Our material risks and opportunities

We determine Nampak’s most material risks through our risk management process (details of which appear in the group’s corporate governance report on the website. ) We consider each risk’s potential impact on the achievement of the group’s strategy, as well as the probability of each arising. The risk rating position on the heat map reflects the residual risk position after considering the effectiveness of the mitigation strategies. We have ranked these risks in order of their magnitude, although we recognise that these positions may change during the year. We have provided a forward looking view of the risks and opportunities that we believe may impact future performance.

Nampak’s – Top 8 risks

1 Dependency on foreign exchange liquidity and currency movements

2 Tough macro-economic and political conditions in our key markets

3 Uncertain regulatory and policy environment


Financial underperformance at operations

5 Uncontrollable increases to defined benefit liabilities

6 Inadequate people, culture and diversity development

7 Customer retention

8 Dependency on limited suppliers

How we performed against our top four risks:


Our financial results were severely impacted by our dependency on foreign exchange liquidity and currency fluctuations

Despite having little management control, we performed well during the year. We protected group liquidity and significantly deleveraged the balance sheet and restructured debt profiles


The tough macro-economic environment and political conditions impacted demand in our key markets

We remain firm in our view of the long-term fundamentals for investing in Africa and that our alignment with major multinationals in these regions will create the anticipated value over the medium term


Uncertain and demanding regulatory and policy framework changes in South Africa continue to hamper operations in the manufacturing sector

We are hopeful constructive engagement between government and industry will bring about sensible solutions that align regulatory requirements with growth progression and job creation


The divisions have improved their financial and operational performance even though demand across most products was weak. Glass returned to profitability and spoilage at our Bevcan Springs operation reduced

Improved safety and operational excellence performance and general modernisation of our equipment resulted in an overall improvement in our operational performance across all substrates. We have the capabilities and capacity to meet and benefit from any increase in demand

1 Dependency on foreign exchange liquidity and currency movements

Mitigation strategies:
  • Foreign exchange US dollar hedge strategies applied in Nigeria and Angola, with active cash extraction and hedged structures in place particularly in Angola
  • Foreign currency capital expenditure tightly controlled and hedged
  • African financing facilities restructured in line with expected recovery in the oil price
  • Sale and leaseback of South African properties released R1.7 billion in cash
  • Balance sheet deleveraged and group’s covenant positions strengthened
  • Reduced gearing has resulted in lower interest rates
  • Strong focus on inventory management released cash and continues to form a component of the group’s incentive bonus targets for 2017
Looking forward:
  • Dollar availability in country in the medium term impacts negatively on local performance from Nigeria, Angola and possibly Zimbabwe
  • Currency volatility continues to have bearing on financial results
Opportunities for value:
  • Oil prices are expected to stabilise in the medium term which may steady liquidity and currency movements
  • Strengthened balance sheet is able to withstand further volatility

2 Tough macro-economic and political conditions in our key markets

Mitigation strategies:
  • Long-term fundamentals for investment in African markets remained intact
  • Leveraged existing customer relationships
  • Our market positions remained strong with more than 60% of our customer base consisting of large multinationals with strong brands with very strong credit ratings
  • Robust project pipeline established to capture further growth
Looking forward:
  • Slow consumer demand and high inflation restrict customer demand
  • Increase in inventory levels as a result of continued reduced demand
  • Volatile rand exchange rate given political uncertainty
  • Potential downgrade of South Africa’s sovereign credit rating
  • Persistently low oil price
Opportunities for value:
  • We are well positioned to take advantage of any organic growth
  • A moderate recovery in business confidence, which is at its lowest in 30 years, would increase customers’ willingness to spend

3Uncertain regulatory and policy environment

Mitigation strategies:
  • Continued engagement with South Africa’s DEA, dti and Treasury on all aspects of proposed legislation both directly or in conjunction with industry bodies
  • Glass and plastics converters already participate in well established industry producer responsibility organisations (PRO) which will be a requirement under the proposed legislation. Voluntary industry levy collections are used to support recycling initiatives. While metals have been actively involved in recycling initiatives, a formal PRO is not in place, however, it will be established within appropriate timeframes
  • Recycling rates of post-consumer packaging waste in South Africa are steadily improving across all substrates (refer to pages 59 to 67 for statistics)
  • Sustained our efforts at light-weighting products
Looking forward:
  • Promulgated legislation which is not aligned with current industry initiatives, specifically post-consumer waste management, carbon tax and sugar tax
  • Complex regulatory environment making it difficult to comply with all legislation at all times
Opportunities for value:
  • We are well positioned to take advantage of any organic growth
  • A moderate recovery in business confidence, which is at its lowest in 30 years, would increase customers’ willingness to spend

