Nampak battles drought, power cuts and competition

LISTED packaging products maker, Nampak Holdings Limited says its third-quarter performance to June 2024 was adversely affected by the effects of an El Nino-induced drought.

According to Nampak, group revenue for the 9 months to June was 10 percent down in USD terms compared to the prior year as the country recorded a poor tobacco crop output.

Nampak significantly provides packaging material for tobacco crop output and the group’s 2023 performance was significantly buoyed by an impressive tobacco output.

The cartons, labels and sacks division sales volumes for the third quarter were three percent down on the prior year due to reduced demand for tobacco paper wrap.

A relatively lower performance in 2024 has been compounded by power shortages and tight liquidity constraints following the introduction of the new ZiG currency.

However, to alleviate the negative effects of power outages, Nampak employed the use of generators although this resulted in the negative impact on the company’s cost base.

Furthermore, according to Nampak, the local operating environment remains uncertain given the ongoing liquidity challenges.

“The economic environment continues to show signs of strain with the El Nino-induced drought having had an adverse effect on the agricultural season.

Power shortages particularly at the Ruwa plant affected the operation resulting in the increased usage of generators to meet customer demand.

“The third quarter under review was largely affected by tight liquidity following the introduction of the new ZiG currency,” said Nampak group managing director, John Van Gend in the trading update.

However, the group said it will continue to focus on cost containment measures to preserve margins and improve profitability across all the businesses given the operating environment that remains uncertain owing to ongoing liquidity challenges.

Operationally, Nampak group volumes for the third quarter were two percent ahead of the prior year with most of the product lines higher than last year except for high-density polyethylene (HDPE) and commercial cartons which were affected by a slowdown in demand and increased competitor activity.

Under the printing and converting segment, Sales volumes at Hunyani Corrugated division for the third quarter were 2 percent down on prior year.

Sales volumes to the tobacco sector were 4 percent ahead of the same period last year due to early season deliveries.

The commercial carton volumes were 19 percent down on the prior year given the growing competition coming from

players offering products with lower price offerings.

However, there has been an improvement in the horticulture volumes and there is continued focus on developing this market.

Other commercial packaging was 7 percent up on the prior year due to improved demand.

Under the plastics and metals segment Mega Pak recorded a 11 percent in sales volumes up on the prior year.

Increased demand in the preforms category drove performance for the quarter despite reduced volumes in HDPE and closures.-ebsinessweekl