Robust demand shields packaging giant from market turbulence

CLOUDINE MATOLA

Nampak Zimbabwe Limited, the country’s largest packaging company, is optimistic about its future, bolstered by a strong order book and a debt-free balance sheet, a rare position in Zimbabwe’s volatile economic landscape.

Despite a challenging macroeconomic environment marked by erratic power supply, global supply chain disruptions, and inflationary pressures, the company remains bullish about its future. Management has expressed unwavering confidence in the business’ ability to weather economic storms, sustain operations, and maintain profitability in the years ahead.

In its consolidated financial results for the year to September 30, 2024, Nampak highlighted key performance indicators that reflect both the resilience and adaptability of the company. While acknowledging ongoing economic turbulence, the company pointed to strong demand across critical industries—particularly tobacco, commercial, and horticultural sectors—as a key driver of its continued success.

Nampak’s order book remains firm, underscoring continued demand for its packaging products across various industries.

Group Managing Director John Gend reassured stakeholders that, despite external shocks, the company remains in a strong financial position, operating without any debt and maintaining a stable revenue stream.

“The economic challenges facing the manufacturing sector remain unresolved,” Gend said.

“However, our order book remains solid, and the company continues to operate debt-free.”

Gend emphasized that while geopolitical conflicts, particularly the wars in Ukraine and the Middle East, have disrupted raw material supply chains, Nampak has successfully navigated these hurdles by optimizing its procurement strategies and leveraging local manufacturing capabilities.

“We have implemented strategic sourcing measures to ensure minimal disruption to our production lines. While global supply chains remain volatile, we have managed to secure essential raw materials to meet our growing order book,” he added.

The broader economic landscape in Zimbabwe remains challenging for the manufacturing sector, with power supply inconsistencies posing a major constraint.

Frequent electricity outages have hampered production efficiency, forcing companies to rely on costly alternative energy sources such as diesel generators.

However, Gend noted that the impact of El Niño on the agricultural sector—a key driver of demand for Nampak’s packaging products—has not been as severe as initially feared. This has provided some relief to the company, particularly in its tobacco and horticultural packaging segments.

“The resilience of Zimbabwe’s agricultural sector, despite climatic challenges, has sustained demand for our products. This reinforces our confidence in the company’s long-term growth prospects,” he said.

Nampak Zimbabwe posted a net profit of US$4.9m for the 2024 financial year, compared to a restated US$9.1m in the previous year. The decline was largely attributed to a drop in sales volumes across some business units, particularly Hunyani Paper and Packaging, which faced lower demand for tobacco cartons due to weather-related disruptions in the agricultural sector.

Revenue for the period stood at US$101m, slightly down from the restated US$109m recorded in 2023.

While this represents a marginal decline, the company emphasized that the order book remains strong, and demand across key segments continues to underpin revenue stability.

Management remains confident that strategic cost management and capital investment initiatives will drive sustained profitability in the long term.

Despite economic uncertainties, Nampak increased its capital expenditure to US$3.5m in 2024, up from US$2.49m in 2023.

The company has prioritized investments in capacity expansion, plant efficiency improvements, and infrastructure upgrades to strengthen its competitive edge in the packaging industry.

“Investment in modernizing our production facilities remains a key priority,” Gend stated.

“We are evaluating several significant capital projects that, if economic conditions allow, will enhance our operational efficiency and support future growth.”

These projects aim to optimize production processes, reduce costs, and improve energy efficiency, helping the company mitigate the impact of Zimbabwe’s ongoing power supply challenges.

The Hunyani Paper and Packaging division, which produces corrugated boxes, tobacco cartons, and industrial packaging, experienced an 8.4% decline in sales volumes. This was largely due to lower demand for tobacco cartons, a direct consequence of El Niño-induced weather disruptions in the agricultural sector.

However, management remains optimistic about the division’s recovery prospects, citing strong demand from other industrial and commercial sectors as a mitigating factor.

In contrast, Mega Pak Zimbabwe, which manufactures Polyethylene Terephthalate (PET) preforms and High-Density Polyethylene (HDPE) closures, posted a 10.2% increase in sales volumes.

This growth was driven by rising demand in the beverage and packaging industries, as consumer brands continued to expand their production.

Despite this positive trajectory, severe power outages in Ruwa constrained production, limiting the company’s ability to fully capitalize on the surge in demand. Management is actively exploring alternative energy solutions to mitigate the impact of power disruptions.

Sales volumes for CarnaudMetalbox, which specializes in metal packaging solutions, remained relatively stable, with a marginal decline of 0.57% year-on-year. While demand for its products remained steady, production inefficiencies caused by power supply issues affected output levels.

Despite these operational hurdles, the business unit continues to contribute positively to the group’s overall revenue performance.

While Zimbabwe’s economic outlook remains unpredictable, Nampak Zimbabwe is well-positioned for long-term sustainability, underpinned by a strong order book, strategic capital investments, and prudent financial management.

“Our ability to adapt to changing economic conditions, coupled with a robust pipeline of orders, gives us confidence in the company’s future,” Gend stated.

Management remains focused on enhancing operational efficiencies, securing reliable energy alternatives, and expanding market reach to maintain profitability and resilience.

With stable demand across key industries, a solid financial footing, and strategic investment initiatives, Nampak Zimbabwe is poised to navigate the headwinds and sustain growth in the coming years.

Despite facing persistent economic and operational challenges, Nampak Zimbabwe has demonstrated remarkable resilience and strategic foresight. The company’s debt-free status and strong order book position it as a key player in Zimbabwe’s manufacturing sector, capable of withstanding external shocks and sustaining long-term profitability.

As the company continues to invest in capacity expansion, optimize production processes, and adapt to market dynamics, its future remains promising. The challenges ahead are undeniable, but Nampak’s ability to navigate uncertainty reinforces its standing as a leader in Zimbabwe’s packaging industry.