Hunyani reports muted performance

Hunyani reported a muted financial year ended 2012 performance as overall group volumes fell by 10% which was attributed to disposal of non-core operations and weak domestic demand. Revenue from continuing operations was up 1% to $45.5 million. Aggressive competition created a downward pressure on margins resulting in operating margins shrinking to 3.9% from 4.5%.

The company posted an operating profit of $1.8 million. Profit after taxation amounted to $1.2 million after accounting for finance costs of US$ 563,000 which decreased by 16% year on year. Profit for the year attributed to members was $860,000. A small comprehensive income ($0.1 million) was achieved after impairments for outdated equipment, notably the paper mill.

Cash generation was strained on high working capital requirements. Borrowings were tightly controlled and used to fund working capital commitments and capital expenditure. Net gearing deteriorated to 10.7% from 6.5% on increased capex and working capital requirements. Capital expenditure of US$ 1.7m was spent on new equipment including an in-line Casemaker and generators for Corrugated and flexible Divisions. These were funded through borrowings and asset disposals. Hunyani successfully re-entered the export markets in the second half of the year, notwithstanding lower margins.

Divisional Performance
Corrugated Products - Volumes were down 3%, this was attributed to the poor Malawi tobacco season and the reduction in commercial market share because of equipment performance.

Flexible Products - Volumes were at par with prior year while turnover was down 5%. Flour producers experienced viability challenges but these were offset by increased tobacco wrapping and export sales. Competition was passionate and this led to a margin reduction.

Printopak- Although volumes rose by 15%, the division was plagued by high downtime due to aged equipment which led to the division incurring a loss. Turnover grew 27%. The division acquired a Linthographic printer, for which a deposit was paid and relocation of the division to Harare is now in progress this will greatly improve performance.

Associates Softex was affected by intense competition and inadequate quality tissue and packaging supplies. Overall performance was in line with prior period. The waste paper businesses were disposed during the year.

Imara Stockbrokers said they expect margins to gradually improve on enhanced efficiencies and reduced repairs and maintenance costs. The stockbroking company added that intense competition may limit margin recovery.

"There is no doubt that as Zimbabwe develops, demand for paper products will outstrip GDP growth. We believe that there is limited upside in the short term in the current market conditions," concluded a research note from Imara who recommend short-term investors to sell the stock and long-term investors to hold the stock.