We closed our packaging manufacturing business down 2 months ago and have not regretted that decision. We had no debts unlike everybody else it seems and legitimately called it a day as the writing was on the wall where the economy was heading. If we had carried on we would have incurred debt and I don't feel comfortable owing money. Nampak who are a huge South African manufacturing giant in the same type of industry are having serious financial issues. The bigger companies are feeling the economic downturn and in many ways are going to feel it far more than smaller companies. They are a household name mixed up in so many industries I can see them being broken up and taken over. They are actually a good business if run correctly. Who knows maybe the Chinese will grab it for a bargain price as it would be a ripe investment.
Nampak are in multiple African countries as they were expanding and is most likely what has cost them at the end of the day.
Share price is down 90%, CEO resigns, selling manufacturing plants outside SA borders and job losses tells it's own story. Throw in a R6 billion debt knowing they have incurred 40% of that within the last year and you are staring bankruptcy head on.
Over the last 5 years they have incurred R6 billion in debt which is 12 x more than what the current value of the company is. My question is how are they still in business as that is bankrupt in my book or I maybe missing something here. When you owe more than you are worth even if the share price recovers you are still bankrupt.
Surely a business in so much debt is not sustainable as suppliers supplying them with raw material must be worried. When a big company hits the wall there are so many repercussions as there are plenty of casualties all intertwined with the services they provide.
The latest stats by business SA reveals that liquidations/bankruptcies are up increasing by over 30% each year. Currently bankruptcies are rising by 18% month on month which is a shocking statistic. The more worrying signal is bankruptcies are a lagging indicator meaning things are going to get worse.
The problem we had as a business was not just the load shedding disrupting the manufacturing but the minefield of supplying companies in worse financial positions than yourself. Chasing bad business is what many are doing as being honest the majority of companies are not financially stable.
There was a major shift 2 years ago when many of the larger companies moved their supplier accounts from 30 day payment terns to 60 or even 90 days. These companies supplying start becoming the bank for these bigger companies to exist as they use your cash to keep afloat. The hardest thing is to walk away from a profitable account, but this is the smart move. One client who we know very well questioned our decision as we pulled our business as we could not bank roll them for 90 days which is actually 120 days before you get paid.
The combination of higher interest rates, low growth, increased energy costs (18.65% April) and rampant inflation more bankruptcies are inevitable. We never supplied Nampak thankfully, but I bet they are one of those companies who are now on 90 day accounts which is unfair for those mixed up in this. I am not saying they wont survive, but with news of retrenchments and merging their factories they are downsizing which is not looking good.
Just because you are big it doesn't mean you wont fail as no one is immune. Many of these companies are run very badly and only when the markets turn do their short comings get found out. This is like trading crypto in a bull cycle compared to a bear cycle as strategies have to change accordingly.
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I'm glad that there was no debt unlike so.e other companies...
@tipu curate
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So sad. Whenever I hear any company have downturn, its very sad to sound but if a company have no debt then this is a great luck for them. Hope they will soon became able to bear the loss.