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Company expands in key African markets

ANDRE DE RUYTER Nampak aims to uphold good relationships with all relevant authorities and contribute meaningfully to the manufacturing sector in the African countries in which it operates

ANDRE DE RUYTER Nampak aims to uphold good relationships with all relevant authorities and contribute meaningfully to the manufacturing sector in the African countries in which it operates

5th May 2017

By: Robyn Wilkinson

Features Reporter

     

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Despite challenging macroeconomic headwinds causing a slowdown in consumer spending in many African markets in 2016, packaging company Nampak remains confident of the demographic fundamentals underpinning long-term packaging growth on the continent.

While the company continues to be circumspect regarding capital investment, opportunities in a variety of substrates are being evaluated, taking into account market conditions and the prospects of improvement in the availability of hard currency.

In line with its strategy to unlock value from its base business and accelerate growth in Africa, outside South Africa, the company is investing about $22-million in Angola – pending government confirmation of the allocation of foreign currency from cash on hand – for the conversion of an existing 700- million tinplate beverage can line to a one-billion aluminium beverage can line, on the back of strong demand for aluminium cans in the country.

Nampak CEO André de Ruyter highlights that Angola’s economy is expected to grow in 2017, driven by higher public spending. The International Monetary Fund expects inflation to decline to about 20% from the current levels of above 40%, assuming tight monetary conditions, no further domestic fuel price increases and a stable kwanza. Besides pegging the kwanza to the US dollar since April last year, government has increased the supply of foreign exchange (forex) to the interbank forex market, although liquidity remains constrained. The backlog of forex purchase orders in the banking system was estimated at between $5-billion and $7-billion and an estimated 3% of gross domestic product in domestic payment arrears had accumulated at the end of 2016.

Nampak is Africa’s largest diversified packaging manufacturer, with operations in Angola, Botswana, Ethiopia, Kenya, Malawi, Nigeria, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe, offering packaging products across metal, glass, paper and plastic substrates. It is a market leader in the supply of beverage cans in South Africa, Angola and Nigeria, and a leading supplier of plastic bottles to the dairy industry in the UK.

In 2015, Nampak exited a number of its low-margin South African businesses in favour of expanding its footprint on the continent with the construction of a second beverage can plant, in Angola, and the acquisition of beverage can manufacturer Alucan, in Nigeria, now called Bevcan Nigeria.

The company sees further opportunities for growing its business in beverage packaging – including cans and returnable packaging – in Angola, Nigeria and Ethiopia, as well as in other strategic packaging mediums in plastic or paper.

Thriving in Africa
De Ruyter highlights that the company has made significant progress in the implementation of its comprehensive plan to improve operational performance through “buying better, making better and selling better”.

“Operations excellence initiatives and programmes to improve efficiencies and cost are generating good results and we have refocused our corporate culture towards making bottles and cans profitably.”

The company’s asset recapitalisation programme in South Africa is almost complete and already contributing to improved efficiencies and competitiveness. Following its achievements last year, Nampak’s operational performance continued to improve in the five months ended February 2017.

However, sluggish growth and low consumer confidence in key markets continue to impact on consumer spending and, hence, demand for packaging. Being mindful of the challenging and uncertain macroeconomic environment in key markets in South Africa, Angola and Nigeria, Nampak is, thus, continuing to focus its attention on managing and optimising aspects of the business within its control, namely its costs, assets and processes.

Slower-than-optimal cash extraction from Nigeria and Angola, as well as the exposure to currency volatility of cash held in these restricted areas, also remains a key issue impacting on overall performance. While Nampak has taken all possible steps to extract cash from these markets, it cannot rule out further impacts resulting from exchange rate fluctuations.

Nampak’s substantially strengthened balance sheet has, however, significantly enhanced its ability to be resilient during continued macroeconomic uncertainty. In addition, De Ruyter stresses that the company has been doing business in emerging markets for two decades and has gained significant experience in building First World plants in Third World environments. Political and regulatory risk are managed through a strict ethics policy and cultural sensitivity is an inherent prerequisite in Nampak’s operations.

“The packaging industry is rarely a target for government intervention and, in most countries, it is seen as a key area for creating employment and facilitating skills transfer. We aim to uphold good relationships with all relevant authorities and contribute meaningfully to the manufacturing sector in the African countries in which we operate.”

Nampak is also accustomed to dealing with foreign exchange volatility and has extensive banking arrangements in place to manage this aspect of its operations. An offshore procurement and treasury office, moreover, ensures stability of raw material supply and the maintenance of a strong balance sheet ensures procurement can be carried out without disruption, says De Ruyter.

“While it is expected that South African consumers will remain under pressure, producing a concomitant negative impact on sales volumes, gains from improved factory efficiencies and business improvement initiatives, as well as cost savings, will reduce this negative impact.” Nampak also expects that its operations in the rest of Africa will continue to grow, generating cash as demand for some products increases, supported by import replacement, with overall performance being impacted on by macroeconomic challenges.

“In the absence of a catalyst to promote economic growth in our key markets, demand for packaged goods and exchange rates are expected to remain a key factor influencing our results,” concludes De Ruyter.

Edited by Zandile Mavuso
Creamer Media Senior Deputy Editor: Features

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