We have extracted the Managing Director’s Statement from the 2019 abridged report of Nampak Zimbabwe Limited (NPKZ.zw), listed on the Zimbabwe Stock Exchange:
The Fiscal and Monetary Policy measures implemented during the financial year significantly altered the operating economic landscape in Zimbabwe. The exchange rate has depreciated by over 594% since the introduction of the Zimbabwe dollar against the United States dollar in February.
The continuing scarcity of foreign exchange coupled with rising inflation has presented a major challenge to the Group. Power shortages have had a severe impact on production schedules necessitating increased use of on-site generators and adaption of working hours at plants to make use of power when it is available. This has led to rising operating costs. However, agreements have been entered into with the power supply authorities to try and alleviate this situation.
The Group achieved sales for the year of $666,3 million (2018: $529,4 million) and a Trading Income before adjustments of$148,7 million (2018: $65,5 million). A Loss before Tax of $1,03 billion was incurred (2018: Profit Before Tax $58,5 million).
The Loss Before Tax was incurred after taking into account the other material expenses of $1,4 billion and a net monetary gain on hyperinflation of $274,7 million. The other material expenses comprised net foreign exchange losses of $686,4 million, arising from the Blocked Funds (Legacy Debt) foreign trade payables; and an impairment of the Reserve Bank of Zimbabwe Non Current Receivable by $733,2 million. The impairment was based on an expected credit loss provision of 85%, on the financial instrument hedge held with the Reserve Bank. The decision to impair the financial hedge was in line with the approach adopted by the major shareholder, Nampak Limited, and was guided by the prevailing economic challenges and financial uncertainty.
Management worked hard on limiting unnecessary expenses for the year and improving the working capital. The Comprehensive Loss Attributable to Members amounted to $823,4 million (2018: $41,7 million income). Headline earnings per share at 30,50 cents (2018: 5.57 cents) were up on the prior year.
PRINTING AND CONVERTING SEGMENT
Hunyani Paper and Packaging
Volumes for the full year declined by 8% compared to the prior year. Local commercial volumes declined by 54%; however these were mitigated by improved local tobacco packaging volume growth of 34% due to a higher crop size. Furthermore, exports grew by 65% on prior year, driven by tobacco packaging exports to Malawi and ad-hoc orders from Mozambique. The commercial segment experienced a loss of volumes due to pricing challenges and a decline in the cartons segment due to raw material sourcing limitations.
PLASTICS AND METALS SEGMENT
Volumes for the full year declined by 40% compared to the prior year as major customers recorded a reduction in their market segment demand.
The full year volumes declined by 27% due to falling consumer demand in the beverage and cordials sectors and raw material supply constraints.
Capital expenditure amounted to $68 million (2018: $37,6 million) which was a significant reduction on prior year and reflects the constrained operating environment. There are some significant capital projects currently being reviewed by management and should funds become available, it is our intention to implement them.
The board wishes to thank Mrs. Emma Fundira and Mr. Washington Matsaira who resigned during the year for their valuable service to the Board during their tenure. Their contributions to our affairs were significant. We welcomed the appointment, in May 2019, of Mr. Quinton Swart from Nampak South Africa as a non-executive director. We also welcomed to the Board Mrs. Chido Chetsanga and Mr. Kenneth Langley, both Chartered Accountants with wide business experience. They were appointed as independent non executive directors in July 2019.
The economic climate is likely to continue in negative territory unless the Authorities do more to change course in favour of fundamental market realities. Although some positive efforts have been made in this direction these have been insufficient to attract sorely needed foreign direct investment. This will only come about if, and when, investor confidence is restored in the overall affairs on Zimbabwe.
By Order of the Board
J. P. Van Gend
Group Managing Director