• Sugar production went down by 6% due to lower output
• Can yields dropped to 89.20 tons per hectare from 95.38 tch
• Cane deliveries from the Company's own plantations (fell 15% below the prior year

Harare- Hippo Valley Estates Limited, a prominent player in Zimbabwe's sugar industry, has reported a sluggish production performance for the fiscal year 2024. The company, a subsidiary of Tongaat Hulett Limited and listed on the Zimbabwe Stock Exchange, has grappled with a multitude of challenges, both at the micro-organizational level and emanating from the broader macroeconomic environment.

Established in 1956, Hippo Valley Estates is primarily engaged in the cultivation and milling of sugarcane, with operations centred in Zimbabwe. The company's two sugar mills, Hippo Valley Estates and Triangle Sugar, possess a combined milling capacity to process over 4.8 million tons of cane annually, with the potential to produce in excess of 640,000 tons of sugar. However, the company's output has consistently fallen short of its capacity level, owing to a confluence of factors.

The 2024 fiscal year saw a significant decline in cane yields, dropping to 89.20 tons per hectare (tch) from 95.38 tch in the previous year. This was primarily attributed to a reduction in the volume of higher-yielding 'plant cane' harvested, as well as adverse weather conditions stemming from a strong El Niño event during the October 2023 to March 2024 period.

“Cane deliveries from the Company's own plantations (miller-cum-planter) fell 15% below the prior year, due to lower cane yields and a reduction in the area harvested arising from a 4 week delay to the milling season while cane delivery agreements were being negotiated,” the group’s CEO, Tendai Masawi said in a statement accompanying the financials.

Private farmer cane deliveries were also impacted, contributing 46% of total cane supply compared to 42% in the prior year. Yields for private farmers declined by 6% to 68.82 tch from 73.40 tch.

As a result of these operational challenges, the milling season, which concluded on December 21, 2023, witnessed a 6% decline in sugar production, with a decrease of 12,476 tons compared to the previous year.

Key challenges

The key factors weighing on Hippo Valley's performance were multifaceted, including drought, machinery breakdowns, and changes in government policies. The 2023-2024 farming season experienced one of the worst rainfall spells, adversely impacting crop growth, despite the company's primary reliance on irrigation. Additionally, machinery breakdowns led to further production losses.

The government's introduction of Statutory Instrument 80 of 2023, which removed import duties on sugarcane, played a significant role in 16% decline in sales volumes to 283,289 tons from 338,059 tons in the previous year.

Although this statutory instrument was subsequently repealed in the last quarter of 2023, the eight-month period saw imported sugar brands enjoying unfair cost advantages over locally-produced sugar, as the imported sugar was not subject to Vitamin A fortification requirements.

Foreign currency shortages also hindered the company’s ability to procure necessary spare parts, while low prices and cheap imports eroded profits across the industry.

Additionally, the change in the tax treatment of sugar and sugarcane, where they were reclassified from zero-rated to exempt, increased the cost of sugar production as VAT credits could no longer be recovered from the revenue authority.

Despite the challenges, we company projects a redemption following the repeal of Statutory Instrument 80 of 2023 and the expected improvement in rainfall due to the transition from El Niño to La Niña conditions.

The company is also actively supporting various cane development projects, such as the Kilimanjaro project and the Pezulu Project, in partnership with the government, to expand its cane supply and maximize the utilization of its existing milling capacity.

Looking ahead, Hippo Valley forecasts a production range of 395,000 to 400,000 tons of sugar in the upcoming fiscal year, with a projected revenue of US$385 million, up from US$366 million in the previous year. The company is also targeting a 4% increase in cane harvesting and private farmer cane deliveries in the 2024/25 season, aiming to improve milling efficiencies and sugar production.

Hence, Hippo Valley has faced a challenging fiscal year, navigating a complex web of operational constraints and macroeconomic headwinds. However, the company's strategic initiatives and the anticipated improvements in weather conditions and policy landscape suggest a promising outlook for the future, as it strives to maximize its production capacity and financial performance.

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