Nampak Year-End Result Weighed By Weak Consumer Demand, Tough Operating Environment

By Tunde Osho

Nampak Limited, South Africa-based beverage can, bottle and paper producer said that its full year results ending on 30th September were negatively impacted by economic headwinds, leading to decreased consumer spending characterized by trading down, product substitution and downsizing to smaller sizes.

The firm, which is Africa’s largest manufacturer of cans, bottles, plastic and paper packaging for the food and beverage industry with operations in several African countries including Nigeria and the UK said that revenue for the 2016/2017 financial year fell 2% to R18.8bn ($1.37bn) with Operating profit before capital profit on sale and leaseback of properties growing 14% to R961m ($70m). However, net profit declined 76% to R356m ($26m), caused by the one-off comparison of R1.36bn ($99m) capital profit on sale and leaseback in 2016.

While the firm’s metal business saw a 7% growth in the year, helped by strong performance in its Angolan and South African units, the plastics business fell by 17%, while paper and glass declined by 14% and 7% respectively.

Commenting on the results, Nampak’s CEO, Andre De Ruyter said, “Our performance has been resilient in a turbulent economic and political environment. While our beverage can making operations achieved good results, the other divisions faced adverse conditions in a climate of reduced demand and tough trading conditions.”

At its Bevcan Nigeria operation, the company said that sales were down due to the weak economy.

The company’s European business had an even tougher year, with sales from its plastics division falling 36% due to a combination of factors including the effects of a strong rand against the pound sterling and the sale of two in-plants to a major customer in the first-half of 2017. According to the firm, demand from other key customers was relatively flat and uptake by new ones was disappointing. Nampak’s CEO, Andre de Ruyter blamed the poor performance on the fallout from the Brexit vote on the UK economy, the headquarters of its European business. The firm said that it lost orders from a major dairy customer who decided to start producing its own bottles, adding that it had to take R112m in impairment charge and R82m cost provision so it could disentangle itself from an “onerous” contract to build an in-plant for a new customer in Europe. Also, the UK’s dairy market condition caused it to book another R53m in impairments at its European plastic division.

On a brighter side, the beverage can and bottle manufacturer said that it was able to repatriate $79m of its profits from Nigerian, a 93% extraction rate and something that was near impossible a year earlier. It notes that foreign exchange liquidity conditions had improved considerably, adding that it no longer sees a need to hedge its cash balances in Nigeria. It credits the improvement in FX liquidity to the introduction of the Nigerian Autonomous Foreign Exchange (“NAFEX”) market in April 2017.

However, in Angola, the company said it continues to maintain a hedging mechanism due to low liquidity, noting that 89% of the firm’s cash in the country was hedged against a downside in the Angolan Kwanza.

Looking forward to the New Year, the company said that its South African home market remains in a tough economic and trading environment with minimal GDP growth forecasted for the next 12 months.

Elsewhere on the African continent, Nampak foresees strong growth for cans in Angola as it prepares to convert its Angolan tin plate line to Aluminum to meet demand. In Nigeria, it sees continuing improvement as liquidity is restored. For the rest of Africa, it anticipates growth in local terms despite political uncertainties in some countries.

For its European business, Nampak notes that it is in a turnaround phase, with new management in place to manage costs and drive operational efficiencies with a goal to achieve break-even in 2018 and profitability in 2019.