Zimbabwe: Costs Hit Hunyani

Source from:  Zimbabwe Independent 06/13/2011

Pressure on paper margins and plant refurbishment costs hit Hunyani Holdings Ltd's bottom line, the company said. Volumes growth in the Corrugated and Flexible Products divisions propelled revenues up by 33% to US$21,3 million from US$16 million in the same period last year as domestic demand increased offsetting declines in export markets. Packaging demand firmed on the back of an increased tobacco crop and early opening of the tobacco auction floors. Operating profit for the group rose by 19% to US$794 069 but was weighed down by losses in Printopak division due to poor machinery performance and power outages in the first quarter. Increased borrowings negatively impacted on profits, finance costs stood at $337 101 increasing by 92%, depleted the bottom line at US$295 876, a decline of 43% to the comparable period. Although the group's Printopak division incurred losses due to poor machine performance and power outages in the first quarter, the company said the unit's fortunes have changed for the better and reported a profit for the last two months. Hunyani's Softex registered "reasonable" sales and profits despite intense competition while its waste paper business improved on the back of strong demand and prices on the export market. Volumes in Forests Estates and Forests Products division decreased by 20% but the company remained profitable. The Pulp and Paper Mill remained closed under care and maintenance. Despite a growth in revenues the group has a negative cash flow of US$2,8 million as the company's capital expenditure amounted to US$1,6 million for expansion of capacity. Hunyani sees capacity utilisation improving but said finance charges would continue rising owing to additional working capital and funding requirements. Analyst Comment The company seems to be recovering from the hyperinflation period and local demand for its products is still very huge. An optimistic tobacco crop output forecast of above 150 million kg this year may see the company's tobacco cartons orders increase and may have the plant operating at full capacity. With a new Self Opening (SO) Bag machine expected to arrive this month, capacity is expected to increase under Flexible Products division and this will bolster the division's contribution to the group's revenue. The company restructured last year after overstatement of profits by Printopak division's management to conceal poor performance. The division continued to underperform in the first quarter with volumes growing marginally but the company has turned the corner as performance and profitability has improved in the last two months. Given the dire state of Forest Estates greatly affected by fires and deforestation, treated poles and firewood sales will remain depressed and the Pulp and Paper Mill division, which also relies on wood, may remain closed for the foreseeable future. Enditem