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Hippo Valley bemoans tough operating environment

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BUSINESS REPORTER

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Hippo Valley Estates Limited, a publicly traded sugarcane producer, has warned that the country’s business operating environment remains complex and challenging and could get worse this year if action is not taken to address the issue, Business Times can report.

 

The firm warned that the sugar industry has been severely impacted by notable inflationary pressures, an unstable exchange rate and a weakening Zimbabwe currency, among many problems.

 

“The company operated in a difficult business environment with significant inflationary pressures, exchange rate volatility, constrained Zimbabwe dollar and United State dollar liquidity. Additional fiscal measures were pronounced, with the introduction of more aggressive corporate taxes effective January 1, 2024, increasing the cost of doing business for the whole economy,” Hippo Valley Estates said.

 

The company  indicated that there will probably be more increases in the logistical costs of essential commodities as a result of the ongoing conflicts in the Middle East and Eastern Europe, raising concerns about global inflation.

The business did, however, state that it still takes a proactive approach to overcoming these obstacles in order to maintain and continuously create value.

 

“The Company continues to proactively navigate these challenges to ensure ongoing value creation and preservation,” the company said.

 

 

In its trading update for the quarter to December 31, 2023, Hippo Valley reported a 77% increase in its revenue to ZWL$978bn  from ZWL$552bn reported in the prior comparative period  due to price adjustments made in response to pressures of hyperinflation.

 

Export sales volumes, the company said, increased by 68% in the reviewed period to 67 527 tonnes from 40 246 tonnes achieved in the same period in the previous year as the displaced local market volume was redirected to the export markets in order to generate the much-needed working capital to sustain operations.

 

 

But the  increase in revenue was not sufficient to offset the increased costs of business, particularly in respect of manpower costs, according to the company.

 

Total sugar produced by the company at the end of the third quarter, which marks the end of the crushing season amounted to 1 94 684 tons, trailing prior year by 6% at the back of a drop in yields and unfavourable weather conditions.

 

The yield drop was a result of reduced ‘plant cane’ harvested in the current period.

 

Hippo Valley said availability of critical spares mainly due to cashflow constraints on account of the impact of cheap imports of sugar resulted in unscheduled mill stoppages that affected production performance leading to carryover cane amounting to 652 ha.

However, cane quality measured as estimated recoverable crystals in sugarcane and cane to sugar ratio of 12.10% and 8.27 were both above prior year realisations of 1 1 .64% and 8.39 respectively, resulting in improved recovery efficiencies.
Hippo Valley Estates contributed 295 382 tonnes or 52.54% to the total industry sugar sales volume in the period under review.

 

Total industry sugar sales into the domestic market for the same period amounted to 227 855 tonnes and were 18% below the comparable period in prior year.

 

The decrease was largely on account of duty-free sugar imports from the region which came into the local market following the promulgation of Statutory Instrument 80 of 2023.

 

“Coming from softer currency economies, regional exporters to Zimbabwe capitalised on the multicurrency trading regime in Zimbabwe and the removal of import duties. The industry implemented aggressive but costly initiatives to defend market share against duty-free imports during the period under review, resulting in reduced net realisations,” the company said.

The sugar industry is looking forward to improved domestic sales volumes after the recent repeal of Statutory Instrument 80 of 2023, effective January  1 2024, which previously allowed duty-free sugar imports into the country, although the benefit may not be realised immediately due to high stocks of imported sugar currently available in the market.

 

 

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