13 Dec 2021 Demand for energy drinks boosts Nampak back to profitability
Value for money prompts shift from soft drinks…
A demand for energy drinks is boosting Nampak’s beverage can operations as consumers shun less-sugary soft drinks in favour of cheaper energy drinks.
Speaking after the release of results for the year ended September 30, Nampak CEO Erik Smuts said its Bevcan operation in SA has noted a “significant increase in demand for energy drinks”, with virtually all of them in cans.
“Supplying cans for energy drinks is for Nampak now a very big portion of the portfolio. I can’t give you the exact number, but it is a significant portion of the volumes, and in cans it is probably bigger than soft drinks already. Most of the growth has been in the larger format cans.”
Smuts said he has been consistently surprised over the past few years by the uptick in demand for energy drinks in SA, adding that the trend had been noticed because “energy drinks are almost exclusively sold in cans and this is benefiting beverage can producers”.
He said a possible reason for the swing away from soft drinks is that a lot of energy drinks are at “very affordable prices, especially when in a 500ml can, so I think some of the soft drinks have possibly priced themselves out of the market and opened the door for people to move away from soft drinks towards energy drinks”.
“Now you can buy a 500ml energy drink for as low as R10. If you want to buy a soft drink you get only 300ml for roughly the same price.”
Another factor could be the reformulations in soft drinks due to the sugar tax.
“I think that the change in the formulation of soft drinks, with companies putting less sugar in them, could also have contributed. It seems people still like sugar. People are commenting that they have tasted some of these reformulated drinks that are supposed to be the “original taste” and don’t believe the taste is the same to them.”
A strong recovery
Nampak’s overall results show the packaging group has mounted a strong recovery, swinging back into the black with a profit for the year of R377m, compared with a nearly R4bn loss last year.
The group has also managed to lower its dollar-denominated debt from 65% to 41% of the total net debt of R4.7bn. Smuts said it aimed to get this down to about a third of the total.
He attributed the group’s comeback to a combination of factors, including a strong performance from its metals division driven mainly by its Bevcan operations in SA and Nigeria, as well as strong exports of aluminium cans to North America, which Smuts describes as a “nice cherry on top”.
At the same time the company reported that its DivFood division, which manufactures food cans, had been restructured and had contributed significantly to the return to profitability.
Explaining the increase in demand for aluminium cans in its Bevcan operations in SA, Smuts said “part of it is a normalisation of the economy as [lockdown] restrictions were eased”, as well as the move away from single-use plastics in favour of more sustainable aluminium cans and a general shortage of glass in the market.
The glass shortage was due to glass producers not being able to produce glass for alcoholic products during the hard lockdown imposed in April 2020.
“Where some volume would have previously been shared by glass and cans, we have enjoyed a higher share of these volumes over the last couple of years.”
The results indicate the recovery of the South African economy has “been stronger than we anticipated”.
“You can sense the caution still in the economy, but South Africa is not in dire straits and the economy is showing some robustness.”
Makwe Masilela, head of Makwe Fund Managers, said Nampak has experienced a “really good recovery bearing in mind that this time last year they had a loss of almost R5.30 per share and now they have a profit of 30c per share”.