Demand for aluminium and tin cans is on the rise in Africa, delivering a boost to the most indebted packaging company on the continent and the Middle East.
Nampak Ltd is taking advantage of the supply-chain disruptions that have led to a shortage of glass bottles, chief executive officer Erik Smuts said in an interview. The Covid-19 pandemic has also triggered a surge in demand for the type of convenience and shelf-stable food that uses the packaging Nampak makes, he said.
The trend may be a respite for the Johannesburg-based company, which has seen its shares slump 80% over six years as debt matured and a relatively weak rand weighed on US dollar-denominated borrowings. Nampak hasn’t paid an annual dividend in that time. Gross debt fell to R5.9 billion as of end September, from R6.9 billion a year earlier.
Demand for Nampak’s cans “is extremely buoyant,” Smuts said. “The glass industry has suffered a terrible time.”
South Africa used alcohol bans to try and control hospitalisations during the pandemic, and glass manufacturers are struggling with reduced stock after suspending plans for new plants.
Global shipment delays and soaring freight rates have also hampered the ability of large drinks companies such as Anheuser-Busch InBev SA and Distell Group Holdings Ltd to import bottles, another factor in the switch to cans.
“There is not enough glass available for the beer producers to pack their beer,” Smuts said. “They have to pack the beer into something and therefore aluminium beverage cans have become a lot more popular.”
Latent demand for tin cans is also building with rising South African food prices, as they tend to package lower-end products. Nampak is also well placed to take advantage of the global shift away from single-use plastic bottles, which are now banned in some European countries.
Still, growth plans require investment and Nampak has to balance spending with efforts to reduce debt.
“There is still residual risk,” Smuts said. “At some stage all this demand turns into cash, but at the moment, it’s something we’ve got to fund and it’s a fine line to manage all of it. We are still under pressure from the banks to repay some capital.”
© 2022 Bloomberg