Africa’s largest diversified packaging manufacturer by volume and revenue, Nampak, has enjoyed a good start to 2016 and is expecting to grow further throughout the rest of the year and beyond.
As we come to the halfway point in 2016, it seems that Nampak has positioned itself strongly for the run in towards the end of the year, with investments planned in the final two quarters and financial results that indicate strength despite the less-than-impressive growth outlook for the region.
As we know, Nampak is Africa’s largest and most well-recognised packaging company; the company itself will tell you that it is ‘Africa’s largest diversified packaging manufacturer by volume and revenue’. With over 6600 employees across 12 African countries and the UK, Nampak produces world-class metal, glass and rigid plastics packaging products that are used by a wide-range of customers, including some of the largest FMCG companies, to help protect and market products while also considering the environment.
Moving forward, the company will look to use a strong existing platform to catapult it toward further success. The two-pronged strategy of Nampak during the current economic slowdown is made up of an increased push on the African continent and unlocking further value from its base businesses.
“Africa is the story for us,” said Nampak CEO André De Ruyter when speaking to Bloomberg at the end of last year. “People talk about Latin America, they talk about India, China or other emerging markets, but we think the opportunity that we’ve got in Africa is so big and this is what we know we can do well.”
In November, Nampak announced that it was ‘poised for growth in 2016’, with impressive financial statistics including group revenue from continuing operations up 13%, net profit from continuing operations up 2%, group trading profit from continuing operations up 10% and revenue and trading profit from the rest of Africa up 43%.
“Management remains focused on delivering improved performance and unlocking operating leverage from our recent capital investments. Prudent capital allocation, further cost reductions and operational improvement initiatives are expected to benefit the bottom line during the 2016 financial year,” said De Ruyter.
While glass has been something of an up and down business for Nampak over the past few years, it seems that the sub-sector will be important for the business going forward. In March, the company said that it expected to double the number of wine bottles it manufactures for big-name South African wine producers and exporters such as Nederberg.
A trade agreement between SA and the European Union (EU) alongside a weak SA Rand makes South Africa an attractive destination for European importers and with the country’s wine makers producing some of the world’s best Chenin Blanc and Pinotage, these bottles are in demand.
Currently, Nampak’s glass factory in Germiston produces around 20,000 tonnes but this is expected to increase to 40,000 before the end of the year.
The trade agreement allows for approximately 110 million litres of wine to be exported, duty-free, from the SADC region to the EU. “We are grateful for the intervention from government to boost bottled wine exports,” De Ruyter told Business Day. “This creates an opportunity for us to grow our business.”
Today, Nampak packages one third of all glass bottle products in South Africa and glass forms part of the wider strategy. “We can sell every bottle that we can make in the glass business, and in the food can business we are benefiting from the export drive of South African food manufacturers who are benefiting from the weak rand to build their businesses into the rest of Africa,” De Ruyter told Business Day.
In March, the company announced that it was confident for the rest of the year and expects to achieve continued growth.
“It is expected that continued volume growth in beverage cans, gains from improved performance at Glass and improved efficiencies from business improvement initiatives at DivFood will contribute positively to earnings. Glass has turned around and is expected to deliver profits in line with the previously communicated guidance. The group’s operations in the rest of Africa are expected to continue generating growth in revenue and profit supported by expected growth in demand,” Nampak stated in its operation update or the period 1 October 2015 to 29 February 2016.
Because of the success of its glass business, Nampak is looking to grow in regions such as Nigerian and Ethiopia. Angola was also a strong target market and Nampak had stated its intention to open a new beverage can line and glass furnace in the country but following a slump in the currency price against the Dollar and other economic conditions, Nampak has taken a decision to delay that investment for the time being, stating that “the company is carefully evaluating further capital projects in the region. The glass opportunities in Nigeria and Ethiopia are of significant future value to Nampak and they continue to be evaluated and considered with prudence.”
Overall, Nampak stands in good stead for the future and 2017 will likely be another exciting year for this African success story. Importantly, it’s not just on the continent where success will be gleaned; the company also expects to perform well at home in South Africa.
De Ruyter told Business Day: “Even though we expect continued growth in profitability from our African operations we expect a resurgence from our South African operations.”