Andre de Ruyter. Picture: BLOOMBERG
Andre de Ruyter. Picture: BLOOMBERG

By not declaring a dividend in the six months to March 2018, Nampak is hedging its bets amid improving business confidence and higher economic growth forecasts — both for SA and the continent.

No dividend was declared for the year to September 2017 in line with a decision taken in 2016 to suspend dividends, to improve the group’s financial position and conserve cash.

Despite much improved gearing to 39% and R1.3bn in cash remittances from Nigeria, Angola and Zimbabwe in the period, markets remain tough for Africa’s biggest diversified packaging maker.

CEO Andre de Ruyter says R3.8bn remains frozen in these countries, after Nigeria’s and Angola’s economies were hammered by a collapse in world oil prices. This had led to foreign exchange shortages. Meanwhile, Zimbabwe has been beset by years of political and economic turmoil.

That said, plastics demand in Zimbabwe has boosted Nampak’s profits and market share in that country, along with new customers and new product sales. It is also managing foreign exchange exposure through stricter credit terms, the company says.

Perhaps, though, the group’s substantial beverage can interests in Nigeria and Angola provide the best insight into its vision of the future. Nampak has about 30 manufacturing sites in SA that provide about 60% of group revenue. Facilities in another 10 African countries make up 32% of turnover, while Europe makes up the rest.

For now, though, Nampak’s plastics business has been hit by the loss of bottle volumes in SA and Europe. This comes amid tough market conditions at home and backward integration that will see a big UK customer buy up dairy bottling there.

Nampak has also struggled to make returns in its South African-based glass business. The division made a trading loss of R55m, despite substantial investments in capacity and technology. The operation is now set to be sold.

De Ruyter says Nampak has lacked the technical know-how to run the operation efficiently since it bought out its German joint venture partner, Wiegand-Glas, for about R1bn in early 2012. Proceeds of a sale will be ploughed into the metals division. "That’s where we make the money," he says.

Dirk van Vlaanderen, an associate portfolio manager at Kagiso Asset Management, says the decision to exit the business is "sensible". Nampak has not disclosed who might be in line to buy the glass operations.

But Mark Hodgson, an analyst at Avior Capital Markets, says "some international glass manufacturers have apparently been approached".

Additional capacity

Nampak says additional capacity from a new entrant into the South African beverage can market — Gayatri GZI Beverage Cans, in partnership with the Golden Era packaging group — is likely to be absorbed in the medium term. To this end the group is closing its Bevcan line in Cape Town to maximise capacity elsewhere and save on operating costs.

In Nigeria, Nampak says beverage can volumes have grown "significantly" over the period. This was mainly driven by the malt beer category of drinks, says De Ruyter, which is a "darker and sweeter" brew, and also sales of Guinness.

The company says the recent introduction of excise duty on alcohol beverages in Nigeria has not had a "discernible effect" on volumes so far. "The market still needs to grow," De Ruyter says. Meanwhile, the carbonated soft drinks market is relatively small still and uses mainly plastic bottles, rather than aluminium or tinplate beverage cans.

The poor performance in the local plastics division will result in the number of employees being cut by about 300. Two low-margin businesses have been earmarked for disposal, while three additional plants will be consolidated into two existing facilities.

The rest of the group’s Africa operations are expected to continue generating cash on good demand in Angola, a recovering economy in Nigeria and limited competition in Zimbabwe. But group performance will be affected by exchange rates and initiatives to repatriate foreign reserves.

The unprofitable European dairy business will focus on optimising its structure. It is expected to return to profitability in 2018, a year earlier than anticipated.