Nampak reduces operating costs, invests heavily

NAMPAK said yesterday that slow growth in South Africa would challenge the group in the year ahead.

The group was presenting its strategy and operational update for its different divisions.

South Africa’s economy contracted 0.4 percent in the last quarter of 2016 and 0.6 percent in the first quarter of 2017 before coming back in the second quarter of 2017 by registering growth of 2.5 percent.

Chief financial officer Glen Fullerton said despite the group coming under pressure as a result of the challenging economic climate, Nampak was committed to spending between R0.9 billion and R1.1bn as capital expenditure in the 2017 financial year.

In the past, the group has been hit hard by the weaker growth and volatile African currencies because of lower commodity prices, particularly in Angola and Nigeria, as oil prices tumbled.

However, chief executive André de Ruyter said in the update that the green shoots were beginning to appear in Nigeria.

“Nigeria recorded 0.5 percent growth in the second quarter of 2017 after three consecutive quarters of recession. It was the first positive growth since 2015,” De Ruyter said.

Oil contributes 3 percent to the country’s gross domestic product (GDP), and the rise in oil prices is key in lifting its GDP.

Nampak has operations in 12 African countries.

De Ruyter said conditions would remain challenging in South Africa and the UK, in the year ahead.

However, the plastics restructuring would be able to reduce the cost base, while Bevcan’s dedicated lines would facilitate efficiency and this would lead to a new entrant in the South African market in the division.

The group said with some of its clients also reporting subdued profits, such as a large fish processor, it expects as much as a 35 percent decline in profits for the financial year 2017.

A leading producer of packaged food also issued a profit warning, with earnings expected to be lower by between 25 and 35 percent for the year, and a major milk supplier negatively impacted by prolonged drought had announced 55 percent lower profits.

In response to these challenges, the group said it was reducing its operating costs, with the head office costs reduced significantly.

The group had also undertaken to reduce complexity and centralise procurement for the group’s benefit.

Nampak has made a significant investment in some of its plants in the country. It had invested R67 million in a multideck printer in Mobeni and R35m in upgrading a large-format can capability in Paarl for DivFood.