• Hippo Valley reported strong FY2026 results with revenue up 15% to $220.8 million and profit for the year rising 79% to $24.1 million
• The group swung from a net debt position of $8.9 million to a net cash position of $13.4 million, fully repaid all borrowings, and declared a dividend of 1.50 US cents per share
• Management warned that FY2027 performance will be more challenging as the inventory release benefit will not recur at the same level, while the company faces additional risks

Harare- Hippo Valley Estates Limited, Zimbabwe's largest ZSE listed sugar producer, has reported a revenue growth of $220.8 million, a 15% increase from $191.6 million according to the latest results for the year ended 31 March 2026. Resultantly, operating profit surged 337% to $33.6 million from $7.7 million, firming profit for the year by 79% to $24.1 million from $13.4 million, and net cash from operations by 245% to $29.7 million from $8.7 million.

The group swung from a net debt position of $8.9 million to a net cash position of $13.4 million, with all borrowings fully repaid during the year. As a result, dividend of 1.50 US cents per share was declared, payable on or about 30 July 2026.

Group’s chief executive officer, Tawanda Masawi said, “a significant portion of the year-on-year improvement in revenue and cash generation was supported by the release of carry over sugar stocks accumulated in the prior year, and this benefit will not recur at the same level in FY27.”

 The outlook section reinforces the point, stating that FY27 revenue will depend more on operational performance and local market demand rather than stock release. This means that FY2026's performance is not a clean baseline for FY2027 projections.

Total industry sugar sales grew 24% to 471,837 tonnes against sugar production of 221,017 tonnes, a production increase of only 1%. The gap between 24% sales growth and 1% production growth is inventory release. Hippo Valley sold from its warehouse in FY2026 what it had produced and stored in FY2025, converting the prior year's production overhang into FY2026 revenue and cash.

The benefit in FY2026 is the monetisation of that inventory. The cost in FY2027 is that the warehouse is now emptied, and the next season's revenue must come from the next season's cane, bringing El Niño risk, the pending Division of Proceeds court case and an unresolved parent company liquidation situation into the FY2027 planning equation simultaneously.

The cost architecture of Hippo Valley's manufacturing business contains a structural contradiction that the 79% profit growth in FY2026 has temporarily obscured but not resolved. Private farmers supplying cane to the mill under the Cane Purchase Agreement are paid at a fixed rate of $71 per tonne. The company's segmental disclosure confirms that revenue realised from export market sugar sales does not fully cover that $71 per tonne fixed cost of private farmer cane.

 The group however, said that export realisations do not fully cover the fixed cost of private farmer cane at $71 per tonne, and that the incremental export volumes therefore contributed positively to cash generation through inventory monetisation while being sold at a loss. In effect, Hippo Valley is selling sugar into export markets at a loss. Export sugar sales reached 92,518 tonnes in FY2026, a 114% increase on the prior year's 43,303 tonnes, and while their contribution to profit is positive in the year because the inventory was already produced and the fixed cost already sunk, the export business is structurally loss making at current CPA pricing on an incremental cost basis.

The local market, at 379,319 tonnes and carrying stronger margin realisations, was the profitable engine. The export market is the inventory clearance mechanism that generates cash but erodes margins on every tonne it processes.

This cost price squeeze is made more acute by an ongoing shift in cane supply composition.

Private farmers registered an 8% increase in cane deliveries in FY2026, continuing a multi year trend in which private farmer cane as a proportion of total supply is growing while the company's own, lower cost plantation cane is declining in proportionate terms. As the average cost of cane to the manufacturing operation rises, the threshold at which export market realisations cover full cane cost rises with it, worsening rather than improving the export market's structural loss making position over time unless CPA pricing is renegotiated or domestic volumes absorb a larger share of total output.

A court case challenging an increase in the Division of Proceeds from 77% to 80.5% in favour of private farmers, with retrospective effect from April 2022, was heard on 9 December 2025. The judgement was reserved, and as of the date of these results, the outcome remains pending. The significance of this reserved judgement is considerable.

The Division of Proceeds is the percentage of the Mill Door Price, the net revenue after selling costs, that the mill pays to the private farmer for cane. At a 77% Division of Proceeds, for every $100 of mill door price the private farmer receives $77 and the miller retains $23. A successful court case raising the Division of Proceeds to 80.5%, effectively 83%, means the farmer receives $83 and the miller retains $17 for every $100 of mill door revenue, a 26% reduction in the miller's share of mill door proceeds, applied retrospectively to all private farmer cane deliveries since April 2022.

The retrospective component is the most commercially significant aspect of the pending judgement. If the court rules in favour of the applicants, Hippo Valley and the wider sugar industry would face a retrospective payment obligation covering the difference between the 77% Division of Proceeds applied since April 2022 and whatever higher rate the court awards, across every tonne of private farmer cane processed over the intervening four years. The group said that it has considered this contingent liability in its capital planning and dividend determination and does not consider the exposure, individually or in combination with other known risks, to cast significant doubt on the company's ability to continue as a going concern, while also confirming that it will provide further updates as the matter progresses.

