Nampak sees slowdown after Q1 boom

PACKAGING materials producer Nampak Zimbabwe Limited has projected a second quarter slowdown following robust growth in volumes and revenue during the quoted group’s first quarter ended December 31, 2020, citing COVID-19-induced lockdowns and depressed demand in the agricultural sector.

The firm reported a significant rise in volumes across its operating units — Hunyani Paper and Packaging, Mega Pak — after government relaxed a seven-month long lockdown in October as efforts to rebuild industries began in the aftermath of declining pandemic infections during the period.

But since the beginning of 2021, a more vicious second wave of the pandemic has paralysed the country, forcing government to announce an extension of the lockdown, which is due to end on Monday.

For group managing director, John van Gend, the lockdowns may signal depressed demand and a difficult second quarter.

“The performance gains made in the first quarter are unlikely to be sustained in the second quarter owing to the lockdown, the tobacco packaging off-season and lower seasonal demand,” Van Gend said in a trading update for the review period.

“The outlook for the rest of the year will depend on the success of the agricultural season, the possible impact of further COVID-19 lockdowns and the measures that the authorities take to tackle the macro-economic challenges,” Van Gend said.

Economic fragilities were still being felt in the final quarter of 2020, foreign currency and power shortages being the biggest drawbacks.

But volumes at Carnaud Metalbox rose 8% compared to the previous year, with metal volumes rising by 11% as demand for food cans and crowns rocketed.

Mega Pak reported the biggest move during the period, which saw its packaging materials growing 76% compared to the prior year, underpinned by higher demand.

Volumes also increased at Hunyani Paper and Packaging.

Inflation-adjusted revenue increased by 20% ahead of the prior year period after being driven by improved volumes, greater availability of raw materials and inflationary pricing.

Many firms have attributed firming output to the foreign currency auction system introduced by the Reserve Bank of Zimbabwe in June last year.

“The volumes in the commercial sector grew by 106% on prior year led by improved demand while the tobacco sector was 25% below prior year,” he said.

“Late season tobacco orders did not materialise due to the reduced 2020 tobacco crop output locally and regionally. The cartons, labels and sacks division sales volumes for the first quarter were up on prior year by 77%, due to robust sales of bags to the millers and cartons to food manufacturers on the back of the higher local wheat crop. Tobacco wrap sales were down in line with the tobacco crop,” he noted.

“Gross margins have come under pressure as cost pressures intensified and competitor activity increased. The group remained profitable. Net working capital is positive. The group had a cash holding of $462 million at the end of the first quarter. This arose partly from customer prepayments and will be applied to restocking and settlement of trade payables,” Van Gend said.

He said access to foreign currency remained a issue.

“Despite the increase in volumes, the trading performance was tempered by the effects of hyperinflation and pressure on margins due to increased competition. The reduction in power added to the constraints on production, but, generally speaking, the group finished the calendar year more buoyant than it started,” he noted.