“Obtaining BRC accreditation at our Cape Town Ndabeni site is another significant step forward in turning Nampak Flexible into a world class business. Following our Kwazulu-Natal plant’s certification in April last year, Nampak Flexible is the only flexible packaging company to achieve BRC accreditation at all its operations and one of very few if any packaging companies in South Africa to do so.” – say’s Moore.

Moore adds that through standards such as BRC, along with the ISO (International Standards Organization) and AIB (The American Institute Of Baking) certifications already held by Nampak Flexible, the company aims to consistently meet and exceed the exacting quality standards and expectations of its customers.

Peinke gives her thoughts below on what is needed for South Africa to become a viable manufacturing destination:

The 2010 Budget speech saw government commit to financially support an industry-specific policy for the first time. This was expressed in the allocation given to the Industrial Policy Action Plan, or IPAP2. Previously, government has been reluctant to invest in specific projects and preferred to allocate funds to government departments for them to administer according to their mandate requirements. Therefore reports that there is a difference in opinion between the DTI and the Treasury does not augur well for the implementation of the IPAP2. One of the main issues identified by the current administration, and the reason for the creation of a new government department, the Department of Economic Development under Ebrahim Patel, is ensuring policy coherence and coordination between various government departments.

Finance Minister Pravin Gordhan has also emphasised that in order for the manufacturing economy in South Africa to flourish, the country would have to remain open to international competitiveness. This has caused a lot of debate and criticism, in particular from COSATU and other labour organisations. However, a number of sectors in the local economy would not even exist if it weren’t for multinationals who have established local manufacturing/ assembly plants. A case in point is the automotive sector, which would not exist if it weren’t for companies such as Volkswagen, BMW, Toyota and Ford. These companies provide the demand for local component manufacturers, as well as provide employment for a significant number of people. Without these companies, the industry would collapse, and this would have serious implications on the manufacturing sector.

Frost & Sullivan is of the opinion that there is certainly a valid argument for the implementation of a point matching system. It will provide local manufacturers with the assurance of a predictable government tender procedure. In addition, this doesn’t bias the system and detract from investment potential in the manufacturing sector. However, if a local company can provide the right products of the correct standard and quality, why shouldn’t they be awarded the tender?

Government and labour have to acknowledge that in some sectors, companies are forced to import components and products from overseas companies since they are cheaper, and meet the required quality standards that the local manufacturing industry cannot provide. Certainly, Minister Ebrahim Patel’s proposed import tariff increases could help strengthen procurement from local companies. However, this is not the answer for all sectors. If forced to do so, some companies will also continue to import goods at higher prices, with a result of increased manufacturing built-in costs for the consumer. Import tariff quotas could however be beneficial in reducing the high number of imports in sectors such as clothing and textiles, electronics, capital equipment and pharmaceuticals.

Frost & Sullivan’s proposed solution to this debate around state tender prices and import tariffs is a local content policy. This policy would require locally-based multinationals to employ a certain percentage of locals in their workforce, and procure a certain percentage of local goods used in their manufacturing process after a certain period of time. Where these needs cannot be met by local industry, by all means allow them to import, or establish facilities for the development of these local companies. This will still enable an investment-friendly environment, while meeting the local needs of labour, the private sector and government.

In summary, the main point that needs to be emphasised is that government and industry cannot afford a delay in the implementation of IPAP2 or any other industrial policy initiative for that matter. Our economy is already under severe pressure to compete in a largely knowledge-driven global economy, and increasing pressure from developing economies i.e. BRIC countries. If we don’t pull together and aim to increase manufacturing competitiveness immediately, there won’t be a sustainable industry to support.

www.frost.com

He said the icons and hero shots developed for each section of the menu had already proved extremely popular and had done a “big selling job” for Ola Milky Lane. They perfectly encapsulated the carefree, fun lifestyle associated with Ola Milky Lane plus its far wider menu offering – donuts, a wide variety of savoury treats and Java Heights Speciality Coffees – have been added. Up until recently, the brand’s core market was families. Now its appeal is wider and includes growing numbers of teens hanging out in Ola Milky Lane’s cool outlets, as well as busy executives who can plug in their laptops and enjoy a treat at the same time. “The new store look needed to communicate the energy of the brand without being pretentious. The environment needed to be fun, lively and welcoming – a place to treat yourself and those for whom you care.  Ola Milky Lane is about indulgence, although it is definitely not over-the-top,” Sandras explained.

