- El Niño-induced drought led to reduced demand for the company's paper-based packaging products
- Policy shifts and foreign currency shortages on the local auction market fueled raw material replenishment challenges
- Despite headwinds, the Group remains optimistic in the outlook
Harare- Nampak Zimbabwe’s profitability has been adversely impacted by the effects of prolonged drought conditions stemming from the El Niño climatic phenomenon according to its latest half-year financials. The Group's half-year profitability for fiscal year 2024 declined by 23%, decreasing from ZWL86 billion to ZWL66 billion.
This downward trend was attributed to the severe drought, which has resulted in diminished demand for the company's paper-based packaging products.
In addition to the climatic challenges, Nampak has also grappled with policy shifts and foreign currency shortages on the local auction market, which have exacerbated raw material replenishment challenges and further constrained sales volumes, thereby narrowing profit margins.
"Group volumes for the six months to March 2024 were 5% lower than the prior year, primarily due to reduced volumes at our Hunyani operations, which was impacted by the smaller tobacco crop as well as lower tobacco case orders from the region," stated Nampak's CEO, Van Gend.
He further elaborated, "Tight liquidity stemming from policy changes and the lack of foreign currency availability from the auction platform in the second quarter have adversely affected our ability to replenish inventories in a timely manner."
As a result, Hunyani Paper and Packaging experienced a 14% year-on-year decline in sales volumes, attributable to the reduced tobacco crop size. Regional demand also weakened, influenced by the broader drought conditions and competitive pressures.
In the Megapak plastics and metals division, sales volumes performed better, rising 10% above the prior year, despite the challenges posed by increased power outages in Ruwa, which were mitigated through the use of backup generators.
At CarnaudMetalbox, sales volumes were marginally higher compared to the prior period while the plastics segment, HDPE (high-density polyethylene) performed particularly well, with a 20% increase in volumes due to heightened demand.
However, metals volumes declined by 27% due to raw material shortages, particularly during the first quarter. Closure products also experienced a significant decrease in demand compared to the previous year.
Looking ahead, the Nampak Group anticipates maintaining profitability through the end of the fiscal year, although the slow recovery in global supply chains stemming from the Russia-Ukraine conflict and unrest in the Middle East may continue to impact raw material availability.
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