Maybe time to sell some packages
Will the new boss think outside the box?
NAMPAK’S AGM THIS week should see some probing questions from shareholders. They’ll want an update on Nampak’s “revised strategic plan” – chiefly to achieve annual growth in trading income ahead of the rate of inflation in South Africa and to reach a return on net assets of 20% within the next three years.
It’s actually a shorter timeframe now, a little over twoand-a-half years. And outgoing CEO John Bortolan admits it’s an “ambitious plan”. He earlier told Finweek, after Nampak broke with tradition and cut its dividend, that the group had planned capital spending projects of more than R2bn and would be looking for “growth opportunities”.
However, the emphasis might have changed slightly. Analysts and fund managers say Nampak may have to prune its extensive operations for the sake of profitability (see Fin24.com) and that getting costs out of the system should be the priority.
Nampak is a large and sprawling organisation. As Africa’s largest packaging group it has 65 operations in SA, 24 in other African countries and 23 operations in Europe, which is where it may have to look hardest at costs and possibly consider selling some assets.
The revised plan is demanding, because in its last financial results, trading income was declining in all the major regions Nampak operates in and return on net assets was only 10%. But Bortolan says its goals could be achieved because two of the main industries Nampak supplies packaging to are food and beverages.
Those are defensive industries, but the effect on consumers of the global economic slowdown could become worse and spending will be cut wherever possible. For example, the latest quarterly trading update from SABMiller (one of Nampak’s largest clients) showed a sharp slowdown, and in some cases a decline, in lager volumes. Reports from Britain last week said beer sales were down.
Nampak has already faced questions from two of its large institutional shareholders: the Public Investment Corporation (PIC) and Frater Asset Management. Oasis Asset Management is also a shareholder and doesn’t usually keep quiet about much.
All that might save Nampak’s management from a roasting on Wednesday is the arrival of new CEO Andrew Marshall, who takes over the reins on 1 March. He has headed Oceana for the past 10 years and joins Nampak at a challenging time.
Despite the dividend cut, Nampak still offers a healthy dividend yield of 7,7%. That appeals to value investors. But the apparent value in this large group is still to come through: some investment professionals have been calling it a value play for the past three years – and are still waiting.