Nampak’s rise from the ashes

The packaging group’s shares have more than doubled since last year under its frugal new CEO. But Phil Roux isn’t making out like a bandit, thanks to a tough executive pay package.
6 mins read

The meeting was over and all but a few stragglers had headed off into the late afternoon Cape Town traffic. They included the CEO, the key controlling shareholder A2 Investment Partners, and a journalist.   

It was late February 2024 and Phil Roux had just presided over his first Nampak AGM as CEO. His can-do attitude had made an impression; after years of energy-sapping affairs, there was a buzz among shareholders and analysts.  

At the close of the meeting, shareholder activist Chris Logan of Opportune Investments described Roux as “a total breath of fresh air” and said he believed that shareholders would soon be able to see evidence of operational recovery at the once-dominant packaging group.  

Nampak had been trapped in an existential crisis for the previous decade or so, seemingly unable to shake off its crippling debt or push through a much-needed restructuring. By 2020 the group had built up a R6.3bn debt mountain; its market capitalisation had collapsed to just R621m and it recorded a towering R4.3bn operating loss. A culture of arrogance and excessive pricing had allowed competitors to take large chunks out of its crucial South African markets.  

“They tried to be everything for everyone,” Rowan Goeller of Chronux Research tells Currency.  “It was typical of the monopoly-type business it had become accustomed to being.”  

The problems weren’t only on the local front either: years of aggressive and costly expansion into Africa had resulted in debilitating levels of US dollar-based debt and a distracted group leadership. While the move into Africa had preceded Tito Mboweni’s 2013 appointment as chair, after the former Reserve Bank governor took up the helm the process moved into overdrive. The board seemed phlegmatic about mounting foreign exchange losses and during the 2016 AGM Mboweni stressed that Nampak was committed to the African growth story. “There are still huge opportunities. Africa’s time still has to come,” he told shareholders.  

It was a view shared by many South African executives at the time. But while African markets were vibrant, they were nerve-rackingly volatile, with frequent barriers to the repatriation of profits.  

With the 2024 AGM over and all the big and small talk spoken, Roux drifted to the back of the room where tables remained laden with delicious food. He was evidently irked and started to busy himself with finding out what was going to happen to all the leftovers. It’s fair to say there had been some overcatering. Perhaps someone in the catering department of this reasonably swanky hotel had heard “AGM” and assumed they were dealing with something akin to Anglo American circa 1980.   

Roux was evidently troubled by the prospect of waste; worse still, that Nampak would be billed for it. He seemed only to relax when he was assured the food would not be trashed.  

Time for a turnaround 

Frugality, it seems, is Roux’s default setting. And in the eight months since the AGM it has evidently also become Nampak’s default setting; no easy task given the profligacy that characterised the corporate offices of the conglomerates that once dominated South Africa’s economic landscape.  

Remarkably, and almost without precedent in the corporate world, this frugality has extended to Roux’s own remuneration. He has had to plough R4m of a R5m sign-on bonus into Nampak shares. In addition, the issue of a chunk of shares to him and CFO Glenn Fullerton was considerably more conditional than the shares doled out to other “rescuers” such as Woolworths’ Roy Bagattini and Pick n Pay’s Sean Summers. But more of that later.  

Gutting annual head office costs of about R2bn was just one part of the massive challenge facing Roux and his management team as they implemented “a comprehensive turnaround plan” – an ambitious strategy that has included extensive board and management changes, a business model review, a capital and debt restructuring programme, a rights offer and the adoption of a new outlook focused on Nampak’s core metals business.  

Goeller, who has authored an extensive and upbeat report on the group, notes that some of the initiatives were under way before Roux was appointed but that not much had been happening. “Phil has really moved the process along,” he says.  

At the end of September, before the group entered a closed period, an update released to the market confirmed the steady progress being made. The requirement to repay R720m of net debt from disposals has been achieved through the finalised sale of the liquid cartons businesses in South Africa, Zambia and Malawi, as well as the rigid plastics business in South Africa. Other assets classified as discontinued operations are still in the process of disposal or closure.   

