnings
and diluted basic earnings
per share are based (000)
Basic earnings per share 82.6 95.0 (13.0) 102.0
(cents)
Distribution per share 30.0 - -
(cents)
Dividend per share (cents) - 27.0 83.6
Fully diluted earnings per 82.0 94.3 (13.0) 101.4
share (cents)
Determination of headline
earnings
Headline earnings per 82.5 74.8 10.3 88.0
share (cents)
Fully diluted headline 81.9 74.2 10.4 87.4
earnings per share (cents)
Profit attributable to 478.3 606.1 651.3
ordinary shareholders for
the period
Less: preference dividend - - (0.1)
Adjusted for:
Impairment losses 18.2 113.3 205.0
Reversal of impairment (1.8) - (5.0)
losses
Net loss/(profit) on 0.9 (0.4) 26.6
disposal of businesses
Net profit on disposal of (26.0) (344.5) (410.3)
property, plant and
equipment
Pension fund curtailment - (8.8) (17.6)
gain on disposal of
business
Write off of due diligence - - 5.7
costs
Tax effects 8.1 111.4 105.8
Headline earnings for the 477.7 477.1 0.1 561.4
period
ABRIDGED GROUP BALANCE SHEET
Unaudited Audited
6 months ended year
ended
31 March 30 Sept
2006 2005 2005
Notes Rm Rm Rm
Assets
Non-current assets 5 822.6 6 305.6 6 092.7
Property, plant and 4 641.0 4 960.6 4 819.5
equipment
Goodwill and other 1 029.4 1 076.7 1 062.3
intangibles
Non-current financial 151.6 266.6 203.3
assets and associates
Deferred tax assets 0.6 1.7 7.6
Current assets 4 881.2 4 890.3 5 186.8
Inventories 1 932.3 1 941.8 2 001.8
Trade and other 2 524.8 2 417.1 2 504.1
receivables
Tax assets 46.6 3.2 60.7
Bank balances, deposits 4 271.2 528.2 620.2
and cash
Non-current assets 106.3 - -
classified as held for
sale
Total assets 10 703.8 11 195.9 11 279.5
Equity and liabilities
Total equity 4 805.6 5 763.6 5 651.6
Capital reserves 1 222.7 1 940.8 2 156.6
Other reserves (359.7) (102.8) (296.3)
Accumulated profits 3 909.6 3 889.0 3 758.9
Equity attributable to 4 772.6 5 727.0 5 619.2
equity holders of the
parent
Minority interest 33.0 36.6 32.4
Non-current liabilities 2 108.7 1 857.5 2 154.4
Interest bearing debt 4 914.0 690.8 929.7
Retirement benefit 531.5 621.2 540.7
obligation
Non-current financial 21.7 23.6 26.7
liabilities
Deferred tax liabilities 641.5 521.9 657.3
Current liabilities 3 789.5 3 574.8 3 473.5
Trade and other payables 2 181.7 2 349.9 3 002.0
Interest bearing debt 1 358.9 1 026.3 279.3
Tax liabilities 212.6 198.6 192.2
Liabilities directly 36.3 - -
associated with non-
current assets classified
as held for sale
Total equity and 10 703.8 11 195.9 11 279.5
liabilities
Additional balance sheet
disclosures
Total borrowings: total 43% 30% 21%
equity
Net borrowings/(cash): 38% 21% 10%
total equity
Total liabilities: total 115% 102% 99%
equity
Net worth per ordinary
share (cents) calculated
on number of ordinary
shares in issue - net of
treasury shares of 580 080 828 899 880
011 (2005: 641 316 468)
Tangible net worth per
ordinary share (cents)
calculated on number of
ordinary shares in issue
- net of treasury shares 651 731 715
of 580 080 011 (2005: 641
316 468)
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
Unaudited Audited
6 months ended year
ended
31 March 30 Sept
2006 2005 2005
Rm Rm Rm
Exchange differences on (73.7) (10.4) (102.9)
translation of foreign operations
Net actuarial gains/(losses) taken - 2.4 (33.5)
to equity (net of tax)
Hyper-inflation capital adjustment 14.8 (19.6) (89.7)
Net expense recognised directly in (58.9) (27.6) (226.1)
equity
Transfer (from)/to profit or loss (4.5) 1.3 1.4
from equity on hedges
Profit for the period 481.2 609.3 655.1
Total recognised income and 417.8 583.0 430.4
expense for the period
Attributable to:
Equity holders of the parent 415.8 579.0 429.7
Minority interest 2.0 4.0 0.7
417.8 583.0 430.4
ABRIDGED GROUP CASH FLOW
