The renewal of “substantial” contracts and export deals for potentially 800 million beverage cans in the next year has lifted the prospects in what has been a difficult year for South Africa’s leading canmaker Nampak.
In a trading update for the 11 months to the end of August, chief executive Erik Smuts outlined the challenges presented by a weak economy even before the coronavirus shutdown on 26 March made conditions worse.
However, Bevcan South Africa successfully renewed its largest supply agreement with a major multinational customer, which was set to expire at the end of March 2021, for a further three years with a revised allocation of 85 per cent (previously 100 per cent).
Smuts said the bulk of the additional can volumes secured will be supplied during the 2021 financial year and will boost the utilisation of its beverage can plants in South Africa. It will contribute towards improved earnings and contribute significantly to closing the gap caused by the impact of coronavirus, he added.
“Our short- to medium-term focus is to proactively deleverage and reduce currency and operational risk to the business,” said Smuts. “We believe that the macro environments will continue to be muted to some extent for the next 6-12 months, but our current strategies will ensure that Nampak will produce much improved results and emerge as a lower risk organisation with a stronger balance sheet.”
Unlike in many other countries where the move to at home drinking has benefited beverage can sales, the long alcohol bans in South Africa prevented it doing the same, said Smuts. However, shortages of capacity in countries such as the US have recently opened up new export market opportunities in beverage can, he added.
Nampak‘s operations across Africa were also badly hit by the virus. As well as beverage can plants in South Africa, Nigeria and Angola, it has a food can business in South Africa and metal packaging operations in Zimbabwe, Tanzania and Kenya. It also has plastics, cartons and paper packaging businesses.
Kenya is a country facing “significant headwinds” and further restructuring there is planned in the first quarter of 2021. Meanwhile, border closures in Angola prevented the export of cans, Smuts revealed in the trading update.
Bevcan Nigeria performed well despite the tough operating environment and demand is recovering faster than in any other territory in which Nampak operates. Since the start of August sales have exceeded pre-lockdown levels.
Nampak has already sold its glass packaging and Cartons Nigeria businesses, the sales of which have been used to reduce South African Rand and US Dollar denominated debt by US$100 million in the second half of the year. This has also helped to reduce the company’s exposure to currency fluctuations.
The company also reported that capital expenditure for the full year is expected to be between R600-R675 million ($35-40m), compared with R735m ($43m) last year.