Hippo Valley Estates reels under cost pressures
CLOUDINE MATOLA
Sugar producer Hippo Valley Estates Limited is reeling under sustained cost pressures in manpower, private farmers’ cane purchases and imported spares, which continue to constrain margins, Business Times can report.
The company’s chief executive officer, Tendai Masawi, said the cost structure, largely denominated in United States dollars, has weighed on liquidity and eroded earnings before interest, taxes, depreciation and amortisation (EBITDA).
“Cost pressures persisted in manpower, private farmers cane purchases and imported spares all predominantly US dollar settled and continuing to constrain margins. Resultantly, adjusted EBITDA was eroded and only registers a 4% increment from prior year. In the same vein the business is experiencing free cash flow pressures compounded by the timing insoles,” Masawi said.
Despite the headwinds, the group is pursuing mitigation strategies under its Project Zambuko initiative, aimed at enhancing revenues, maximising operational efficiencies and unlocking cost-optimisation opportunities.
Masawi said export markets are providing critical relief, with the company shipping 36 000 tonnes shortly after the close of the quarter. Export sales continue to expand, driven by increased volumes into Botswana, Burundi, Rwanda, and the United States of America.
“The business had a good production performance in the last two seasons resulting in excess sugar above domestic market demand. In light of this, more sugar was being availed to the export market.
“Export sales grew by 53% with increased volumes supplied into Burundi, Rwanda, Botswana and the USA. A 3600o tonnes industry shipment to the European market departed shortly after the quarter,” Masawi said.
On the domestic front, sales also strengthened, buoyed by steady disposable incomes and the competitiveness of the company’s products. A shift in consumption patterns following the introduction of the sugar tax has also altered industrial demand dynamics, with some customers adopting alternative sweeteners—resulting in a rise in raw sugar offtake.
“10% increase in local sales added 27 290 tonnes year on year. Demand remained strong, supported by steady disposal incomes and the competitiveness of the Huletts Sunsweet brand. Raw sugar volumes softened marginally as certain industrial customers adopted sweeteners following the introduction of sugar tax,” Masawi said.
Financially, the company recorded a 10% increase in revenue for the nine-month period to US$174 million, up from US$157 million in the prior year, supported by positive production performance, improved product quality and strong sales and marketing execution.
Looking ahead, the group is cautiously optimistic that macroeconomic conditions will remain stable, underpinned by fiscal discipline and policy consistency. Current production levels and stock holdings are expected to adequately supply both domestic and export markets ahead of the next season.
“We expect current production and stocks to be sufficient to meet both domestic and export requirements ahead of next season. The company continues to discourage the importation of fortified and non-compliant sugar,” Masawi said.
