• Zambia Sugar's annual profit fell 62% to K616.8 million as currency appreciation compressed export earnings
• Net cash of approximately K1 billion turned into a K103.5 million overdraft amid substantial capital expenditure
• Zimbabwe's Hippo Valley strengthened earnings, highlighting different market conditions across southern Africa's sugar industry

Harare- Zambia Sugar Plc has reported a 62% decline in profit after tax to K616.8 million for the year ended 31 August 2026, as the appreciation of the kwacha, declining international sugar prices and competition from illegal imports weakened its earnings.

According to the company's results released on the Lusaka Securities Exchange on 3 November, revenue contracted by 13% to K7.72 billion from K8.90 billion, while operating profit fell by 42.5% to K1.14 billion. The earnings contraction coincided with a substantial investment programme that reduced the company's net cash position from approximately K1.02 billion to a net bank overdraft of K103.5 million, increasing its reliance on financing at a time of weaker profitability.

The performance illustrates how currency appreciation can reduce earnings for an agricultural exporter whose operating costs are predominantly incurred in local currency. Zambia Sugar reported a 26% reduction in average export price realisations measured in kwacha, reflecting both the stronger domestic currency and weaker world sugar prices. Domestic revenue also declined by 13%, while export revenue fell by 15%, exposing the company to simultaneous pressure across its principal markets.

The domestic market experienced additional challenges from illegally imported sugar, which management identified as a contributor to declining sales volumes. A stronger kwacha reduced the local currency cost of imported products, while manufacturers purchasing sugar for export oriented products faced reduced international competitiveness. Zambia Sugar responded with two domestic price reductions during the financial year, seeking to sustain demand as greater quantities of sugar became available locally.

The combined effect was a reduction of approximately K1.17 billion in annual revenue. Operating profit declined by K844 million, with the operating margin falling from 22.3% to 14.8%. Management reported that higher sugar production, improved operational performance and cost optimisation partly offset the effects of lower prices and revenue.

The movement in profitability reflects the cost characteristics of an integrated sugar business. Agricultural operations require continuing expenditure on irrigation, labour, field maintenance and cane harvesting, while milling facilities incur significant fixed operating costs. Lower selling prices therefore reduce the earnings available to absorb expenditure that cannot be adjusted immediately.

Zambia Sugar's financial statements also reveal changes in the reported performance of its agricultural and manufacturing segments. Operating profit from sugar production increased by approximately 5.8% to K1.35 billion, while the cane growing division recorded an operating loss of K204.4 million compared with a profit of K714 million in the previous year.

The company attributed more precise allocation of profits between agricultural and manufacturing operations to the implementation of its SAP enterprise resource planning system. This change in allocation introduces an important qualification to the segment comparison, since the reported movement may reflect differences in accounting attribution alongside underlying operating performance.

Taxation compounded the decline in reported earnings. Profit before tax fell by approximately 47% to K995 million, while the income tax charge increased from K232.9 million to K378.3 million. The effective tax rate consequently rose from approximately 12.5% to 38%.

According to the company's financial commentary, the revised allocation of profits between cane growing and sugar manufacturing resulted in a reassessment of a deferred tax asset, contributing to a deferred tax charge of K157 million. Current income tax declined by 25% to approximately K221 million, consistent with the reduction in taxable profits.

The deferred tax adjustment reduced accounting profit without representing an equivalent current period cash tax payment. Adding back the K157 million charge without making further tax adjustments produces an illustrative profit figure of approximately K774 million, which would still represent a decline of more than 50% from the previous year. This is an analytical calculation and not an adjusted profit measure formally reported by Zambia Sugar.

The deterioration in cash generation was equally consequential. Net cash generated from operating activities declined by approximately 48% to K850.1 million from K1.65 billion, as lower profitability was accompanied by increased working capital requirements.

The business absorbed approximately K330 million into working capital, compared with a release of K404 million in the previous year. Inventories increased by approximately 23% to K2.31 billion, while trade and other receivables rose by nearly 24% to K753.1 million. These movements reduced the cash available from operations while Zambia Sugar continued to finance its investment programme.

Net cash used in investing activities reached approximately K1.33 billion. Property, plant and equipment increased by approximately K1.06 billion to K4.86 billion, reflecting the expansion and modernisation of the company's production and supporting infrastructure.

Among the principal investments is the K1.72 billion Twazabuka project, involving a new packing plant and warehouse at the Nakambala mill. Zambia Sugar is also pursuing a 13.5 megawatt cogeneration project and a proposed 15 megawatt solar installation, intended to strengthen energy resilience and reduce reliance on external electricity supply.