Unaudited Audited
6 months ended year
ended
31 March 30 Sept
2006 2005 2005
Note Rm Rm Rm
Cash operating profit 1 122.7 1 000.9 1 849.8
Working capital changes (793.6) (430.5) 61.5
Cash generated from 329.1 570.4 1 911.3
operations
Net finance costs (59.5) 53.5 (100.3)
Income from investments 3.6 3.5 37.4
Tax paid (225.3) (276.0) (418.7)
Replacement capital (145.8) (199.1) (331.7)
expenditure
Cash (utilised (97.9) 152.3 1 098.0
in)/available from
operations
Dividends paid (328.9) (363.5) (536.1)
Net cash (outflow)/inflow (426.8) (211.2) 561.9
from operating activities
Net cash inflow from 36.0 279.5 168.2
investing activities
Net cash (outflow)/inflow (390.8) 68.3 730.1
before financing
activities
Net cash outflow from (1 054.6) (505.6) (306.4)
financing activities
Net (decrease)/increase in (1 445.4) (437.3) 423.7
cash and cash equivalents
Cash and cash equivalents 364.8 (38.9) (38.9)
at beginning of period
Translation of cash in 11.9 (2.1) (20.0)
foreign subsidiaries
Cash and cash equivalents 4 (1 068.7) (478.3) 364.8
at end of period
NOTES
Unaudited Audited
6 months ended year ended
31 March 30 Sept
2006 2005 Change 2005
Rm Rm % Rm
1. Profit before abnormal items
South Africa 602.4 600.6 0.3 1 087.2
Rest of Africa 68.9 34.3 100.9 64.4
Europe 126.9 98.7 28.6 159.4
798.2 733.6 8.8 1 311.0
2. Net abnormal income
Retrenchment costs (4.2) (19.4) (104.9)
Restructuring costs (0.2) (2.4) (45.1)
Impairment losses on goodwill, (18.2) (113.3) (205.0)
plant and equipment
Reversal of impairment losses on 1.8 - 5.0
plant and equipment
Net profit on disposal of property 22.2 340.9 397.5
Net (loss)/profit on disposal of (0.9) 0.4 (26.6)
businesses
Pension fund curtailment gain on - 8.8 17.6
disposal of business
Net monetary adjustment - 6.0 3.3 (2.2)
hyperinflation
Financial instruments fair value (1.7) (1.1) (9.8)
adjustment
FEC costs on plant and equipment - (0.2) (0.7)
Pension fund curtailment gain on - - 70.2
restructure
Share based payment expense on BEE (9.5) - (219.5)
transaction
Change in estimates - provisions - - 59.7
(4.7) 217.0 (63.8)
3. Profit from operations
South Africa 612.0 599.4 2.1 784.2
Rest of Africa 55.6 37.2 49.5 58.0
Europe 125.9 314.0 (59.9) 405.0
793.5 950.6 (16.5) 1 247.2
4. Cash and cash equivalents
Interest bearing debt (2 272.9) (1 717.1) (1 209.0)
Less long-term liabilities 914.0 690.8 929.7
Less short-term portion of long- 19.0 19.8 23.9
term liabilities
Less bank balances, deposits and 271.2 528.2 620.2
cash
(1 068.7) (478.3) 364.8
5. Supplementary information
Depreciation 289.5 292.1 584.3
Amortisation 35.4 26.3 57.4
Capital expenditure
- expansion 181.4 210.5 385.9
- replacement 145.8 199.1 331.7
Capital commitments
- contracted 156.5 134.9 166.4
- approved not contracted 65.3 156.2 219.2
Lease commitments
- land and buildings 323.3 387.9 342.4
- other 92.4 50.5 157.7
Contingent liabilities
- customer claims and guarantees 19.8 44.2 23.0
- tax contingent liabilities 738.5 - -
6. Tax contingent liabilities
The South African Revenue Service ("SARS") has raised assessments against a
number of companies in the Nampak group against which objections will be lodged.
The first area of assessment relates to Malbak Limited ("Malbak") and a number
of its subsidiary companies, which were acquired by Nampak in August 2002, in
respect of transactions which took place between 1991 and 2001. SARS is claiming
tax on deemed interest and alleged foreign exchange gains on loans made to an
indirect, offshore subsidiary of Malbak, donations tax on the sale by Malbak of
its rigid plastic business in 2001 and donations tax on the write-off of loans
made to a number of employee share trusts which were set up in the Malbak group.
