Paper

Nampak’s Paper businesses are in Kenya, Malawi, Nigeria, Zambia and Zimbabwe. We supply a range of sectors, from milling, cigarettes and tobacco to the sorghum beer industry. In most of these markets we are the major producer. Among our extensive product range are cartons, sacks, bags, board and boxes.

PAPER
Rob Morris
Rob Morris
Group executive: Rest of Africa
2017   2016   % change   
Key natural capital inputs
Energy use (GJ) 1 527 722   1 527 600   No change   
Outputs affecting natural capital
Emissions intensity (tCO2e/Rm revenue) 6.79   5.75   18.1   
Financial capital
Revenue (Rm) 1 497   1 749   (14.4)  
Trading profit (Rm) 177   236   (25.0)  
Trading margin (%) 11.8   13.5   –   
Human capital
Employees 673   702   (4.1)  
LTIFR 0.25   0.20   Deteriorated   
Key development

Key developments

  • Reported strong Zimbabwe performance, helped by good tobacco crop
  • Recorded lower paper sales in other markets

REST OF AFRICA

In 2017, a very strong performance from our Zimbabwe business supported Nampak’s otherwise subdued paper operations, all of which are in African countries beyond the borders of South Africa. Revenue declined by 14% and trading profit fell by 25%.

Our operations in Zimbabwe benefited from a good crop of tobacco, which is packaged for export in large corrugated boxes, and the extension of the tobacco auction season. The better-than-expected performance was also supported by stronger general paper packaging demand and the imposition of duties on imported paper packaging, which led to a greater substitution of imports with locally produced products.

In Nigeria, cigarette carton sales were strong. We agreed pricing mechanisms with our key customers, where we were able to recover margins lost through foreign exchange rate variances. This only became effective in the second quarter of the year. We were also able to better extract earnings from our Nigerian operations with the establishment of the new NAFEX market, facilitating easier trade between importers and exporters.

 

In Kenya, the impact on agricultural harvests of below-average rainfall, new entrants to the market and greater backward integration by a large customer resulted in lower demand for self-opening bags for the maize and wheat milling industry. Volumes were also impacted by customers’ requirements for multi-colour printing.

Our business in Zambia had a tough year, with sales of sorghum beer cartons weak as a result of lower demand and the introduction by a large customer of alternative products and packaging types. The owner of the largest sorghum beer producer in the country announced plans to sell its sorghum business in Zambia.

In Malawi, sales to the sorghum beer industry were depressed as the new owner of the major sorghum beer producer started selling its product in returnable bottles. The owner also announced plans to dispose of its business in Malawi. Competitive pricing on imported tobacco cases had a negative impact on the sales of locally produced case

Looking ahead

Nampak’s strategic objective remains that we accelerate growth in the rest of Africa, based on the continent’s compelling long-term macro-economic and demographic trends. This requires patience, and that we hold on to our first-mover advantage to be there when an economic recovery takes hold, assisted by a turn in the commodity cycle.

However, in the meantime we need to unlock further value from our base business. In pursuit of this, in the year ahead we will rationalise our production facilities in southern and east Africa. We will concentrate production of sorghum beer cartons in Zambia. Our general and tobacco carton operations in Zimbabwe will supply our Malawi facility.

While liquidity constraints in Zimbabwe remain a risk and a material issue for Nampak, we expect the restrictions on imported products in these markets to continue to encourage the local sourcing of packaged goods. Throughout the region, we will closely monitor changes in the purchasing strategies of our multinational customers, which include in some cases a reduced emphasis on local procurement.

In Nigeria, a 10-year contract with a key client expires in March 2018 and we are in discussions with regard to a new tender.