These projects are expected to improve the company's operating capacity and cost structure over time, although the investment expenditure precedes their full commercial contribution. Financing requirements have consequently increased during a period in which operating cash generation has weakened.

The company ended August 2026 with cash and bank balances of K354.1 million against a bank overdraft of K457.6 million, producing a net overdraft of K103.5 million. A year earlier, cash of approximately K1.02 billion substantially exceeded a negligible bank overdraft.

Including long term borrowings and reported lease liabilities, interest bearing obligations amounted to approximately K1.03 billion. After deducting cash and bank balances, net debt stood near K681 million, compared with net cash of approximately K188 million in the preceding year.

Zambia Sugar's interest cover declined from 17 times to 10 times, reflecting lower operating profit. The company reported net finance costs of K120.3 million, compared with K116.6 million in the prior year. The remaining interest coverage indicates capacity to meet current financing costs from reported operating earnings, although the debt and cash movements increase the importance of future cash generation.

The weaker earnings and heavier investment programme have also influenced shareholder distributions. The board proposed a dividend of 31.6 ngwee per share, compared with 109.6 ngwee in the previous year, representing a reduction of approximately 71%.

Based on approximately 316.6 million shares in issue, the proposed payment amounts to about K100 million, equivalent to roughly 16% of annual profit. The dividend remains subject to shareholder approval at the annual general meeting scheduled for 26 November.

The lower proposed payout preserves more earnings within the company as management continues to finance infrastructure development and working capital requirements. Future distributions will depend on the recovery of operating cash generation and the expenditure required to complete major investments.

Zambia Sugar's performance contrasts with that of Zimbabwe's Hippo Valley Estates, which reported stronger earnings for the year ended 31 March 2026. According to Hippo Valley's annual results, revenue increased by 15% to approximately US$220.8 million, operating profit rose to approximately US$33.6 million, and profit after tax increased by 79% to US$24.1 million.

Hippo Valley also improved its financial position, moving from net debt of approximately US$8.9 million to net cash of US$13.4 million. Its operating margin increased to approximately 15.2%, placing it close to Zambia Sugar's latest margin of 14.8%, although the two companies experienced substantially different earnings trajectories.

Zimbabwe's sugar industry benefited from stronger domestic demand and the release of carryover inventories. Industry sales increased by 24% to 471,837 tonnes, comprising 379,319 tonnes sold locally and 92,518 tonnes exported. Hippo Valley contributed 234,975 tonnes, approximately 49.8% of total industry sales.

The export figures describe Zimbabwe's industry as a whole and should not be attributed entirely to Hippo Valley. The increase in exports was supported by the sale of accumulated stocks, while domestic demand remained the principal source of volume and earnings stability.

South Africa experienced pressures more closely aligned with those affecting Zambia Sugar. RCL Foods reported an 8.2% reduction in revenue from its sugar segment to approximately R9.89 billion for the financial year ended June 2026, as low priced imports and weaker international sugar prices affected domestic sales and export realisations.

Deep sea sugar imports into South Africa increased by 24.2% to approximately 212,684 tonnes, while average international raw sugar prices declined by 22.6%. RCL also reported that local industry sales volumes contracted by 10.3%, reflecting increasing competition from imported sugar.

The South African experience illustrates the importance of border protection and domestic market access for regional sugar producers. In Zambia, management identified illegal imports as a direct source of competitive pressure, while South Africa's difficulties were associated with imported sugar entering through formal trade channels under an ineffective tariff arrangement.

Eswatini's Royal Eswatini Sugar Corporation also experienced a severe earnings contraction in the year to March 2026. Revenue declined by approximately 7.5% to E4.64 billion, while the company moved from an operating profit of E520 million to an operating loss of E106.9 million. Its results were affected by adverse weather conditions, including substantial unharvested cane, and lower international sugar prices.

Regional comparisons therefore show that weak export prices have affected several southern African producers, while domestic demand, currency movements, imported competition and agricultural conditions have influenced individual company outcomes.

For Zambia Sugar, the financial deterioration has occurred during a period of substantial capital investment intended to improve the company's operating capacity. The projects may support lower future operating costs and stronger supply reliability, although the balance sheet now carries increased financial obligations and less immediately available cash.

The company's recovery will depend on its ability to rebuild domestic sales volumes, improve export earnings and convert inventories and receivables into cash while completing the Twazabuka and energy investments. Its financial position also places greater importance on the management of working capital and the costs associated with short and medium term borrowing.

Zambia Sugar enters its 2027 financial year with a considerably smaller profit base, a reduced proposed dividend and an expanded capital programme. The investment may strengthen production and cost efficiency, while the immediate financial priority is restoring the operating cash generation required to reduce borrowing and support the company's long term profitability.

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