• It experienced a 32% decline in production and sales during the 2024 fiscal year.
• The company's operational and financial performance has been volatile, with substantial debt in the past, but has made improvements through debt restructuring.
• For redemption, it needs to ddress the machinery breakdown and plant challenges
• Optimize operating costs, particularly finance costs and the impact of VAT changes, to enhance profitability

Harare- Star Africa Corporation, the second-largest sugar producer in Zimbabwe, which is also the largest independent sugar producer is seeking to redeem its operational and commercial performance in the 2025 fiscal year. This strategic endeavor comes on the heels of a lackluster operational  performance in FY24, characterized by dampened sugar production volumes and sales.

Incorporated in 1935 and publicly listed on the Zimbabwe Stock Exchange since 1947, Star Africa Corporation operates as an independent sugar refinery, supplying the majority (at least 80%) of refined sugar products within the Zimbabwean market. However, the company trails behind its industry peer, Hippo Valley, which maintains a dominant 52% market share in the domestic sugar sector.

Boasting the only two sugar milling facilities in Zimbabwe, Star Africa Corporation manufactures products for local consumption as well as for export to various sub-Saharan African nations. The company's operational structure comprises two business units: Gold Star Sugars, the flagship operation, and Country Choice Foods.

Star Africa produces around 80% of the total refined sugar in Zimbabwe, including premium bottler-grade white sugar. The Star Africa refinery has an annual capacity of 180,000 MT of refined sugar, while the Triangle refinery can produce 140,000 MT per year.

During the 2024 fiscal year, production at the Gold Star Sugars unit declined by 32%, leading to a corresponding 32% decrease in sales. A similar performance was observed at the Country Choice Foods division.

Star Africa's peak production output was achieved in 2022, with the Gold Star Sugars unit reaching 82,399 tonnes, a stark contrast to the lowest production level of 4,616 tonnes recorded in 2015.

In terms of financial performance, the company's profitability has been volatile, with the exception of 2009 during dollarization which it consistently operated in the red.

The most substantial loss was recorded in 2013, amounting to US$16.47 million, while the highest post-dollarization profit was observed in 2022, reaching ZWL798 billion. This highlights the evident connect between production capacity and financial viability.

During the period under review, Star Africa said low production was due to machinery breakdown and exchange rates volatility. Star Africa's sugar production plant was lastly upgraded in 2014 and has been operational since then.

The plant underwent a major upgrade completed in 2016, which was funded through borrowings from ZSS and National Social Security Authority (NSSA). This upgrade project was executed in two phases, with 60% completed by 2015 and the remaining 40% finalized by 2016.

The plant upgrade increased production capacity, expanding it from 300 tonnes per day to 600 tonnes per day. This capacity enhancement was instrumental in driving the company's record production levels observed in 2022.

Historically, the company’s financial performance over a 10-year period had not been convincing, largely hampered by substantial debt, which reached US$32 million in 2016 but decreased to US$19.7 million in 2020.

This debt burden was primarily attributed to the machinery upgrade and working capital requirements, which eroded a significant portion of the company's earnings. In 2020, the Zimbabwe Asset Management Company took over US$19.7 million of this debt, and by 2020, 98% of the total debt had been cleared, paving the way for the company's improved financial standing.

Despite this debt redemption which almost rocked the dollarization decade, the year 2024 presented new challenges for Star Africa.

Although the company reported a profit of ZWL111 billion redemption from a loss of ZWL53 billionits operations were weaker at ZWL--679 billion while production declined due to machinery breakdowns. Profit was largely due to monetary gains which can not be termed as sustainable profit.

The group experienced a 3-month plant shutdown caused by raw sugar supply challenges, which it says has since resolved.

With the machinery breakdown and plant challenges addressed, Star Africa's production efficiency is expected to rebound. Additionally, the stability of the local currency, with a mere 1.5% slip over 90 days, is a historic achievement that could positively impact the company's operations.

However, operating costs remain an area of concern for Star Africa. Finance costs have risen significantly, from ZWL1 billion to ZWL13 billion during the year 2024, and this needs to be addressed.

The recent introduction of SI 92 of 2024 by the Minister of Finance, Economic Development and Investment Promotion, which changed the VAT status of white sugar from Standard-rate to Exempt, has the impact of increasing the group's production costs, as it can no longer claim input VAT. Optimizing operating costs will be crucial for Star Africa to realize efficient profitability going forward.

To redeem itself, the company needs also to proactively prepare for the possibility of  influx of imported sugar brands. This is not an unprecedented development, as the current economic policy regime under the stewardship of the incumbent Minister has historically maintained an open-border approach to sugar imports.

These imported sugar brands are able to undercut local prices, as they do not meet the mandatory Vitamin A fortification standards enforced in Zimbabwe, but which are not universally applicable abroad.

The main categories of sugar consumers in Zimbabwe are manufacturers (beverages, confectioners, bakers, pharmaceuticals) and private households. White sugar accounts for about 30% of domestic sugar consumption, while brown sugar makes up the remaining 70%.

Zimbabwe's 2023/2024 sugar exports surged 140% to 139,000 MT compared to the previous year. This was driven by increased exports to address challenges in the domestic market from cheaper imports, an additional allocation of the U.S. sugar quota, and higher global sugar prices due to adverse weather impacts in other producing countries.

However, the sugar industry faces challenges from the government's policy requiring exporters to convert 25% of their export receipts into the local currency. This discourages exports as the revenue loses value due to the declining local currency against the U.S. dollar.

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