Den Hoed described her role as taking the icons and graphics and giving Promise Brand Specialists the space within which to work. Icons were taken through to new wallpaper design and lampshades. Hero shots re-emerged on in-store posters, including those used to advertise in-store promotions. Attention-grabbing product images and the fun icons appear on new back lit display boards and counter fronts. Den Hoed said that because these were at entrances and formed the business hubs of outlets especially when it came to takeaways, the design aimed to give “as much light and life as possible”.  She said the overall concept was to ‘warm up’ the interiors of outlets.  “Instead of completely remodelling Ola Milky Lane restaurants and kiosks, we decided to retain familiar objects to which customers could relate. We wanted to keep a familiar feel and then to use graphics to push the brand as much as possible.”

An example is the use of cheeky phrases on store walls and bulkheads above counters. Until recently, they have been kept fairly simple. Den Hoed selected furnishings ranging from bench seats to round tables and poufs to divide up the space and emphasise interaction which is central to the Ola Milky Lane eating experience. Although she used the bright colours that are inseparable from the brand image, she replaced white tiles with beige ones to minimise stark contrasts and do away with the ‘canteen feel’ of old.

For more information on Ola Milky Lane, visit www.olamilkylane.co.za

“This is a significant investment for the Sasolburg plant and demonstrates our commitment to our South African asset base.  It is in line with Sasol’s strategy to leverage our advanced proprietary technology and is also aligned with our longer-term plans significantly to grow the chemicals businesses of the Sasol group,” said Andre de Ruyter, group general manager, chemical cluster in his address at the ground breaking ceremony.

De Ruyter said: “2010 will be a memorable year for South Africa and Sasol. The World Cup brings excitement and growth to the country. Similarly, the expansion programme will bring growth to Sasolburg, Sasol Wax and Sasol’s customers and stakeholders.”

The Wax expansion project is estimated to create approximately 3 500 job opportunities during construction and between 70 and 100 permanent positions.  All vacancies for contractors during the building phase will be handled by the local offices of the Department of Labour in Sasolburg.

“We are following a holistic approach in the implementation of this project,” says Stephan Schoeman, newly appointed managing director of Sasol Infrachem. “The communities around our plant must also feel the benefit of the project. Sasol believes that local people should enjoy preferential employment opportunities, subject to the applicants meeting the requirements of the job. All unskilled and semi-skilled labour will be sourced within a 30km radius around Metsimaholo in the greater Sasolburg area”.

The commencement of the expansion programme in Sasolburg coincides with the 60th anniversary of the founding of Sasol Limited in 1950. Sasolburg, the first Sasol plant, has seen significant changes since it was first built. Although it is the plant where  Sasol’s proprietary Fischer-Tropsch technology that converts coal to liquid synthetic fuel was developed, the plant now uses only natural gas imported via pipeline from Mozambique as its feedstock.

In addition to producing chemicals like wax, Sasolburg is the site of the Sasol Technology business that manages Sasol’s research and development, technology management and innovation.

“The downgrades reflect our view of the implications for Foodcorp’s
leverage of the primarily debt-financed buyout, on March 9, 2010, of the
69.73% controlling shareholding formerly held by Pamodzi Investment
Holdings (Proprietary) Ltd. (Pamodzi),” said Standard & Poor’s credit
analyst, Philip Temme.

“Pamodzi’s stake has been purchased by a consortium comprising
management and a staff trust (who now own 51.0%), U.K. fund manager Blue
Bay Asset Management PLC (44.4%), and South African private equity
investor Capitau SA Partnership (4.6%). The downgrades also reflect our
view that Foodcorp’s liquidity has been weakened by cash outflows
associated with the buyout and by the significant cash costs associated
with the recent foreign exchange hedge re-strike.”

The buyout of Pamodzi was effected through an investment by Foodcorp in
South African rand (ZAR) 111.9 million of preference shares issued by a
new holding company, and the issue to BlueBay and Capitau by that same
company of ZAR495.5 million euro-denominated payment-in-kind (PIK) notes
and ZAR30 million PIK preference shares.

Lease- and hedge-adjusted net debt to EBITDA was 5.8x and adjusted
EBITDA interest coverage 1.9x in November 2009. Consolidation of the new
PIKs increases pro forma adjusted leverage well above 6.0x, even after
allowing for the positive leverage effects of the recent foreign
exchange hedge re-strike. Given that Foodcorp is currently projecting
higher capital expenditure (capex) of ZAR248 million in financial 2010,
future deleveraging ahead of the bond refinancing due in 2012 is likely
to be limited in our view.

