Nampak plots to change portfolio to grow profit

NAMPAK planned to make portfolio changes to improve its profitability by selling off some of the group’s divisions which delivered small margins, the packaging company’s chief executive, Andre De Ruyter, said yesterday.

Nampak said that it would sell off its corrugated, sacks and tissue divisions to Ethos Private Equity for R1.6 billion.

“During the year we critically look at our business and put in place various overhead cost management and business improvement programmes,” he said, adding the sale of these divisions was part of portfolio optimisation and profit improvement opportunity.

“We have resold businesses in South Africa that deliver a margin of between 2 percent and 4 percent at the amount of R1.6 billion and we going to reallocate that into opportunities that we got in the rest of Africa where we anticipate we can generate a margin of 18 percent to 20 percent.”

Nampak’s trading profit from the rest of Africa was up 25 percent and accounted for 30 percent of its total income.

“The growth in African profits was due to the contribution of Bevcan Nigeria and the continued good performance from our Angola beverage can operation.”

For the year to September, the group’s revenue grew by 10 percent to R19.9bn. Headline earnings a share from continuing operations rose by 14 percent to R2.37. The group trading margin at 10.3 percent was marginally lower than last year.

It recorded net abnormal losses from continuing operations of R433.2 million compared to a R20m net gain last year. “This was mainly due to charges attributable to the impairment of the South Africa corrugated, sacks and tissue divisions arising from the proposed disposal,” it said.

This resulted in operating profits falling by 16 percent.

De Ruyter said South Africa was still a very important part of Nampak portfolio and still delivered about 60 percent of the overall trading income, but the company’s presence elsewhere in Africa gave it a distinctive competitive advantage.

He said it was less exposed to the volatility of the rand as a large part of its pricing in Africa was dollar-based.

Nampak said that operating conditions continued to be challenging in South Africa with trading profit declining by 15 percent in the paper, flexible and plastics divisions.

However, De Ruyter said Nampak hoped to turn this around in the new year. He said its prospects included an improved profitability environment in the South African operations. “We are looking for improvement from our glass business where we suffered an operating loss this year and hope to see the benefits of the efficiencies from the new glass furnace investment coming through.

In the rest of Africa, the group felt that it was strategically well placed with strong market positions and a growing presence. “The group is pursuing its strategic objective to accelerate growth in the rest of Africa to ensure that this contributes to sustainable earnings growth in the longer term.”

Shares closed 4.73 percent lower to R41.30 yesterday.