Nampak says a combination of waning demand for plastic and paper and high labour costs has resulted in lower-than-expected turnover for the first quarter of its 2024 financial year.
On the upside, the JSE-listed packaging producer said Bevcan SA and DivFood had delivered operational and trading performance improvements through margin management, cost reduction and efficiency gains.
The group also said the divestiture programme, meant to help Nampak reduce debt to sustainable levels, was making progress.
In a voluntary update on Thursday, Nampak said it had experienced “slower-than-expected consumer demand” for plastic drums, bottles and tubes — lower than the previous year — as a competitive dairy market resulted in volume losses with an adverse effect on revenue and profitability.
The manufacturer said demand for conical and PurePak cartons fell in SA, albeit off a high base. Equally, Zambia and Malawi were negatively affected by lower demand for conical cartons and crates, and foreign-exchange losses, it said.
“Plastics and paper results remain turbulent,” the company said.
The subdued demand came as the group had to also grapple with inefficiencies by state-owned entities Transnet and Eskom, which impeded operations.
“Muted SA turnover growth was experienced due to sustained macroeconomic headwinds, port congestion affecting raw material imports and customer factory closures occurring sooner and for extended periods,” Nampak said.
“Slower-than-expected consumer demand was exacerbated by surplus inventory in the market,” it said, adding that demand was expected to normalise in the second quarter as customers replenish their inventories.
Nampak has been hamstrung by a huge debt pile after an ill-fated expansion into the rest of Africa. The company has subsequently beefed up its management, which has undertaken to restructure the business to return it to profitability.
After a successful capital raise in September, the company highlighted job cuts, salary freezes and a reduction in overtime as belt-tightening exercises, as it battles a cash crunch that has eroded its share value over the past five years.
In the latest voluntary update, Nampak said planned cost and efficiency savings were realised across the group, in line with previous guidance, though there was room for improvement with regard to the cost of labour.
“Labour costs remain unsustainably high,” Nampak said. “Discussions with labour representatives to limit increases are under way.”
As part of its arrangements with lenders, Nampak is required to reduce debt by R243m by March 31. The Johannesburg-based group said it was on track to meet that obligation, with R180m already paid from the proceeds of disposals.
At the annual general meeting on Thursday, CEO Phil Roux said divestitures were core to restoring the long-term health of the company, adding there were three looming disposals.
“We’ve sold some assets ... but there are three assets that are of high value that we have to get away [from] and we’ve been working really hard and making fair progress against all three.”
Nampak said the newly merged BevCan and DivFood division was performing well and “generating strong operating leverage”.
This as demand for canned goods remained positive, bolstered by growth in the energy drink, fish and infant food categories, and supported by demand for fruit cans, with the fruit season yielding a good crop.
Nampak told shareholders that the installation of the incremental 500ml capacity at Bevcan Springs, meant to enable volume growth, was on track for commissioning ahead of time and within budget.
“We’ve got some clients that are reserving some of that capacity already and that’s in a tough market,” said Roux. “That’s where the demand is, it’s strong single-digit growth that we are witnessing at a category level and we simply have to keep pace with it.”
The company will release its interim results for the six months to end-March on or about May 29. Nampak shares closed 1.24% lower at R177.70.
Update: February 15 2024
This story has been updated with new information.
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