Nampak has investigated each transaction, including obtaining two senior counsel
opinions and is confident that it can successfully defend against these
assessments. In the interim, an amount of R50 million has been paid to SARS on a
without prejudice basis, resulting in a suspension of further payment
obligations until at least Nampak"s objections have been considered by SARS.
In the second area of assessment SARS is seeking to tax the profits made by
Metal Box Botswana (Pty) Limited ("MBB") in the years 1996 to 2001 on the
grounds that MBB was effectively managed in South Africa and did not have a
permanent establishment in Botswana. Nampak will lodge an objection against the
assessment and is confident, after a review of the facts, that it can
successfully defend against this assessment.
R223 million for tax, R128 million for penalties and R387 million for interest
in relation to the above assessments have been included in contingent
liabilities.
COMMENTS
NAMPAK PROFILE
Nampak is the largest and most diversified packaging manufacturer in Africa with
extensive manufacturing operations in South Africa and in a further 11 countries
on the African continent. It produces packaging products from metal, glass,
paper and plastics and is a major manufacturer and marketer of tissue products.
It is one of the leading suppliers of folding cartons to the food and healthcare
sectors in Europe and it is the major supplier of plastic bottles to the dairy
industry in the United Kingdom.
The group is actively engaged in the collection and recycling of all forms of
used packaging.
STRUCTURAL CHANGES
Effective 1 October 2005 Wiegand-Glas of Germany acquired 50% of the issued
share capital in Nampak Glass (Pty) Limited for Euro18 million.
In terms of a scheme of arrangement, the company and a subsidiary repurchased
10% of its issued share capital, comprising 63 644 855 ordinary shares of 5
cents each, on 31 October 2005 for a total consideration of R962 780 226.
Tufbag was sold for R9 million, effective 1 November 2005.
GROUP FINANCIAL REVIEW
Profit from
Revenue operations
Rm Rm
2006 2005 2006 2005
South Africa 5 507 5 768 612 600
Rest of Africa 476 331 56 37
Europe 1 980 1 906 126 314
Intergroup eliminations (118) (95) - -
Total 7 845 7 910 794 951
Group
Excluding Peters Papers, which was sold effective 1 March 2005, sales revenue
increased by 4%. Volumes in South Africa grew by 1% and in the rest of Africa,
sales increased mainly as a result of good growth in the Nigerian operations.
Sales in Europe increased due to substantially higher sales in the plastics
business following the acquisition of two dairy in-plant operations early in
2005.
Operating profit before abnormal items increased by 9% whilst the margin
improved from 9.3% to 10.2%. Profit from operations decreased by 17% to R794
million. However, 2005 included profit of R369 million on the sale of properties
which was partially offset by a number of abnormal items. Net financing costs
increased by 10% to R57 million as a result of the funds utilised to effect the
scheme of arrangement.
The effective tax rate was 34.9% compared to 33.6% last year which included
certain tax incentives that did not recur this year.
Headline earnings per share increased by 10% to 82.5 cents per share.
The increase in working capital was mainly due to a reduction in creditors which
are typically lower at the interim reporting period.
Total capital expenditure was R327 million with the project to improve
manufacturing efficiencies at the Glass plant being the single largest item of
expenditure at R30 million.
Net debt to equity increased to 38% mainly as a result of the funds used for the
scheme of arrangement.
South Africa
There was growth in paper and metal packaging but both were affected by lower
demand from the agriculture and fishing industries and in the case of metals,
the particularly wet summer. The plastics packaging segment continued to achieve
above-average volume growth with strong demand for products made of rigid
plastics. Some sectors of the flexible packaging market also achieved good
growth but others continued to be affected by imports of both packaging and
finished goods.
Overall packaging volumes grew by just over 1%.
Both toilet tissue and disposable diaper sales were higher than last year having
benefited from strong consumer demand.
The substantial increase in the price of oil resulted in an increase in the cost
of polymer, which in most cases was recovered. Paper prices largely remained
flat. Tinplate prices were higher than a year ago following an increase
effective April 2005. Aluminium prices have also increased.
Overcapacity in some sectors, low inflation and the need to compete against the
threat of imports resulted in an increasingly competitive market.
Good cost management contributed to higher profit from operations.
