https://www.engineeringnews.co.za

Negative local economy hampers Nampak, while Africa divisions thrive

Negative local economy hampers Nampak, while Africa divisions thrive

Photo by Duane Daws

1st April 2015

By: Megan van Wyngaardt

Creamer Media Contributing Editor Online

  

Font size: - +

With South African business and consumer confidence being negatively affected by the unfavourable exchange rates and ongoing power cuts, JSE-listed Nampak said the performance of its local businesses, particularly its home business division, was under pressure.

The company said on Wednesday that, despite the benefits of lower oil prices and slowing inflation, its South African divisions were not immune to the impact of the currently negative economic environment; however, the group experienced continued growth and strong performance from its businesses in the rest of Africa.

Nampak also reported that its cost-management programmes were progressing well and promised to contribute modestly to the company’s performance in the financial year to the end of September.

“Working capital management also remained a focus, with recent performance better than it has been historically,” the company said in a statement.

Further, Nampak noted that subsidiary Bevcan’s volumes continued to expand at rates above gross domestic product (GDP) growth, with the conversion of tinplate lines to aluminium faring well and having a short-term impact on margins.

All three aluminium lines at Bevcan’s Springs site had ramped up capacity during the first half of the 2015 financial year, while the installation of the new one-billion-can line at its Rosslyn site had also progressed well and remained on track for commissioning towards the end of the second quarter.

The group’s Cape Town-based tinplate line would be converted to aluminium in due course, while progress, albeit at a much slower pace than anticipated, was made at Nampak Glass.

The key contributors to production inefficiencies and technical issues at Nampak Glass were inadequate technical skills, hiccups in the ramp-up of the new third furnace, as well as human resource issues. These were being addressed through keen management focus and the implementation of a comprehensive plan, which should help the business report a profit for the year.

Meanwhile, Nampak noted that its pack-to-melt ratio was improving steadily. A new technical services agreement was being finalised and a recently introduced operations excellence initiative would also contribute towards an improvement in business performance.

Furnace 3, in Roodekop, was also ramping up, with the preheater recently being installed. “Full furnace benefits should be reflected in performance in the 2016 financial year,” Nampak noted.

In the first half of the financial year, Nampak DivFood did well owing to a favourable fishing and fruit harvest season, but margins remained under pressure.

Lower oil prices and, hence, lower polymer prices, had a positive impact on Nampak Plastics; however, this was offset by the loss of some liquid packaging customers that would be replaced with new customers towards the end of the year.

Trading conditions in South Africa were expected to remain challenging and management would, therefore, focus on cost discipline and “manufacturing excellence” to maintain Nampak's competitiveness.

NIGERIA OPERATIONS
During the six months to March 31, Nigeria’s naira depreciated against the dollar, mainly owing to the sharp decline in oil prices. Inflation remained within the target range of 6% to 9% set by the Central Bank of Nigeria.

The impact of these changes on consumer spending varied from sector to sector. Nampak Bevcan Nigeria continued ramping up production, supported by strong demand from the beverage sector.

The business had little operational exposure to the naira/dollar exchange rate, since invoice prices were adjusted monthly based on the previous month’s naira/dollar exchange rate.

The cigarette carton business, which was 30% exposed to changes in Nigerian foreign exchange rates, experienced similar volumes to those in the preceding first half of the year, as demand was not significantly impacted by the flagging economic conditions.

The general food canning business, however, was negatively affected by the unfavourable exchange rate, as well as by lower consumer spending.

The consensus outlook for economic growth in Nigeria was between 5% and 6%, which was higher than the global average forecast of around 3%.

“Therefore, we remain positive about the long-term growth prospects and robustness of the Nigerian economy. The relatively peaceful conclusion of the national election in Nigeria has added to the attractiveness of the country,” the company added.

BUYING AND SELLING
In March, Nampak announced a series of transactions to deliver on the strategic aim to unlock further value from its base business, through active portfolio management.

This included the completion of the sale of its corrugated and tissue divisions to Ethos Private Equity.

Following unconditional approval by the Competition Tribunal, the sale of these divisions took effect on Wednesday and Nampak received a purchase consideration of R1.53-billion.

The businesses were rebranded Neopak and TwinCare.

“TwinCare is about to start an exciting journey of reinvigoration. Twinsaver is a legendary South African brand and forms the bedrock of the business.

“We believe we can rapidly migrate TwinCare into a leading fast-moving consumer goods business. Ethos’ Capital’s strategic ambition and operational expertise will come to bear. Together, we intend to grow the brand, improve our customer experience and, ultimately, expand the product range,” TwinCare CEO Garth Towell advised.

Incoming Neopak CEO Kevin Clayton pointed out that the company was a robust and reputable market leader in the corrugate packaging sector. “I am excited about the opportunity to lead a talented and dedicated Neopak team which, together with Ethos, will inject fresh thinking into driving innovation, customer orientation and manufacturing excellence.

“We are confident that, along with a clear growth and leadership development agenda, the Neopak team will deliver on our objective.”

Meanwhile, the sale of Nampak Recycling to Ethos for R76.3-million was still under way, subject to approval by the relevant competition authorities. The sale was expected to be completed in the second half of this year.

Nampak Recycling was a provider of raw material to the corrugated and tissue divisions, while a supply agreement would be signed with Ethos for the supply of recycled glass to Nampak Glass.

Nampak was also looking to sell its low-margin flexible business to Amcor for R300-million, subject to approval by the competition authorities.

The disposal of these businesses formed part of Nampak’s portfolio  optimisation strategy to unlock cash from low-margin divisions and redistribute it to high-yield, high-growth opportunities in the rest of Africa.

Edited by Tracy Hancock
Creamer Media Contributing Editor

Comments

Showroom

Booyco Electronics
Booyco Electronics

Booyco Electronics, South African pioneer of Proximity Detection Systems, offers safety solutions for underground and surface mining, quarrying,...

VISIT SHOWROOM 
Condra Cranes
Condra Cranes

ISO-certified Condra manufactures overhead cranes, portal cranes, cantilever cranes and crane components: hoists, drives, end-carriages, brakes and...

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Photo of Martin Creamer
On-The-Air (15/03/2024)
15th March 2024 By: Martin Creamer
Magazine round up | 15 March 2024
Magazine round up | 15 March 2024
15th March 2024

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.089 0.135s - 137pq - 2rq
Subscribe Now