Operational review

METALS

MANAGEMENT:
Christiaan Burmeister
Erik Smuts
Quinton Swart

Bevcan is Africa's largest beverage can manufacturer. Our cans make up most of the South African and Angolan markets and half of the Nigerian market. We have two state-of-the-art sites in South Africa and one each in Nigeria and Angola. DivFood operates five sites in South Africa and one in Botswana, manufacturing two and three-piece tinplate food cans and various diversified tinplate cans.

In South Africa, we are the only producer of two-piece tinplate cans and aluminium monobloc aerosol cans. Around two-thirds of our sales are to the food industry. Our businesses in other countries in the Rest of Africa produce a wide range of metal packaging products.

FINANCIAL CAPITAL   HUMAN CAPITAL   NATURAL CAPITAL

Revenue

(R million)

  R10 620 million

(2018: R11 079 million)

 

Employees

  2 932

(2018: 3 078)

 

Energy use

✓  1 454 261GJ

(2018: 1 478 961GJ)

Trading profit

(R million)

  R1 368 million

(2018: R1 736 million)

 

LTIFR

 0.41

(2018: 0.12)

 

Emissions intensity

(t/CO2e/Rm revenue)

  16.84

(2018: 16.77)

Trading margin

(%)

  12.9%

(2018: 15.7%)

       

SOUTH AFRICA

Performance

Amid increased competition, Bevcan recorded an improved operational performance and a solid financial performance, thanks to efficiency gains in a stronger market in which the pack share of cans increased at a significantly higher rate than South African GDP.

This performance was tragically overshadowed by the death of Ngwata Matsimela, a palletiser operator, at our Springs factory early in the year. We again extend our deepest condolences to his family, friends and colleagues and maintain our unrelenting focus on safety.

Since a tax on sugary drinks was implemented in April 2018, the market for beverage cans in South Africa has become more complex. Producers of carbonated soft drinks require eight different can sizes, not all of which our competitors can supply without the inefficiencies associated with frequently changing production on their lines from one size to the next. Dedicated lines allow for more efficient production.

In 2019, our CAN DO! Excellence programme led to greater cost efficiencies at our lines in Rosslyn and Springs, and better maintenance of equipment. We focused increasingly on our role in delivering on the UN's Sustainable Development Goals, in line with the efforts of many of our customers.

DivFood had a challenging year, with the loss of a significant portion of volumes from a large customer in a competitive market. Consumer demand was generally depressed and customers displayed significant price sensitivity. We continued to focus on securing greater efficiencies from our processes and reducing operating costs as the financial performance of the business remained under pressure.

Our capital programme focused on the modernisation of our two-piece can line in Rosslyn and the installation of modern tinplate 52mm aerosol can capacity in Vanderbijlpark.

The business was able to secure new long-term supply agreements with a number of fish customers as well as with a large food group.

Demand for most categories of cans was depressed, with some growth recorded in cans in which to package fish, meat and milk.

OUTLOOK

Nampak Metals in South Africa will work to secure further cost reductions in the new financial year in an increasingly competitive market. Guided by our continuous improvement programme, a fundamental part of our strategy is to invest in the skills of our people, which will enable us to defend our market share; maintain excellent customer service; leverage our existing asset base; reduce complexity and optimise capacity.

At Bevcan, we expect some of our large customers to allocate greater volumes to new competitors. However, in the medium term we believe these competitors will provide customers with realistic reference points for price and service, which will work to our advantage. We see opportunity for growth in the pack share of cans in the market for carbonated soft drinks (CSD), as consumer perceptions around single-use plastic packaging turn increasingly negative. In South Africa, around 70% of all CSD volume is sold in PET bottles. We also see opportunity to grow the market for water and wine in aluminium cans.

DivFood sees opportunity to optimise inventory levels and refine our pricing strategy to stimulate consumption and grow market share in the year ahead. Nampak Metal Closures, which previously was managed by the Plastics business, was integrated into DivFood effective 1 October 2019 to optimise management structures and efficiencies.

 

REST OF AFRICA

Performance

Bevcan increased sales volumes in Nigeria, growing our share of the market to around 50%. We debottlenecked our line, leading to greater production efficiencies. In Angola, volumes came under pressure amid a foreign exchange shortage and local currency depreciation, which reduced the affordability of beverage cans by consumers. In response to decreased market demand, we reduced employee numbers by almost a third. We continued with our project to convert our tinplate beverage can production line to one that manufactures slender aluminium cans, at a cost of some R200 million.

In Nigeria, demand for general metal packaging (diversified cans and aerosols for the food, household, industrial, personal care and paint markets) was depressed in the second half of the year. In Kenya, trading conditions were challenging due to lower demand, highlighting the need for further cost optimisation. Similarly, in Tanzania, the competitiveness of the business was under pressure and towards the end of the year we launched an initiative to rationalise business operations.

In Zimbabwe, profitability improved although volumes declined, the result of weaker demand and an inability to secure enough raw materials due to foreign exchange shortages.

Outlook

In Angola, we are converting Bevcan's tinplate line to aluminium, and adding capability to produce slender cans. This will be fully funded out of local cash balances. We will monitor the impact on demand of the implementation of new consumer taxes early in our financial year. In Nigeria, we continue to consider investing in a second beverage can line.

The termination of Nampak's technical agreement with Crown Cork at the end of 2019 lifts the restriction of our beverage can business to selected countries in sub- Saharan Africa, opening up more opportunities for Bevcan to grow in other geographies. We decided to terminate the longstanding agreement, and equipment manufacturers now provide the technical support we require. This saves us roughly US$4 million a year.

In Nigeria, DivFood's investment of approximately R100 million in our first food can line in the country will continue. We expect commercial production in around March 2020. In Zimbabwe, we are well positioned to take advantage of any improvement in economic conditions, when they occur.

In Kenya, we will launch further cost-containment initiatives to improve the profitability of the business. The Tanzania business will complete the implementation of a significant cost rationalisation initiative in the last quarter of the 2019 calendar year to improve the cost base of the business.