Nampak rushes to right the ship
Packaging maker to slash jobs • • Two divisions to be merged
Debt-laden Nampak is preparing for huge job cuts, salary freezes and a reduction in overtime as it battles a cash crunch that has eroded its share value over the past five years.
Nampak interim CEO Phil Roux announced a reduced rights offer of up to R1bn to help raise capital to pay off a R6bn debt incurred after a disastrous expansion into Africa. Nampak’s debt far outweighs its R455m market value.
A previous R1.5bn rights offer was shot down by shareholders in January, but the company is confident shareholders will back the proposed capital raise.
The market seems to have welcomed the proposed turnaround plan, with Nampak’s share price, which has shed more than 95% in value over five years, rising as much as 18% before giving up some gains to close 9% higher on the day at 72c on Wednesday.
The packaging manufacturer plans to merge two divisions — BevCan and DivFood — into one entity as it works to simplify its structure and draw on efficiencies to turn around the company’s fortunes.
“We will reduce our headcount significantly across the entire organisation,” Roux said, adding that this was among some of the difficult decisions he had had to make since his appointment a month ago.
“There is a vacancy freeze edict from my desk. Absolute salaries will be reduced and reinstated when our cash generation allows for that,” he said, adding that it would be done in accordance with the rightsizing of the portfolio.
“We are going to attack over time. It’s a big number in our organisation, and the head office reduction will be real,” he said without elaborating. He cautioned that the chop would not be made in one fell swoop. “We will not be reckless.”
JSE-listed Nampak employs just over 4,000 people across its metals, paper and plastics divisions in SA, with its Cape Townbased R&D division employing many scientists, engineers, technologists and technicians.
The company is caught up in dollar-denominated debt accumulated over the past decade when it expanded to several countries on the continent, including Nigeria.
On Wednesday it reported it had suffered a R2.4bn loss in the six months to March, while net debt rose 23% to almost R6bn, raising questions about the revised R1bn rights offer proposal, and if it will be sufficient to repair its balance sheet.
The steep losses during the reporting period came after the company wrote down the book value of some of its assets,
including Bevcan Nigeria.
Group revenue was up R8.4bn, boosted by increased volumes in Bevcan SA and improving volumes in Angola.
Operating profit before net impairments fell 62% due to foreign-exchange losses in Nigeria (R531m) and Angola (R40m).
Bevcan SA succeeded in growing its volumes, driven by consumer preference for large cans in the energy drink and beer markets, while the plastic and paper division produced mixed results.
Roux was upbeat in his debut presentation, saying the R1bn rights offer was “appropriate” while the extension on debt maturity to June 2024 would give it “significant breathing space while we construct the new debt package over the next few months”.
This was coupled with cost cuts and divestitures to address Nampak’s liquidity challenges to set it on a path out of the debt trap.
RIGHT DIRECTION
SmallTalk Daily analyst Anthony Clark said shareholders who pushed for the restructuring and the reorganisation of Nampak were likely to support a rights issue if factors such as cost saving and asset disposals were to be forthcoming.
With Roux in charge and with activists having “significant sway on the board given that they have appointed two directors, Nampak is going in the right direction regarding a restructuring”, Clark said.
“While it will take a year or two, I think the market now has a clear roadway ahead as to what could occur in Nampak and the potential value that could be unlocked.”
Roux acknowledged that the management team would have to work hard to garner the support of “understandably grumpy shareholders” who had gone at least five years without dividends.
Adamant that the merger of Bevcan and Divfood would also serve to synergise resources, reduce costs and unlock value, he said he wanted to run the SA portion of the group as “one Nampak” with common systems, procedures and processes. This meant “no divisional fiefdoms” and misalignment in communication, he said.
ATTITUDE
On the merging of the two units, Clark said the leadership was taking a holistic and sensible view to restructure Nampak and stripping down costs.
“If anybody can do this, ‘Phil the knife’ can, I think he is up to the challenge,” he said, adding Roux’s “no-nonsense, tell it like it is, no bullshit, roll up your sleeves, get it done attitude has clearly won over the market”.
Vowing to deal with competitor intensity in the areas it operates, Roux noted that “there are players out there trying to eat our lunch and they are being successful in part, but we will respond accordingly”.
Moreover, he pointed out that Nampak’s offering was too necessary and valuable in the value chains of large manufacturing companies to flop.
“Think brands like Rhodes food, Castle Light, Lucky Star Pilchards, Hunters Dry and Heineken,” Roux said, highlighting that the biggest clients were in Nampak’s corner. “We are placed slap bang in the middle of the value chain.”