We now consider Foodcorp’s liquidity to be less than adequate. Although
the company has secured an increase to ZAR200 million from ZAR50 million of its committed Nedbank working capital facility, availability and
headroom under the covenants for the other ZAR100 million facility are
tightening, and the company anticipates increasing capex year on year.
Consequently, we anticipate that cash held at the financial year-end in
August 2010 will be significantly lower than in the prior year, leaving
Foodcorp with less room for maneuver in the event of adverse
working-capital developments.

In our view, operating performance will remain satisfactory as South
African consumer demand continues to recover from the recession.
However, we anticipate that margin recovery will remain only gradual and
that Foodcorp’s net adjusted leverage will remain above 6.0x at
financial year-end 2010.

We would view adjusted leverage of about 6.0x and high single-digit
EBITDA growth as commensurate with the current ratings. Any evidence of
liquidity stress or slowing EBITDA growth could trigger a change of
outlook or a further downgrade.

CEO Mike Allan and his team were put through the ringer in 2009 with an absolutely torrid year for smaller consumer businesses and it showed in the interim  results that were released yesterday.

Salient numbers for the six months ended 31 December 2009:

Turnover:            Declined from R38m to R28.5m
Operating loss:            R69000
Net loss:            R1.3m
Cash & cash equiv:        Decreased by R800000 to R7.6m
Net asset value per share:     1.95c (trading at 2c)

All in all some grim numbers but if you drill a little deeper there were one or two figures which need to be watched a bit more closely:

Cash flows from operating activities: Swung from a negative R4.7m to a positive R1.4m
Short-term borrowings: Down from R17m to R2.6m
Gross profit margin: Stayed stable year on year

We believe that the improvement in the operating cash-flows are the first signs that the business is turning although we have some concerns that there may need to be some form of capital injection in the coming months unless operating conditions improve. The group has said it expects to be profitable by June 2010.

Plan unfolding
Our key takeaway in 2008 was that management needed to show they had a plan and in follow-up interviews with Mike Allan we were convinced that the group had in fact worked out a sustainable turnaround strategy, even if some of it was a bit touch-and-go given the operating environment.

This was evident in:
A) Clear-cut strategy around reducing manufacturing and packaging costs
B) Improved cash flow
C) Identifying and “fleshing out” their cornerstone brands – BioHarmony and Muscle Science

An important point to highlight for the firm was that in 2009 there was no build-up around the Patrick Holford / BioHarmony product lines as had been experienced in 2008. Wellness guru Holford did not come through to South Africa which meant that BioHarmony lost out on its key anchor marketing tool for the year.

On this front, Allan commented: “Bioharmony`s 13-part television series `Naturally You`, featuring Patrick Holford, is a first for the nutritional supplement industry in South Africa and initial indications are that it is indeed having the desired effect.”

Other moves taken by management to over the year to rejuvenate the company include:

• Xplode launched as a brand with ready-to-drink beverages and shots
• Staminade launched as a brand with ready-to-drink beverages and bars
• Muscle Science re-launched in new packaging and re-formulated
• Muscle Science bars launched
• Herbology, re-formulated and re-branded, has increased its listings into additional customers

Conclusion
We make no secret of the fact that we are fans of this company in the long run and that we intend to add to our shareholding here.

When Allan spoke to ManufacturingHub.co.za last year he looked tired and it was apparent that the tough economic conditions were taking their toll. However he came across well and it was apparent he was working to a plan.

We conclude that the turnaround at Bioscience is well underway and remain upbeat about the prospects for the group going forward.

He says one of the key reasons for farmers being underinsured is the rapid rise in the cost of agri-processing equipment, vehicles and assets in recent years as technology and functionality have both improved.

“Some modern harvesters can cost as much as R4 million. This means that farmers who are using older equipment do not take into account the replacement cost of their equipment.”

He adds that many farmers also tend to undervalue their building structures, partly because they are simply unsure of what they have and what they would cost to replace.

Smit says affordability is another reason for farmers being underinsured. “While the last few years have put a strain on most people’s finances, farmers have felt the squeeze more than most with around 70% of their input costs, such as fuel and fertiliser, being imported and therefore subject to fluctuations in the rand exchange rate. Unfortunately, when things get tight, insurance is often one of the first expenses to be cut.”

Smit says it is a good idea for farmers to ask their broker to carry out a risk survey, which will identify the specific risks to each farm. “This could assist farmers who are financially strapped to ensure that they are at least covered for the most likely risks.”

