We formed a multi-disciplinary capital assurance committee to vet all capital projects – both proposed and existing. It ensures that Nampak’s capital programme is tightly controlled using a stage-gate model, evaluating capex requests through various stages. It critically reviews both the commercial and financial aspects of all capital projects, evaluating their assumptions. It also scrutinises projects after the capex has been allocated to see that these live up to their targets in terms of returns, and if not, why not?
The capital assurance committee makes Nampak’s process of capital allocation more rigorous, making it more difficult for operations to access capital. For all proposed capital projects, we require a return of 1.5 times the weighted average cost of capital (WACC). With a current WACC of 11.9%, the hurdle rate is 17.85%.
As a result of the work of this new committee, we have noted significant improvements in capex forecasts. In 2017, Nampak committed capex of R0.7 billion, down from R1.4 billion in 2016. The target for the year ahead is between R1.0 billion and R1.2 billion.
The cash management committee, in its second year of operating, focuses on the cash generation of each business unit. It requires each business to forecast daily cash movements for the following month, and overall expected cash movements in months two and three. As a result, we now benefit from a much improved correlation between forecast and actual cash flows, lending an “owner managed” feel to the business.
The head office cost evaluation committee meets once a month. It closely monitors all costs and ratios. This resulted in a further cut in head office costs in 2017 of R57 million. We continue to focus on optimising our working capital position, targeting an optimal working capital cycle that is facilitated by inventory being funded by trade payables, the funding by the group of high-quality trade receivables, and a focus on improving working capital velocity.