That acknowledgement within the going concern assessment is the clearest signal available that the board views this as a financially material pending outcome rather than a routine regulatory footnote. At private farmer cane supply volumes of approximately 801,864 tonnes in FY2026, and at typical Division of Proceeds levels applied to mill door prices of approximately $40 to $50 per tonne of cane in recent years, a retrospective adjustment of 3.5 percentage points across four years of deliveries would represent a multi million dollar contingent payment obligation whose scale the company has not quantified in its public disclosures but whose magnitude investors should independently assess before concluding on dividend sustainability and the forward earnings trajectory.

Tongaat Hulett Limited, Hippo Valley's ultimate holding entity incorporated in South Africa, had business rescue practitioners file seeking to discontinue business rescue proceedings and place the South African operations into provisional liquidation. The Huletts brand, Zimbabwe's dominant sugar brand is a Tongaat Hulett licensed brand, and the technology systems supporting Hippo Valley's agricultural management, mill operations and financial reporting are shared services within the Tongaat Hulett infrastructure.

Should the South African proceedings resolve through a plan that transfers Tongaat Hulett's intellectual property and brand portfolio to a new owner, Hippo Valley's rights to the Huletts brand in Zimbabwe would become subject to terms negotiated between the administrators, creditors and any incoming acquirer, none of whom are Hippo Valley's shareholders or its ZSE listed management team. Management confirms that Hippo Valley is in a net owing position with Tongaat Hulett, meaning the liquidation of the parent would not directly impair Hippo Valley's balance sheet, but brand and technology access are not balance sheet items.

The Huletts brand's commercial value in Zimbabwe, which the CEO has described as central to maintaining local market revenue growth, is not captured as an intangible asset on Hippo Valley's balance sheet because it is licensed rather than owned. Any disruption to that licence could materially affect both the market share the brand anchors and the pricing premium its recognition supports.

Read carefully, the outlook section of the FY2026 results amounts to a management disclosure of three overlapping risks whose simultaneous occurrence in FY2027 would produce a materially worse financial outcome than the headline numbers suggest is sustainable. The first is the carry over stock depletion already confirmed by management, with FY2027 revenue dependent on operational performance and local market demand rather than inventory release, meaning the $24.1 million profit reported for FY2026 includes a one time benefit that will not recur at the same level.

The second is an El Niño advisory, with preliminary outlooks for the 2026 to 2027 season indicating a high likelihood of below normal rainfall and drier than average conditions linked to an emerging El Niño event. Hippo Valley's supplying dams, Tugwi Mukosi, Lake Mutirikwi, Manjirenji and Siya, are currently holding water levels at approximately 100%, providing buffer for the next three seasons according to the most recent dam level assessment of 15 May 2026, but El Niño's impact on sugarcane production in the Lowveld is a multi season phenomenon whose effects on cane yield per hectare and sucrose content compound across the growing cycle. A below normal rainfall season beginning in the 2026/27 planting window would reduce the cane supply and sucrose extraction available to the FY2028 crushing season, making El Niño warnings in the sugarcane sector a three to four year financial planning concern rather than a single season issue.

The third risk is the Division of Proceeds court case judgement, still reserved, which could be delivered at any point in the FY2027 financial year and would create a sudden and material restatement of prior period cane cost obligations that neither the income statement nor the cash flow statement of FY2026 has provisioned for.

Thus, the agriculture segment delivered adjusted EBITDA of $21.1 million, up substantially from $16.2 million, while the manufacturing segment, which recorded negative adjusted EBITDA of $2.5 million in FY2025, recovered to adjusted EBITDA of $10.6 million in FY2026. The cane to sugar ratio improved from 8.06 to 8.01, confirming genuine mill efficiency improvement rather than gains driven purely by higher input volumes. The VFEX listing migration announced earlier in 2026 and the 1.50 US cent dividend point to a board confident in the company's near term liquidity position.

The investment case weakens precisely where FY2026's strength was concentrated, in the inventory release that generated volume growth, in the local market conditions that sustained pricing despite a 6% average industry price decline, and in the assumption that the structural cost price squeeze from CPA pricing, the Division of Proceeds litigation risk, Tongaat Hulett brand uncertainty and the El Niño advisory will not simultaneously crystallise in FY2027.

However, any single one of these risks arriving alone is manageable. The CPA pricing challenge alone is one management has identified solutions for, the Tongaat Hulett proceedings alone are being monitored with appropriate contingency planning, while the El Niño advisory alone has dam water buffers sufficient for three seasons. The Division of Proceeds court case alone has been incorporated into dividend planning.

The analytical question for FY2027 is not which of these risks materialises, but how many of them arrive together, and whether the operational performance of the agriculture and manufacturing segments, without the inventory release tailwind, is strong enough to sustain earnings at a level that justifies the FY2026 valuation baseline at which investors are now pricing Hippo Valley after a 79% profit year whose drivers the company's own management has confirmed are partially non recurring.

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