At-home booze consumption drives global demand for Nampak's cans

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Nampak has seen an increase in demand for its beverage cans
Nampak has seen an increase in demand for its beverage cans
  • Nampak says demand for its cans has grown sharply in North America and Europe, due to Covid-19 lockdowns.
  • Home consumption has fuelled an already growing demand for environmentally friendly aluminium cans and Nampak has been priming itself for growth in sustainable packaging.   
  • Though it's taking advantage of the aluminium beverage can boom, the group is still focused on its balance sheet, which doesn't look too great.

Nampak, Africa's biggest packaging manufacturer, is enjoying a surge in demand for its aluminium beverage cans as booze drinkers take their favourite drinks home - in a can.

The group, which makes the cans for a range of beverages such as liquor and carbonated soft drinks, said home-consumption demand for the cans has grown sharply in North America and Europe, due to Covid-19 lockdowns. The cans are a particular favourite with beer producers and demand has outstripped supply in those regions. 

Last year, the group announced that it had won two substantial renewed contracts for the export of its beverage cans to multinational companies. The packaging company's CEO, Erik Smuts, told investors at its annual general meeting (AGM) on Tuesday that the contracts resulted from the increase in home consumption, especially in North America.

"At the moment in the US, they are ready to take on additional capacity to service the long-term trend. But, of course, we are benefiting from the short-term trend," Smuts said.

In South Africa, he said the trend had "sadly failed" to take off due to the hard lockdown and the ban on the sale of alcohol, but that could change because consumers appear to be preparing themselves better for more dry days.

"It appears as if consumers are starting to deploy different strategies against potential alcohol bans. We have seen a trend of people starting to stock more product when they see the [Covid-19] infections rising and we do have a suspicion that we are seeing the benefit of it," Smuts said. 

Priming for growth

Home consumption has fuelled an already growing demand for environmentally friendly aluminium cans versus plastic packaging and Nampak has been priming itself for growth in sustainable packaging.   

Research by US-based aluminium packaging company Ball Corporation places global demand for beverage cans at more than 100 billion units by 2025.

Although it is positioning itself to take advantage of the aluminium beverage can boom, the group is still focused on balance sheet, which has not been looking its best. Nampak has operations in 11 African countries, including South Africa, and produces plastic and paper packaging in addition to metal packaging.

But its performance has been dragged down by macroeconomic volatility in its operations on the continent - particularly in Angola, Zimbabwe and Nigeria - and it has a R6.2 billion debt pile, up from R5.5 billion in 2019. The group, whose share price closed at an increase of more than 4% on Tuesday, after the AGM, has seen its stock decline by more than 82% over the past five years.

No more big investments, for now

Smuts said Nampak will not be making big investments on the continent until it has secured its balance sheet. In response to a shareholder's question about whether the packaging company is looking at the China and India markets for growth, Smuts said "not quite".

"We have absolutely no intention to invest in China; it is a very low-margin environment, none of the can makers have really been successful there," he said.

The CEO added that China has a large number of small, independent players and Nampak has not seen the big can manufacturers find success in that market. 

"[In] India, on the other hand, there have been a number of can makers that invested … and it's still not a big market," Smuts said.

He explained that India is a difficult market to operate in because of the legislation between all the different areas of the country and Nampak would not consider investing there "immediately".  

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