Rest of Africa
Profits from this region increased substantially on strong performances by the
Nigerian businesses with an especially good result from the cartons operation
which has been running at full capacity. Results from Zimbabwe continued to be
negatively affected by the deteriorating economy, rampant inflation and the
foreign exchange crisis.
Europe
Trading results in Europe increased following a good performance from the
plastics segment as well as an improvement in the paper segment where the profit
improvement programme at Leeds impacted positively.
SEGMENTAL REVIEW
Metals & Glass
Revenue Profit from Margin
operations
Rm Rm %
2006 2005 2006 2005 2006 2005
Africa 2 350 2 295 378 362 16.1 15.8
Africa
The local beverage can market showed good growth in all sectors other than beer.
There was an increase in sales of aerosol cans, but paint and motor-oil can
sales were lower as a result of continued substitution by plastic containers. A
reduced peach crop resulted in lower demand for food cans.
Sales of glass bottles were lower due to a change in the sales mix of beer
bottles as well as fewer wine bottle sales to export-related customers.
Good volume growth was achieved across a broad range of products in Nigeria.
Sales volumes in Zimbabwe were negatively affected by the ongoing deterioration
in the economy whilst in Kenya sales of pineapple cans were lower due to the
drought.
Paper
Revenue Profit from Margin
operations
Rm Rm %
2006 2005 2006 2005 2006 2005
Africa 2 265 2 466 157 123 6.9 5.0
Europe 1 271 1 309 55 (77) 4.3 (5.9)
Total 3 536 3 775 212 46 6.0 1.2
Africa
Overall volumes of corrugated boxes were up, but sales to the agricultural
sector were adversely affected by lower fruit crops. The closure of the Rosslyn
corrugated factory and the restructuring completed last year contributed to an
improvement in overall efficiencies.
Greater quantities of beer labels were sold following an increase in market
share. Sales of folding cartons benefited from improved demand for cigarette
packaging for exports and from increased demand for fast food packaging. A shift
away from the use of polystyrene for fast foods also assisted folding carton
sales.
Sales of disposable diapers and toilet tissue continued their upward trend
buoyed by strong consumer demand.
Operations in Zimbabwe achieved good export sales and increased their share of
the tobacco box market. Malawi benefited from increased tobacco box and cement
sack demand. The cartons operation in Nigeria is running at full capacity and
produced good results for the period under review.
Europe
Sales volumes were higher as a result of gains in market share offset partially
by a focus on more-profitable business. The profit-improvement programme at
Leeds progressed satisfactorily particularly considering the difficult trading
conditions in the United Kingdom folding cartons market.
Margins in the Healthcare sector remained under pressure as a result of
consolidation among pharmaceutical companies and overcapacity in the packaging
industry.
The profit in 2005 was negatively affected by retrenchment costs and goodwill
written-off which did not recur this year.
Plastics
Revenue Profit from Margin
operations
Rm Rm %
2006 2005 2006 2005 2006 2005
Africa 1 368 1 338 100 110 7.3 8.2
Europe 595 508 54 372* 9.1 73.2
Total 1 963 1 846 154 482 7.8 26.1
* Includes profit on sale of property.
Africa
Most products in the rigid plastics sector continued to enjoy strong sales
growth. Sales of crates, closures, liquid cartons and bottles were higher on the
back of buoyant demand for sports drinks, soft drinks and fruit juices.
Sales of flexible packaging to the confectionery market remained under pressure
due to loss of exports and increased imports. Sales of bread bags were however
substantially ahead of last year and reflect the growing consumer preference for
branded bread. Sales of retail shopping bags continued to be adversely affected
by imports and the use of more durable bags for grocery shopping.
Sales of plastic packaging in Zimbabwe were affected by lower consumer demand
and a shortage of carbonated soft drinks.
Europe
The period under review includes a full six months of the two dairy in-plant
operations acquired last year and volumes, sales revenue and profits benefited
accordingly. The sales value was also affected by higher polymer prices.
Excluding the profit made last year on the sale of the Woburn Sands property,
the profit for the period was substantially ahead of last year.
Group services
Profit from
Revenue operations
2006 2005 2006 2005
Rm Rm Rm Rm
Africa - - 34 43
Europe 114 89 16 18
Intergroup eliminations (118) (95) - -
Total (4) (6) 50 61
Group services comprise corporate functions, procurement, treasury and property
rentals.