“It is crucial that any farmers struggling to cope financially take the time to talk to their broker to discuss how they can reduce premiums, rather than cancelling their policy. Options such as increasing the excess on a policy may seem undesirable, but it is far better to pay a higher excess and still be insured than risk facing complete disaster.”

Request a free insurance quote for your business via the ManufacturingHub.co.za business insurance tool – click here

That’s the view of the ManufacturingHub.co.za team who believe that unlike listed food group Pioneer, Sasol will not only learn but continue to innovate in the coming years.
Much has been made of Sasol running foul of competition authorities in both South Africa and Europe. These events have not only hit the business in the pocket but has also negatively impacted on the social image of the firm and weighed on it from an investment perspective.

“We took a huge amount of pain and frankly, we are quite happy the last year is behind us,” said chief executive Pat Davies in presenting financial results for the firm today.

Davies went on to say: “But with all pain comes some growth. This organisation is a better, more compliant, more aware organisation given the trauma we went through in the last year.”

The “trauma” itself isn’t entirely over either with both management and shareholders both awaiting investigations into anti-competitive behaviour in piped gas, petroleum, fertiliser, wax and polymer industries. However in our view, this pro-active approach from management will see it move on from these issues with minimal fuss.

The trigger is innovation
While many analysts and market commentators will point to the impact of the rand and the oil price on Sasol, we would argue that in fact its biggest trigger for success is its ability to innovate across its business units.

Sasol has world class technology and has a long-standing culture of innovation. Simply put, the company cannot be viewed as simply an oil company which is planning to benefit from old school production of fossil fuels.

Instead it should be viewed as a technology company which sits on the cutting-edge of the energy market.

Anecdotal evidence of Sasol’s ability to innovate can be seen from its forward thinking approach to the engineering skills shortage as well as anticipated electricity supply problems.

Ten years ago Sasol recognised that there was a skills shortage coming in key industries and began to rapidly deploy its own internal resources to develop its skills base. Sasol is no longer dependant on the South African education sector for good people.

Under Davies’ management Sasol recognised three years ago that there was a power crisis coming and once again deployed its own resources to begin looking at becoming partially self-sufficient from an energy perspective. In fact they may ironically even be able to sell energy back to Eskom in the coming years.

This should not be forgotten when you consider how many South African companies are simply paralysed by the thought of Eskom price hikes.

More to do
We started this article by saying that Sasol’s ability to innovate would trump its social indiscretions, that should not be interpreted as management riding roughshod over stakeholders.

The change in the makeup of the shareholder base is likely to be a catalyst for improved corporate governance and more socially responsible shareholder values in coming years. Investors such as Element Asset Management and a number of the Islamic and Shariah funds are likely to keep the shareholders honest and despite a tongue lashing in 2008 from Inzalo shareholders, Sasol has continue to engage these stakeholders.

In conclusion, we see Sasol as the cornerstone of the South African economy for many years to come and stakeholders need to look beyond near-term competition issues to recognise long-term value.

“In East Africa, countries including Kenya, Tanzania, Rwanda and Uganda are believed to enjoy substantial commercially viable deposits. In an effort to encourage discovery and production, which in turn will contribute to the tax revenue base, the governments of these nations are, through tax breaks, incentivising companies to conduct operations,” says Kinuthia.

It is anticipated that Kenya will strike oil by April 2010, the result of the activities of the China National Offshore Oil Corporation in the country’s northern reaches. The company is licensed to explore other basins in Kenya including the coastal region which is estimated to have a potential of producing around 100 million barrels of crude oil and 600 billion cubic feet of natural gas.

With some of the world’s most extensive known deposits of methane gas Rwanda has several projects underway for its exploitation and conversion to electricity. This deposit, Kinuthia adds, indicates the possibility of oilfields beneath or adjacent to it.

Classified as ‘underexplored’ but endowed with diverse energy sources including biomass, natural gas, hydropower, coal, geothermal, solar and wind power, Tanzania shows strong hydrocarbon potential in its oil industry sector. “Leaders and experts in the Tanzania energy sector have expressed optimism concerning the potential for discovering oil. Current reports indicate that over 20 international oil companies are concentrating on various inland and deep sea drilling projects,” says Kinuthia.

Meanwhile, oil companies have recently found more than 700 million barrels of commercially viable oil in western Uganda, which may soon put the country among major Africa’s oil producing nations.

Notably, explains Kinuthia, while oil companies prefer to export the oil to recoup investment costs quickly, the Ugandan government is insisting on beneficiation inside the country to ensure a greater share of the profit remains while bringing an end to reliance on imported fuel.

