NAMPAK, Africa’s largest packaging group, is investing R1.6bn in two businesses that produce bottles and cans for the "growing" beverage market, the firm said on Friday.
The first investment will be nearly R1bn in a third furnace at its Germiston-based glass bottle business to improve overall manufacturing efficiency and enable it to supply a broader range of bottles. Commissioning of this furnace is expected by the end of this year.
The second is an investment of nearly R600m to add aluminium beverage can capacity and convert existing lines from tin-plate to aluminium production. Aluminium cans are fully recyclable, it said.
Sales of the additional production have already been secured through long-term supply contracts with key customers, but Nampak group investor relations and property manager Graham Hayward on Friday declined to identify them.
He said the new lines would be funded through existing resources, or debt. Nampak had a low level of gearing and a strong balance sheet.
"These two projects strengthen our position in the beverage-can and glass-packaging sectors in South Africa and show our commitment to growing the South African economy," Nampak chairman Tito Mboweni said at the group’s annual general meeting on Friday.
The company also provided a trading update for the first quarter ended December this year. It said there had been mixed demand for packaged products in the period.
"Hot weather in most parts of SA during the festive season resulted in good demand for beverage packaging, but demand for packaging for many other fast-moving consumer goods was subdued, and selling prices remained under pressure in a very competitive environment," Mr Mboweni said.
"Despite the challenging economic conditions in SA — where we generate some 70% of our revenue — we remain confident of a further improvement in performance in 2013."
Mr Mboweni said operations in the rest of Africa and the UK had "performed to expectations".
Kagiso Asset Management equity analyst Ross Heyns said in a report on the packaging industry written last month that over the past decade, SA’s domestic packaging companies had "significantly underperformed" other consumer-focused listed companies, and had failed to earn adequate returns on their substantial asset bases.
"This has largely been due to an increasingly concentrated and globalised client base that has placed significant pricing pressure on the packaging companies," he said.
Mr Heyns also said a number of structural shifts had taken place in both the global and local packaging industry, including the move to lighter packaging that was easier to transport. "These changes have prompted companies to focus strongly on innovation, with consequent additional capital commitments," he said.
But Mr Heyns said that companies such as Nampak and Mpact had "rationalised" their assets.
Both companies had increased their exposure to "growing markets and niche products", he said.