Projected low agric output to impact on NamPak performance

Listed packaging products maker, NamPak Holdings Limited’s volumes growth for the financial year 2024 (FY24), is expected to be modest at 5 percent on the back of challenges in the agriculture sector, according to analysts’ projections.

The growth may be lower than the anticipated 5 percent as the agriculture sector is seen battling a myriad of challenges among them the adverse impacts of climate change on the agriculture sector.

“The complexities surrounding the agricultural season, exacerbated by the El Niño phenomenon, are expected to hamper the company’s performance in the segment that primarily deals with bottling and packaging agricultural products,” said research firm Equity Axis.

“Considering these factors, Equity Axis estimates that Nampak’s volume growth in 2024 may be modest, projecting around 5 percent or potentially lower,” said the research firm.

Challenges faced by tobacco farmers and the anticipated economic slowdown all pose a threat to the group’s growth prospects.

“When assessing the growth prospects for Nampak in 2024, several factors come into play. It is important to consider the potential impact of external circumstances on the company’s performance.

“One notable factor is the challenging year expected for tobacco farmers, who represent a significant customer base for Hunyani Paper and Packaging, a key segment of Nampak’s operations. The difficulties faced by these farmers could have a trickle-down effect on Nampak’s business performances,” said Equity Axis.

The industry is not immune to the adverse impacts of climate change and the projected El Nino weather phenomena. Although the impact may not be as severe as initially projected statistics from the Tobacco Industry and Marketing Board (TIMB) show that as of 19 January, the number of registered tobacco growers declined to 113,161 compared to 147,867 growers during the same time last year. Of the registered growers, 93 percent are contracted.

For this season, farmers have called on an early start to the season to avoid storage losses with the TIMB.

However, Nampak’s management successfully implemented cost containment measures and operational efficiency during the past financial year.

This strategic approach has the potential to mitigate some of the challenges and contribute to a slight growth in volumes, as highlighted by Equity Axis.

The company has already indicated it will continue its focus on cost control and margin preservation in order to offset the challenges obtaining in the operating environment.

This will also minimize the adverse trials experienced during the financial year 2023 (FY23). The 2023 trading year saw a lot of complexities in the operating environment particularly around currency, inflation and power shortages.

For the current financial year, the operating environment is characterised by currency volatility, low disposable incomes, inflationary pressures and erratic utilities supplies.

Although the company has noted some volume growth, and improved demand despite these challenges, the adverse impacts of the projected El Nino weather phenomenon which could impact the agricultural season is also expected to weigh on businesses across sectors.

Nampak has also lamented the uncertain tax positions which impact on their business compounded with currency changes effected since 2018.

“These changes created some uncertainties in the tax treatment of transactions for tax purposes due to the absence of immediate and clear guidelines and transitional measures,” said the group.-ebusinessweekly