Bowcalf gains little from investment in bottling operation

CAPE TOWN — Plastics packaging group Bowler Metcalf (Bowcalf ) has seen little fizz in the first-year performance from its newly created investment in soft-drink bottler SoftBev.

In 2014, Bowcalf merged its Quality Beverages soft-drink bottling operation with Shoreline to create a R1bn a year soft-drink operation producing niche brands such as Jive and Coo-ee. Bowcalf took a 43% stake in SoftBev.

In the year to end-June results, Bowcalf admitted time frames for project implementations at SoftBev were ambitious, noting delays in the recently won Pepsi bottling deal and Western Cape production as well as a late start to the manufacturing of fruit juice brand Capri Sun.

A divisional breakdown showed SoftBev managed operating profits of R9m, with only R1.2m attributable to Bowcalf.

However, Bowcalf CEO Friedel Sass, who raised a flag over proposed sugar taxes for the softdrinks sector, gave credit to the new national management team at SoftBev for “protecting the business brands through effective contingency measurements”.

Looking ahead, Sass said the seasoned SoftBev management team was focused on strategies to gain market share for its key brands. The growth of SoftBev’s business in Gauteng had already prompted a R80m investment in new capacity that would be commissioned later in 2016.

Bowcalf’s core plastics packaging operations managed a slight increase in revenue to R495m, but operating margins were squeezed to less than 12% (previously 16%) to leave bottom-line profits down 18% at R55.2m.

Sass said a R51m capital expenditure programme would support numerous new technologies.

“The majority of these activities came on line during the year, with good growth for 2017 and beyond programmed.”

Vunani Securities’ small- to medium-cap analyst, Anthony Clark, said a slimmer margin was now the “new normal” at Bowcalf. He suggested a return to “past glory” might be under way, with heavy reinvestment back into the packaging operations. “But it’s not the nineties anymore … when Bowcalf had the market to themselves. It’s now more competitive and customers are more margin savvy,” he said.

Clark reckoned Bowcalf had no choice but to invest in new imported and expensive technology to keep up with changing market trends. “But what they are doing operationally keeps them relevant and will sustain their business model,” Clark noted.

Bowcalf cut its final dividend to 18.4c per share (2015: 23c per share) with the company’s cautious view on prospects underlined by the proposed payout being covered almost five times by earnings.

The SoftBev management team was focused on strategies to gain market share for its key brands