Nampak Targets Africa Deals as Consumers Turn to Packages

Nampak Ltd. (NPK), Africa’s biggest maker of beverage cans, plans to expand in Nigeria through acquisitions that may exceed its largest takeover deal to counter slowing growth in its main South African market.

Ethiopia is a target for expansion in East Africa due to its size and population of about 92 million, while Ghana is the most prominent untapped market in the west, Chief Executive Officer Andre de Ruyter, 46, said in an interview at Bloomberg’s offices in Johannesburg. In South Africa, which accounts for 70 percent of sales, the strategy is 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,” De Ruyter said July 9. “There are sizable opportunities available in Nigeria. I am bullish on Ethiopia. Ghana we need to look at quite closely.”

Nampak, which supplies companies from Coca-Cola Co. to SABMiller Plc, is expanding production plants in sub-Saharan Africa to benefit from a consumer market of 900 million people that spends at least 20 percent of their earnings on food and beverages, the CEO said. The Johannesburg-based company agreed to buy Alucan, a Nigerian packaging company, for 3.3 billion rand ($307 million) in its biggest ever deal last year and is studying an option to buy a plastics manufacturer in the continent’s largest economy.

Companies in Africa are using the advertising potential of cans to market different products and promotions, while the growing popularity of beer is also driving growth, De Ruyter said. Nampak counters Nigerian challenges such as unreliable power supply by generating all its own electricity.

Sales Slow

The company, which has operations from Angola and Botswana to Kenya and Zimbabwe, will avoid regions where there is instability, such as Central African Republic and Niger, and probably won’t expand into North Africa or former French colonies on the continent, De Ruyter said.

A former executive at oil producer Sasol Ltd. (SOL), the world’s largest producer of motor fuel from coal, De Ruyter took over as Nampak CEO at the beginning of March. The company reported first-half sales growth of 12 percent on May 27, including a 9 percent increase in South Africa and a 24 percent rise in 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 will start recovering to show “modest growth” in fiscal 2015, De Ruyter said. The company plans to reduce product lines to focus on the biggest earners, helping to boost productivity, lower costs and “unlock cash” that can be used to fund growth, he said.

The company’s capital expenditure this fiscal year is 2.5 billion rand, with 1.5 billion rand going into the conversion of a tin-plate can line to an aluminum one and a third glass furnace, De Ruyter said.

Strike Hits

About 10 percent to 15 percent of Nampak’s 7,500 workers in South Africa are taking part in the metalworkers strike that has affected about 12,000 employers in Africa’s second biggest economy since July 1. Under the system of collective bargaining, Nampak must wait while employer groups negotiate with the National Union of Metalworkers of South Africa to end the walkout.

“Obviously we had anticipated that the strike would be coming,” De Ruyter said. “So we had our contingency plans in place. But they only take you so far. There is no substitute for running your factory.”

Nampak shares gained 3.2 percent to 38.95 rand as of 4:17 p.m. in Johannesburg, valuing the company at 27.2 billion rand. The stock has declined 5 percent this year, compared with an 11 percent gain in the 166-member FTSE/JSE Africa All-Share Index. (JALSH) The company is 42 percent owned by foreign investors, according to De Ruyter.

“All in all, I’m not particularly perturbed by short term fluctuations” in the share price, he said. “I’m far more interested in the sort of three to five year time horizon in terms of share price growth.”

To contact the reporter on this story: Kamlesh Bhuckory in Johannesburg at kbhuckory@bloomberg.net

To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net; Antony Sguazzin at asguazzin@bloomberg.net John Bowker

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