JOHANNESBURG – Paper, plastics, glass and metals packaging group Nampak would be forced to juggle its profitability in Africa as an economic downturn curtailed growth despite positive developments in countries such as Angola, Malawi, Nigeria, Zambia and Zimbabwe.
The group said sales in all its territories had been sluggish in the five months to end February as a result of low economic performance and increased competition.
Nampak said it had however been financially secured by an R12.5 billion long-term committed revolving credit facility and short term loan agreement it implemented during the 2018 financial year. Nampak has a target gearing range of 40 to 60 percent and as at 30 September 2018 it had a net gearing ratio of 37 percent.
The group said it expected to conclude the sale of its glass division by April this year to a black South African-owned company supported by a large international corporation with significant glass expertise.
It said it would look to the rest of Africa to boost its performance as the local economy shrank and therefore limited the disposable income of consumers.
Nampak said while the last two quarters in 2018 had positive growth, higher interest rates in the first quarter of 2019, the inflationary impact of fluctuating fuel prices, electricity tariff increases, high unemployment and various levy and tariff hikes will further put pressure on disposable consumer income, at least until after the May 2019 elections.
“The South African beverage can market is growing at low, single digits. Volumes are being impacted by a new entrant as expected since it commenced deliveries to customers in late 2018. A second entrant is expected to commission its plant in the second half of the 2019 calendar year.
“In response, Nampak reduced its nameplate capacity by 11 percent and removed an old tin plate line that was located in Epping, Western Cape, which was largely used for peak demand,” the group said, adding that savings from the closure of this line began flowing in the second half of 2018 and the full impact of lower operating costs will be seen in 2019.
It said Nigeria was well on its way to recovery as 2018 fourth-quarter growth improved to 2.4 percent year-on-year, lifting annual growth for the year to 1.9 percent.
The group said the momentum in economic activity in the country continued into the new year, with Bevcan volumes reaching record production levels.
“The consumer is expected to remain resilient in 2019 and beyond, and Nampak is consequently investigating the viability of doubling nameplate capacity to two billion cans per annum. The Nafex market continues to operate well and foreign currencies are freely available for trading.”
It said Plastics South Africa was performing as expected during a period characterised by lower market volumes for rigids partly being offset by improved volumes from cartons.
Plastics in the rest of Africa largely comprises Zimbabwean operations Megapak and CMB. High volume demand continues at these operations, bolstered by increasing exports to neighbouring countries.
“Plastics UK volumes continue to be impacted by reduced demand resulting from backward integration by a key customer and an overall weaker dairy market,” the group noted.
Nampak closed 1.95 percent higher at R12.04 on the JSE yesterday.
