During the quarter to the end of December, the company saw demand for packaging material face pressure due to intensified competitor activity. Moreover, it was affected by disruptions to supply chains due to the civil unrest in Mozambique. Picture: Supplied
Nampak Zimbabwe is grappling with a challenging operating environment, compelling the company to implement cost-containment measures as it prepares to divest its stake to Zimbabwe-listed entity TSL.
This move comes as Zimbabwe's economic landscape faces significant challenges exacerbated by recent policy changes and ongoing currency instability.
John Van Gend, Nampak Zimbabwe’s managing director, said on Friday that “the operating environment in Zimbabwe is undeniably complex, impacted by policy changes and currency” instability.
Zimbabwe has just made currency policy changes that are likely to impact timeous reporting by companies.
While the paper and packaging giant said it had transitioned to US dollar financial reporting, the Reserve Bank of Zimbabwe has directed that all companies use the local currency for all company reporting.
Van Gend said he expected that the government of Zimbabwe “will take decisive steps to effectively address the increasing risks of company closures and retrenchments” that have escalated in the past few weeks.
To survive the country’s economic downturn, Nampak Zimbabwe will be be focusing “on cost-containment measures to protect margins and drive profitability across” its operations.
During the quarter to the end of December, the company saw demand for packaging material face pressure due to intensified competitor activity. Moreover, it was affected by disruptions to supply chains due to the civil unrest in Mozambique.
“We encountered supply chain disruptions with raw materials arriving via Beira Port, stemming from the political unrest in Mozambique following the disputed election results. Although the raw materials were ultimately received, the delays impacted our delivery capabilities during the festive season,” said Van Gend.
However, it is the yet to be resolved Zimbabwean economic challenges that the company expects to further affect demand, as the wholesale and retail sectors navigate considerable branch closures that threaten the sustainability of businesses.
During the quarter under review, Nampak Zimbabwe reported 23% lower revenues in US dollar terms while trading profit for the period declined by 56%.
“This decrease in revenue reflects the reduced demand across all business units,” said the company.
Nonetheless, gross profit margins for the period held steady compared to the previous year, while the trading profit margin experienced a 9% drop. Nampak Zimbabwe attributed the reduction in trading margin to the hyperinflation accounting effects from the prior year’s comparative period.
The quarter period under review was fraught with fluctuations in exchange rates following a significant depreciation of the local currency.
The biggest impact though came from increasing challenges with power supply, limiting the company’s ability to fully meet customer demand. To mitigate this, Nampak Zimbabwe has had to install generator capacity.
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