Nampak plans to expand in Nigeria through acquisitions that may exceed its largest takeover deal as Africa’s biggest maker of beverage cans looks to counter slowing growth in its main South African market.
Ethiopia was a target for expansion in east Africa due to its size and population of about 92 million, while Ghana was the most prominent untapped market in the west, chief executive André de Ruyter said on Friday.
In South Africa, which accounts for 70 percent of sales, the strategy was to protect dominant market share and reduce costs, he said. “The growth opportunity to take us to the next level of size can only come from Africa. There are sizeable opportunities available in Nigeria. I am bullish on Ethiopia. Ghana we need to look at quite closely.”
De Ruyter said Nampak, which supplies firms from Coca-Cola to SABMiller, was expanding production plants in sub-Saharan Africa to benefit from a consumer market of 900 million people that spent at least 20 percent of their earnings on food and beverages.
The Johannesburg-based company agreed to buy Alucan, a Nigerian packaging company, for R3.3 billion in its biggest ever deal last year and was studying an option to buy a plastics manufacturer in the continent’s largest economy.
Companies in Africa were using the advertising potential of cans to market products and promotions, while the growing popularity of beer was also driving growth, De Ruyter said.
Nampak counters Nigerian challenges such as unreliable power supply by generating all its own electricity.
The company, which has operations from Angola and Botswana to Kenya and Zimbabwe, would avoid regions where there wes instability and probably would not expand into north Africa or former French colonies, De Ruyter said.
De Ruyter, who took over as Nampak chief at the start of March, was a former executive at petrochemicals giant Sasol.
On May 27 the packaging company reported sales growth of 12 percent in its first half to March, including a 9 percent increase in South Africa and a 24 percent rise on the rest of the continent. The profit margin in its home market declined to 8.5 percent from 9.1 percent a year earlier, compared with a total margin of 11 percent.
Profit margins in South Africa would start recovering to show “modest growth” in fiscal 2015, De Ruyter said.
Nampak planned to reduce product lines to focus on the biggest earners, helping to boost productivity, lower costs and “unlock cash” that could be used to fund growth, he said.
Between 10 percent and 15 percent of Nampak’s 7 500 workers are taking part in the metalworkers’ strike that has affected about 12 000 employers since July 1. Under the system of collective bargaining, Nampak must wait while employer groups negotiate with the National Union of Metalworkers of SA to end the walkout.
“We had contingency plans in place. But they only take you so far. There is no substitute for running your factory,” he said.
The shares rose 3.26 percent to R38.98 on Friday, valuing the company at R23.2 billion. The stock has lost 5.8 percent this year, compared with a 10 percent rise in the all share index.
“I’m not perturbed by short-term fluctuations” in the share price, De Ruyter said. “I’m more interested in the sort of three- to five-year time horizon in terms of share price growth.”
Foreign investors owned 42 percent, he said. – Bloomberg