“A culture of arrogance endemic to the Nampak organisation and overheated margins” allowed competitors to eat up chunks of the beverage canning market, Nampak CEO Phil Roux told shareholders at the group’s recent AGM. He was responding to shareholder activist Chris Logan of Opportune Investments, who wanted to know what had created space for new entrants to the Bevcan and packaging markets, dominated by Nampak until as recently as 2018.
“Was Nampak charging customers too much? I can understand customers would want an alternative source of supply but other players are eating your lunch,” said Logan. Roux, who had been interim CEO between last May and August when he was appointed CEO, acknowledged that new players were “partially eating our lunch” but said they wouldn’t enjoy that luxury much longer.
He hastened to add that his experience of Nampak’s arrogance was not as an employee but as an executive of two of its customers, first at Tiger and then Pioneer Foods.
For financial 2023 the group’s trading performance was reasonably sound, coming in at R1.6bn; the problem is all the impairments and forex losses from Nigeria and Angola. And on top of that there are hefty finance costs.
A horrifying debt mountain has built up over the past decade, reaching a peak of R6.3bn in financial 2020 when its market cap was just R621m. In 2011 net debt was a mere R16m.
Roux, who has a reputation as a “take no prisoners” CEO, is driving a turnaround plan for a group that has been in an existential drift for well over a decade. It has notched up several billion rand in losses since 2019. In financial 2023 alone it reported a net loss of R4bn. It’s been a story of appalling capital allocation decisions followed by huge value destruction.
If they can’t turn it around it’s hard to see who could
— Anthony Clark
Despite the group’s dismal earnings performance, its senior executives have enjoyed top-of-the-range remuneration payouts. As Logan told the media last year, the executives got large bonuses at the end of financial 2022 even though the company had made a loss and was in need of a big bailout.
That institutional shareholders merely looked on while the wreckage unfolded over the years is another eye-popping story. It was only when activist private equity company A2 Investment Partners became a significant shareholder that the board was persuaded that serious action was needed if the group was to survive.
The extent of the crisis was evident in the hefty cost of the recent debt restructuring aimed at converting dollar debt to rand. That debt restructuring was part of what the board describes as a “much-needed intervention”. A comprehensive turnaround plan has been implemented involving a R1bn rights offer and the adoption of a new strategy focused on Nampak’s core metals business, as well as a 250-for-one share consolidation.
Inevitably, given that the intervention was being driven by A2, which had secured backing from other shareholders, there were major board and management changes. These included Roux’s appointment as CEO and A2’s André van der Veen’s appointment to the chair. Anthony Clark of Smalltalkdaily Research describes the moves as extremely astute, “If they can’t turn it around it’s hard to see who could,” he tells the FM.
The intervention is intended to reshape Nampak thoroughly, from what Roux described to shareholders as a cumbersome diversified conglomerate with “lumpy overhead costs”, to an entity that could better compete with fleet-footed and agile private entrepreneurs. The days of conglomerates might be over, suggests Roux, who has reportedly already made significant dents in Nampak’s overheads, including reducing headcount in South Africa by about 15%.
The new CEO sees his job as turning Nampak into a “fleet-footed, highly competitive but still high-margin cash-generating machine”. He feels progress is being made and reminds shareholders the JSE listing requirements prohibit him from expressing something that might sound like a forecast.
But having said he is pleased with the progress to date, Roux stressed the importance of completing asset sales for the long-term health of the company. “We will not generate sufficient operating cash flow, even if we shoot the lights out, to put this organisation on a new trajectory.”
The board has tagged three assets “of high value” that have to be sold. No names were mentioned but Bevcan Nigeria is certainly on the list. Roux said whoever acquires this will have to understand the vagaries of that market and how to manage through the cycles of high profits and high losses. While Nigeria is no longer a hot favourite with international investors this hasn’t dulled the enthusiasm of Nigerians themselves. Roux describes steaming levels of trading activity as “a feeding frenzy”. Which is why he seems reasonably confident of finding a suitable partner.
After battling through several AGMs in a fruitless bid to persuade the board to do something to stop the ship sinking, Logan is encouraged by events of the past 12 months. “Phil is a total breath of fresh air,” he tells the FM, adding that the new leadership has reportedly already taken out hefty costs. “If that is so, we will soon be able to see the operational recovery.”
Clark says it could be the end of 2024 into 2025 before investors see signs of progress. A Nigerian deal, he adds, will be central to the market taking a smaller but more profitable Nampak seriously again.
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