4Financial underperformance at operations

Mitigation strategies:
  • Glass turned around and profitable with pack-to-melt ratios at benchmark levels
  • Continued focus on reduction in SKUs
  • Increased focus on forecasting resulted in improved planning
  • Introduced group-wide behaviour-based safety initiative
  • Operations excellence initiatives and programmes created improvements in efficiencies and costs in all divisions
  • Spoilage reduced at Bevcan’s Springs operation
Looking forward:
  • Opportunities for attracting new customers in support of the turnaround strategy for Plastics UK operation
Opportunities for value:
  • Modernised operational base at favourable exchange rates provides barriers to entry of competitors
  • We are well positioned to increase market share and operating margins generally
  • Diversification from milk products to include juice and other products improve operational leverage in the United Kingdom

5Uncontrollable increases to defined benefit liabilities

Mitigation strategies:
  • Good progress made on settlement of the post-retirement medical aid liability accorded to South African pensioners younger than 75 years. At 30 September 2016, 475 pensioners had selected an annuity benefit in lieu of future subsidies by the company. At the closing date of the offer on 15 October 2016, 947 of 1 285 pensioners had responded with 73% of these pensioners opting for the alternative annuity offer. We will continue to trace the remaining pensioners so that they are given the same opportunity
  • The defined benefit liability reduced significantly by year-end
  • Cash value of acceptances at year-end of R406 million
  • Further uptake in South African PRMA annuity offer
  • Commenced investigation of de-risking opportunities with the trustees of the Nampak Staff Pension Plan in the United Kingdom
Looking forward:
  • Ability to realise de-risking approaches in the UK pension plan
Opportunities for value:
  • The relationships between gilt yields and inflation in the United Kingdom may improve as Brexit concerns reduce, thereby significantly reducing the funding requirement for the pension plan
  • Stronger balance sheet and income statement to support future growth opportunities

6Inadequate people, culture and diversity development

Mitigation strategies:
  • Implemented a process of defining divisional staff establishments
  • Quarterly group talent management reviews introduced which exposed critical skills gaps
  • Compulsory employee performance management for managers linked to remuneration
  • Continued training and development initiatives at all levels
  • Invaluable partnerships with global manufacturers including technical support
  • Strong and continued focus on the attraction, retention and training and development of black managers in South Africa, including increased female representation
Looking forward:
  • Skills shortages in areas where we operate
  • Education structures in South Africa fail to deliver requisite technical skills
  • Potential negative rating as a result of application of the new B-BBEE codes
Opportunities for value:
  • Employee productivity improvements
  • Established internal technical training facilities able to accommodate an increased number of apprenticeships and learnerships

7Customer retention

Mitigation strategies:
  • Value-added benefits provided by Nampak’s R&D facilities:
  • Product innovation
  • Testing of packaging performance
  • Evaluation of packaging light-weighting opportunities
  • Microbiological assessments in respect of food and beverage safety
  • Established long-term relationships supported by long-term contracts
  • Maintained and progressed appropriate quality, health and safety, and food and beverage standards to meet customer audit requirements
Looking forward:
  • Customer consolidation increases pressure on margins and volumes and requires strong adherence to contractual terms to avoid renegotiation
  • Continued pressure on quality and service
  • New converters targeting our market share
Opportunities for value:
  • Capability and capacity from recent capital expenditure enables growth with existing customers and attraction of new customers
  • Capital expenditure approved to modernise R&D equipment in 2017

8Dependency on limited suppliers

Mitigation strategies:
  • Commenced journey to improve procurement maturity in the group
  • Negotiated supply agreements with service providers
  • Established and tested alternative supply arrangements
  • Continued review of opportunities to reduce energy and water usage in our operations
Looking forward:
  • Possible extended drought and resultant water shortages
  • Pressure on energy supply when economic conditions improve
  • Increases in costs above inflation for energy and water which are difficult to pass on to customers
Opportunities for value:
  • Targeting further savings from procurement initiatives
  • Ensure compliance with and optimisation of supplier payment terms
  • Alignment of inventory holdings with supplier delivery and payment terms