Nampak CEO says company ‘gets no joy’ from retrenchments

Nampak has completed the first phase of its retrenchment process, costing the group R150m so far, with further plant consolidations in the pipeline as the debt-laden group ramps up its cost-containment efforts.

CEO Phil Roux said at the group’s annual results presentation Nampak had completed phase one of its planned section 189 process at the end of August with phase two under way in a move to reduce the company’s manpower costs.

The packaging manufacturer in May told shareholders of inevitable 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.

On Thursday, Roux told Business Day that the second phase of retrenchments was scheduled to take place in February.

“We are in a three-stage process — currently negotiating phase two. We are not divulging numbers. We would like to note that we get no joy from retrenching.”

Nampak has merged two divisions — BevCan and DivFood

— as it works to simplify its structure and draw on efficiencies to turn around the company’s fortunes.

The CEO said after analysis Nampak would be similarly looking at its other operations and changing some of its manufacturing architecture, which he described as “lumpy, unwieldy and unsustainable”.

“So we will be closing operations; in fact we have announced the closure of one part of the business in our Mobeni operation,” he said, referring to the KwaZulu-Natal-based asset.

“The likelihood of plant consolidation, some in 2024 financial year and some in 2025 financial year, will be materialising and that gives a complete step change in profitability,” Roux said.

The group’s capital and financing structure was strengthened through the successful rights issue of R1bn where it raised R960m, after transaction costs in September.

However, it said net finance costs in the year to end-September had jumped by 109% to R1.2bn from R586m, including lender advisory costs of R335m.

Moreover, higher foreign exchange losses, net impairment losses and finance costs cast a shadow on its financial results.

NET LOSS

Nampak reported later that it had swung into a net loss of R4bn during the reporting period versus the R26m it lost in the previous matching period a year ago.

Roux said the most serious risk facing Nampak in the short term is dwindling volumes. The company reported volume reductions in Bevcan Nigeria, Plastics SA and DivFood in the period coupled with intensifying competition.

However, he assured investors that the cost-containment actions and the R350m investment in the turnaround of the Bevcan Springs Line 2 would reap benefits as it would increase capacity to meet the demand for pack formats.

“We are not, however, deer in a set of headlights and [are] responding with appropriate mitigation and actions and we are building cultural grit. Our phase out and scale down initiatives will succeed ... our competition must enjoy eating our lunch in the short term.”

Chronux Research analyst Rowan Goeller said that after being the only bevcan (beverage can) producer in SA for some time, the company is contending with new competitors that have built bevcan lines in recent years. Hulamin, GZ Industries and CanIt have taken a bite at the lucrative beverage can market.

Goeller said while new competitors reduced Nampak’s market share and expedited the closure of the Durban and Cape Town lines, Nampak has continued to be a reliable producer and customers are starting to come back after disappointments with the new entrants.

“Nampak has an advantage over its competitors having multiple lines as it can run dedicated can size runs for longer,” Goeller said.

“At present, the conversion of Springs Line 2 to larger can sizes is an option given the shortage of supply currently for that type of can,” he said.

Meanwhile, the R1.3bn JSElisted manufacturer said net debt had decreased 12% to R4.6bn from R5.2bn in the year, with plans to work the debt down even further.

In line with the criteria in the new funding package, Nampak is required to raise R2.7bn through asset disposal in the next 18 months to repay interest-bearing debt.

CFO Glen Fullerton said the group’s R1.9bn historical debt has been housed in a separate facility and would be maintained and settled through asset disposal proceeds over the next year and a half.

“That’s taken significant pressure off the covenant compliance,” Fullerton said. “We’ve reduced the fixed cost base in the business, we’ve merged two businesses, we’ve downscaled the size of our head office and you will see some benefits coming through in FY24.”

THE LIKELIHOOD OF PLANT CONSOLIDATION WILL GIVE A STEP CHANGE IN PROFITABILITY Phil Roux Nampak CEO