Packaging company Nampak has achieved positive results for its continuing operations for the financial year ended September 30, with profit up 29% year-on-year to R1.2-billion and headline earnings a share up 15% year-on-year to 168.7c a share.
Nampak CEO André de Ruyter told Engineering News Online in a telephone interview on Tuesday that, despite revenue having remained relatively flat, the group was able to exploit opportunities presented by the market by targeting growth in nontraditional market segments, containing costs throughout the various divisions, rationalising operational footprints and repatriating funds at favourable exchange rates.
He further noted that the Plastics UK business had delivered profitability and that there had been significant improvement in the availability of foreign currencies in Angola, sustained liquidity and market share growth for beverage cans in Nigeria, and strong demand in Zimbabwe, resulting in margin improvements in the Rest of Africa.
The 29% increase in profit was achieved despite high inflation, increased taxes, fuel price increases and other pricing pressures.
Cash extracted from Angola, Nigeria and Zimbabwe was 103% higher at $265-million, or about R3.5-billion, owing to continued liquidity in Nigeria and improved foreign currency availability in Angola, although the return to liquidity came too late to offset a decrease in volumes.
De Ruyter noted that while revenues were down in Angola, that was really “as a consequence of timing.” Moreover, as liquidity has been restored, he believed demand would remain strong in that country.
Nampak continued its hedging strategy, which provided a R1.6-billion shield against currency devaluation in Angola. The hedging instruments have been highly effective, with 94% of Angolan cash balances hedged at year-end.
Nigeria has and continues to show signs of a recovery; and Zimbabwean operational performance boosted margins in the Plastics and Paper divisions resulting in an improved trading margin of 22.1% for the Rest of Africa.
The group trading margin was higher at 11.4%.
Revenue declined marginally (0.5%) to R17.3-billion, largely as a result of constrained revenue growth in metals and a stronger rand.
Trading profit rose 3% to R1.97-billion and trading margins for most divisions improved.
Additionally, “significant” costs were saved through the closure of the Epping beverage can line.
Meanwhile, the disposal of the glass division is progressing as planned, with detailed due diligence processes having commenced and offers being evaluated.
“Efficiency improvements, cost containment and targeting new market segments will be priorities in 2019 to drive improved profitability and better returns,” De Ruyter commented.
He noted that the outlook in South Africa was challenging and demand driven. “Consumer spending is under pressure as a result of value-added tax increase, ongoing fuel and electricity cost increases, as well as the recent recession. Nampak will continue to focus on improving operational efficiencies to mitigate these demand pressures.”
De Ruyter noted that the lack of demand growth on the lower end of the market had put a dampener on consumer demand in South Africa, which translated to a modest outlook for growth locally.
However, he noted that there were still opportunities for growth in the South African market. “In view of increasing consumer sentiment against single-use plastics, we have been able to improve the market share of liquid cartons, which has helped the South African performance quite a bit.”
Additionally, there had been a significant rebound in rectangular meat can volumes, which were meaningfully impacted on by the listeriosis outbreak. He expected the recovery to continue into the new year.
Further, De Ruyter said Nampak’s growth going forward would be organic and that the group was interested in Zambia as a market.
“It has challenges with its currency, but we are geared to manage that kind of volatility. Additionally, we would not need to invest significant capital to exploit the existing opportunities, because our existing capacities are more than sufficient.”
Nampak remains “very positive” about business prospects in Nigeria and will invest in new 500 ml beverage can capacity and R100-million in a food can line. “The market in Nigeria is still extremely attractive to us . . . the alignment of the economic recovery combined with positive demographics – a youthful population that is urbanising rapidly – will drive consumption of fast-moving consumer goods, which is, of course, the space in which we play.”
De Ruyter, in contextualising the opportunity presented by the Nigerian market noted that the evaporated milk market in Nigeria in cans was bigger than the total foodcan market in South Africa. “It is an opportunity that positions us very well for future growth.”
He also noted that Nampak was continuing to invest in the conversion of the tin-plate line to a high-speed aluminum line in Angola, to enable it to meet market demands that were not being met by its existing capacity.