Turning his attention to the taxation structures which are typically in place in these countries, he says in Kenya, incentives for oil and gas companies include levying of the standard resident income tax rate of 30%. “There is no ring-fencing in the determination of corporate tax liability, while depreciation expensing is provided for in terms of wear and tear for plant and machinery necessary for exploration.”

Income tax losses can be carried forward for five years. “However, the Commissioner can extend the period if there are acceptable reasons for recurring losses.  Tax losses, however, cannot be carried back,” Kinuthia adds; VAT relief is extended for exploration and prospecting companies.

In terms of taxation, he explains that, as in Kenya, Tanzania resident corporations are subject to income tax on their worldwide income at a rate of 30%. Again, there is no ring-fencing in the determination of corporate tax liability. Expensing of capital exploration costs is executed on a straight line basis at a rate of 20% of capital allowance. “Income tax losses can be carried forward indefinitely while tax losses may not be carried back. The low-royalty regime requires that onshore project royalties are levied at a rate of 12.5%, while offshore project royalties are levied at a rate of 5%,” Kinuthia explains.  VAT relief is extended for prospecting companies.

Kinuthia points out that with heightened activity and interest in the oil and gas industry in East Africa, organisations conducting business in the region require sound advisory and guidance to take advantage of the tax peculiarities. “With an extensive presence across Africa and intimate knowledge of the shifting taxation landscape, Ernst & Young has the resources and insights to support these companies.”

Key numbers for investors include:

• Headline earnings per share decreased by 51% to R10,67
• Interim dividend increased by 12% to R2,80 per share
• Operating profit of R10,5 billion declined by 51%
• Cash flow generation by operating activities down 70% to R9,2 billion

Operating profit was negatively impacted by lower average crude oil prices (average dated Brent was US$71,42/barrel in 2009 compared with US$84,75/barrel in 2008) and chemical product prices, as well as a 14% stronger average rand/US dollar exchange rate (R7,64/US$ in 2009 compared with R8,88/US$ in 2008). The average oil price achieved during the prior year comparable period was positively impacted by the effect of the oil hedges which resulted in a net gain of R5,1 billion.

The company said it had not entered into similar oil hedges in the current trading year.

Key projects

Sasol management outlined some of its key projects for the year including:

Developments in the sustainable development area including:

• In November 2009, we signed a memorandum of understanding with Gassnova SF, a Norwegian state-owned enterprise responsible for managing carbon capture and storage (CCS), which will allow us to explore the possibilityof becoming a participant in the European CO2 Technology Centre Mongstad, currently under construction in Norway.

Developments on the project front include:

• In December 2009, the Project Application Report for the China coal-to-liquids (CTL) plant was submitted to the Chinese Government for approval. Applications will also be submitted for the mines and catalyst plantsrequired for the project during the 2010 calendar year.

In line with the strategy to acquire natural gas assets for potential GTL feedstock, progress has been made in three areas:

• In November 2009, SPI acquired exploration rights for two offshore licenses in Mozambique adjacent to the offshore Block 16/19, namely Sofala and M-10 in which SPI holds participating interests of 100% and 50%, respectively. Success in these areas will allow for the possible development of the entire area, including Block 16/19.
• In December 2009, SPI signed a Farm-in Agreement with Finder Exploration Pty Limited for a 45% participating interest in Block AC/P 52 situated in the gas-rich Browse Basin of the North Western Shelf of Australia. This transaction was approved by the Australian Governmentin January 2010.
• SPI submitted a joint application with Statoil ASA and Chesapeake Energy Corporation, in November 2009, for an onshore petroleum exploration right in the Karoo Basin in the central region of SouthAfrica. The application, for the proposed exploration of shale gas resources, is expected to take about 12 months to process.
• In South Africa, coal blasting and extraction of the 170 000 ton sampleof coal on Project Mafutha (a proposed greenfields CTL facility) commenced in November 2009. Coal gasification trials are planned for the middle of the 2010 calendar year. The cost thereof is included in the R1 billion already committed for the pre-feasibility study.
• Sasol Wax will invest R8,4 billion to double hard wax production at our Sasolburg facilities in South Africa. The first phase of this project, which will increase capacity by about 40%, will come into operation during the 2012 calendar year. Completion of the second phase is expectedin the 2014 calendar year.
• Sasol Solvents commenced basic engineering for the first commercialinstallation of its tetramerisation technology in the United States. The initial commercial unit will have a combined capacity of 100 000 tons perannum of 1-octene and 1-hexene which are co-monomers used in the plastics industry. Construction is expected to begin in the 2011 calendar year.