In September Roux and the team also successfully concluded the refinancing of the group’s complicated funding structure, which has cut exposure to foreign debt to a minimum.  

Right now, the only hurdle between declaring the old Nampak dead and embracing what Goeller calls New Nampak, is the sale of the Nigerian beverage business. It’s a significant issue: Bevcan Nigeria accounts for R1.3bn of the total R2.1bn asset disposal programme. The last remaining condition for completion of the sale is approval by the Nigerian Federal Competition and Consumer Protection Commission. It was expected by end-September but, as we all know too well, decisions by regulators tend to be later rather than sooner.  Unfortunately, until, and unless, that approval is forthcoming there is always the chance the buyer will walk away. This would leave Nampak with a problematic Nigerian business that could distract management from its new core strategy. It is a risk that Roux has highlighted.   

Richard Cheesman of Urquhart Partners describes the 2013 acquisition of Alucan Packaging in Nigeria as probably one of the worst done by Nampak, made considerably worse by the use of US dollar debt. He says a sale would be excellent, “but it needs to be completed”.   

Says Goeller: “New Nampak is premised on focusing on South Africa.” While he acknowledges there will still be operations in Angola and Zimbabwe, he says Roux is in no rush to exit these countries.  

Any holdup in Nigeria would certainly be disappointing but would not fundamentally change Chronux’s bullish forecast. After considerably better-than-expected interims (for the six months to end-March the profit from continuing operations was R395m compared with a loss of R878m in the comparative period), Chronux upped its forecast to R543m net attributable income for financial 2024.  

The operational turnaround was not only well ahead of expectations, said Chronux, it was also happening quicker than expected. And it was evident that customers were returning. As early as July Chronux was forecasting a Nampak share price of R400. At the beginning of October the share was briefly trading at a high of R468.  

A generous discount 

Which brings us back to Roux and Fullerton and the plan to issue them shares in a bid to align their interests with those of the “qualifying shareholders” who subscribed for the September 2023 rights issue pitched at R175.   

Having bought 23,400 Nampak shares with R4m of his R5m sign-on bonus, Roux was entitled to an additional 91,429 at R175 a piece. Fullerton was to get an additional 57,143. The plan was set last September but what with one thing and another, including a massive cybersecurity attack early this year, nothing was done until early September 2024. A circular, complete with a fair and reasonable opinion, was sent to shareholders, 75% of whom needed to approve a resolution to allow for the specific issue of shares to the two executives as well as financing.  

But by September, the share price had topped R400 – or R225 more than the price at which the shares were to be issued to Roux and Fullerton. The gap could be viewed one of two ways. As the board saw it, this validated their belief in the incentivising impact of the share allocation. However, some shareholders might have puzzled over the appropriateness of gifting the executives the shares at such a generous discount. Those shareholders might comprise the 11.24% of Nampak investors who voted against granting the authority to issue the shares at the general shareholder meeting in mid-October. What’s more, 8.6% of shareholders also voted against the company lending Roux and Fullerton the money to pay for the shares.   

In the opinion of the independent expert, the rights issue was unfair – because of the discount – but reasonable for the Nampak shareholders. Compared to many other “sign-on bonuses” the deal seemed both reasonable and fair.  

Few would challenge the view that Nampak is on the recovery path thanks to Roux and Fullerton. There’s also the fact that both are on the line for the money lent to them by the company; no small consideration given that Nampak is not yet out of the woods. All in all, it’s as close to frugal as you get in the world of executive remuneration.  

Piet Viljoen of Merchant West Investments doesn’t describe it as frugal but says it has all the hallmarks of an incentive scheme designed by investors who are working with their own money and not other people’s. As for Logan, who’s waited for more than a decade for signs of improvement at Nampak, he’s finally seeing proper alignment between executive rewards and value creation.

Top image: Nampak CEO Phil Roux

Ann Crotty

Winner of just about every financial journalism prize going, Ann has kept the business sector on its toes for years. Uncompromisingly independent, if there’s a shady executive pay plan out there or shenanigans a company is trying to keep hidden, Ann will find it.

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