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Business Writer
Hippo Valley Estates Limited is now focused on growing exports and improved cash flows will see the company resume dividend payments in the next financial year, according to chairman Dan Marokane.
Speaking on the sidelines of the company’s annual general meeting Marokane told Business Weekly that the sugar producing company used to export at least 40 percent of its products, but scaled down after the country dollarised, removing the incentive to export.
Zimbabwe dollarised its economy in 2009 after hyperinflation decimated the local currency leaving it with no value.
The move meant economic players could transact or sell their goods and services in hard currency making it easy for businesses to access foreign currency requirements within the country’s borders.
“We used to export close to 40 percent onto the sugar deficit markets, to earn US dollars, but once the US dollar and the Zimbabwe dollar were levellised (at par) there was no longer an incentive to export so we dropped to around 11 percent.”
But as things changed, with the US dollar becoming scarce on the local market, until last year when transacting in foreign currency for local transactions was eventually outlawed, Hippo as a company did not change quickly enough according to Marokane.
“We have realised that and you will see that by the end of the financial year (to March 31, 2020), when we report the numbers, the export component will be somewhere north of 35 percent,” he said.
The sugar industry, which is largely dominated by Hippo and its sister company Triangle Limited, recently reported a 23 percent growth in sugar exports for the third quarter ending December 31, 2019 compared to the same period the previous year.
“Industry sugar exports increased by 23 percent during the period to 67 355 tonnes, significantly improving the company’s access to foreign currency,” said Hippo in its update.
Marokane said the export revenues were helping the company to maintain itself in terms of the consumable “that are tightly coming through on the back of US dollars”.
“That’s why also we have the Kilimanjaro project to add capacity so that we can then improve on the overall bottom line.”
The Kilimanjaro project was launched last November by President Mnangagwa, and seeks to expand cane production in the Lowveld area.
In its trading update, Hippo said “on completion, Project Kilimanjaro will contribute significantly to the industry target of full utilisation of installed milling capacity of 600 000 tonnes sugar by 2023/24, positioning the country to be one of the most competitive sugar producers in the region and globally”.
Morokane said the company’s free cashflows were already looking good and the company should be able to pay a dividend at the end of next year.
“It’s all (the payment of dividend) going to be on the back of improving the balance, the ratio (between exports and local sales). We should be able to do that without starving the local market,” he said.
Marokane, however, said there is need to make sure the company moves towards a dividend policy that ensures that “we do not expose the company”.
“The issue of liquidity and access to borrowing in the country is a matter that needs to be revisited as the economy’s dynamics changes. You take money out to shareholders and then you go back and say sorry we can’t get facilities please bring back the money.
“You need a balance and the team is working on that,” he said.
Bongani Ndlovu