Focusing on factors within Nampak’s control
2016 was a year of steady progress by Nampak. Driven to deliver on its strategy, and in so doing create value for all its stakeholders, the group extended the work started in 2015 to fundamentally transform the business. Since then, the executive team has been revitalised; the operating model clarified; safety prioritised; operations excellence programmes implemented; business processes streamlined and low-margin and non-core businesses sold.
This has resulted in a more efficient organisation better able to withstand difficult trading conditions, and ready to leverage its established businesses in Africa once the economic tide turns.
Weak global economic growth in 2016 meant a challenging environment for commerce the world over. A range of external factors – political uncertainty, lower commodity prices, volatile currencies and liquidity issues, drought conditions and high inflation – impacted the performance of Nampak’s businesses. The economies of Angola and Nigeria were under significant pressure with the timing and quantum of conversion from in-country currencies to US dollars uncertain and sporadic. As a result, significant losses on the translation of restricted cash balances in both countries led to a drop in the group’s earnings in the year.
However, Nampak continued to make solid advances on those factors over which it has control, among them operational efficiency, balance sheet management and people development.
The strategic performance tables, as well as (the reports of the CEO) and (CFO) give details of Nampak’s delivery against strategy in the year and the group’s plans to ensure sustainable value creation in the future. In running the business and advancing its growth, Nampak considers the availability of the resources and relationships on which it relies, known as the six capitals, as well as the impact that the group has on them. Details of these, and the trade-offs that invariably have to be made, are given here.
Committed to the highest standards of corporate governance, the board is responsible for the strategic direction of the group, as well as for maintaining control over the issues that affect Nampak’s ability to create value. This year, for the first time, the integrated report gives greater detail of these material issues – how they are managed, their implications for value as well as the group’s strategic response in the year.
How the board responds often requires tough choices, chief among them in 2016 the decision to suspend the payment of both an interim and full-year dividend. The group launched a review of the dividend policy, intent on ensuring that future payments are more closely linked to Nampak’s generation of cash.
Putting people and policy first
While all five of the material issues identified in the year were given equal attention by management and directors in the year, the two of particular focus for me were the issues relating to people – their safety, skills and transformation, as well as that which deals with the uncertain regulatory and policy environment.
People are at the heart of the business’s value proposition and Nampak needs to attract, develop and retain engaged and diverse employees who ensure the delivery of strategy. The group’s graduate training programme continues to provide a strong pipeline of talent, whose contribution is notable. Recent annual talent management reviews have exposed critical skills gaps, and although much progress has been made to address these, more is required.
The group’s efforts to strengthen the participation of the previously disadvantaged in the South African economy – through, among others, employment equity, enterprise development and social investment – are well established and wide-ranging. Although Nampak has been recognised for its progressiveness, it cannot rest on its laurels: there is still more work for all in South Africa to do to bring about meaningful and sustainable change.
The South African manufacturing sector, of which Nampak is a mainstay, needs policy certainty as well as a resolution to the political uncertainty that has dogged the country recently. The packaging sector is feeling the weight of a significant regulatory burden that includes the requirement by the Department of Environmental Affairs to prepare and submit waste management plans to the minister for approval. These are in terms of the National Environmental Management: Waste Act, 2008.
Nampak, and the rest of the packaging industry, is concerned that the proposed waste management plans and the associated levy structure will result in the unintended consequence of waste recycling – of which Nampak is a key driver – actually decreasing and the industry coming under further pressure. Levies will place local manufacturing at a structural competitive disadvantage to foreign packaging companies. The introduction of a carbon tax and a proposed tax on sugar-sweetened beverages will further exacerbate this.
Nampak’s record on mitigating its environmental impact is well known. Nampak Research and Development, which in October 2016 marked 70 years of innovation and customer collaboration, is dedicated to making products that are lighter and therefore more environmentally friendly.
Between 2012 and 2016, Bevcan invested substantially in new aluminium beverage can production facilities, demonstrating the group’s commitment to a more sustainable, lighter and infinitely recyclable form of packaging. The group invested R1.2 billion in a state-of-the-art water- and power-efficient glass furnace as well as a number of projects to refurbish and upgrade existing operations to be more efficient. The major items in this recapitalisation programme are now complete. South Africa has an enviable record on the percentage of packaging that is collected for recycling. For details, see the operational reviews here.
In the year under review, Nampak significantly strengthened those factors over which it has control. While the economic outlook in its markets is clouded in the short term, in the longer term the group is well positioned to leverage its operations, experience and partnerships and benefit from a return to macro-economic stability.
On behalf of the board, I would like to thank all Nampak’s people, led by a refreshed and dedicated management team, for their diligence and enthusiasm in the year. We look to the future with confidence.
21 November 2016