ACCOUNTING POLICIES
The condensed financial statements have been prepared in accordance with
International Accounting Standard (IAS) 34, Interim Financial Reporting.
The annual financial statements for the year ended 30 September 2005 were
prepared in accordance with South African Generally Accepted Accounting Practice
("SA GAAP"). In accordance with the JSE Limited Listings Requirements, the group
is required to prepare its consolidated annual financial statements for the year
ending 30 September 2006 in accordance with International Financial Reporting
Standards ("IFRS").
On 20 February 2006, the group released audited restatements of financial
information for the opening IFRS balance sheet as at 1 October 2004, the IFRS
balance sheet and income statement as at and for the year ended 30 September
2005. The restated financial information has been used as comparatives in the
interim announcement.
The principal accounting policies have been applied consistently with those in
the restated IFRS information.
TAX CONTINGENT LIABILITIES
The South African Revenue Service has raised assessments against companies in
the Nampak group and this is dealt with in more detail in Note 6 of the Interim
Report.
PROSPECTS
Consumer spending in South Africa is expected to remain at current levels but
imported products will continue to restrain the demand for locally packaged
goods. Recent reports of lower pilchard catches could impact on sales of food
cans.
Hyper-inflation and currency depreciation could affect the rand-translated
results of operations in Zimbabwe.
The benefits of the cost reduction and restructuring programme that was
undertaken in the second half of last year will continue to contribute to a
better performance. The percentage increase in headline earnings per share for
the full year is expected to be greater than that in the first half.
Distribution out of Share Premium
Notice is hereby given that a cash distribution in lieu of a dividend, by way of
a reduction of share premium, of 30.0 cents per ordinary share has been declared
in respect of the six months ended 31 March 2006, subject to the approval of
shareholders at a general meeting. A circular giving notice of the general
meeting will be sent to shareholders in due course.
The salient dates and times of the cash distribution will be included in the
circular and published on SENS and in the press. It is anticipated that the cash
distribution will be paid to ordinary shareholders before the end of July 2006,
which is the month in which an interim dividend would usually be paid by Nampak.
On behalf of the board
T Evans GE Bortolan
Chairman Chief executive officer 25 May 2006
SUPPLEMENTARY INFORMATION
Profit from Abnormal items IAS 39 Fair
operations as value
reported adjustments
2006 2005 2006 2005 2006 2005
Rm Rm Rm Rm Rm Rm
Adjusted
segmental information
Metals and glass
Africa 378 362 (3) (2) 3 (3)
Paper
Africa 157 123 - 5 (3) 5
Europe 55 (77) - 128 - -
Plastics
Africa 100 110 10 (1) 1 (1)
Europe 54 372 1 (343) - -
Group services
Africa 34 43 (5) (6) - -
Europe 16 18 - - - -
Total 794 951 3 (219) 1 1
Operating Margins before
profit before abnormal items
abnormal items
2006 2005 2006 2005
Rm Rm % %
Adjusted
segmental information
Metals and glass
Africa 378 358 16.1 15.6
Paper
Africa 154 133 6.8 5.4
Europe 55 51 4.3 3.9
Plastics
Africa 111 108 8.1 8.1
Europe 55 29 9.2 5.8
Group services
Africa 29 37
Europe 16 18
Total 798 734 10.2 9.3
Basis of calculation
Abnormal items are defined as items of income and expenditure which do not arise
from normal trading activities or are of such a size nature or incidence that
their disclosure is relevant to explain the performance for the period.
The fair value adjustments under IAS 39 are all calculated using the mark-to-
market methodology.
Non-executive directors:
T Evans (Chairman), PL Campbell*, DA Hawton*, MM Katz*, RJ Khoza,
KM Mokoape*, ML Ndlovu*, MH Visser, RA Williams*
*Independent
Executive directors:
GE Bortolan (Chief executive officer), N Cumming, TN Jacobs, AS Lang (British)
Secretary: NP O"Brien
Registered office:
Nampak Centre
114 Dennis Road
Atholl Gardens
Sandton 2196
South Africa
(PO Box 784324 Sandton 2146 South Africa)
Telephone +27 11 719 6300
Share registrar:
Computershare Investor Services 2004 (Pty) Limited
70 Marshall Street
Johannesburg 2001
South Africa
(PO Box 61051 Marshalltown 2107 South Africa)
Telephone +27 11 370 5000
Sponsor:
UBS South Africa (Pty) Limited
Date: 25/05/2006 02:14:27 PM Produced by the JSE SENS Department
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