Ashly DhaniFrancis Gakanje
Sugar producer Hippo Valley Estates Limited says there is a cash flow mismatch between the two major trading currencies (ZiG and USD), which is resulting in limited USD-denominated receipts.
In a trading update for the quarter to June 30, 2024, the company said this has resulted in a deficit for critical imports and other local supplies, which are currently priced in USD.
“Currency dynamics have had a negative effect on the cost of doing business as the company is currently experiencing a mismatch between the ZiG and USD on revenues and expenditure where the currency mix on revenues is currently showing a decrease in USD denominated sales and an increase in ZiG denominated sales while providers of goods and services are currently preferring settlement more in USD than what the company is able to generate from the normal sales,” reads the update.
It added, “The company continues to engage customers and suppliers of goods and services for a win-win currency mix on settlement to ensure business viability and sustainability.”
Hippo Valleys said the company introduced “Project Zambuko” at the beginning of the year, which aimed at improving operational efficiency and commercial performance and maximising opportunities to reduce costs.
The project was launched to navigate the operational landscape and ensure the long-term sustainability of the business.
“The company remains resilient and focused on improving performances to ensure targets are met as the year progresses, while closely watching the efficacy of recent policy measures,” said Hippo Valley.
For the period under review, the group’s sugar cane production increased due to a combination of improved crop yields, higher harvesting targets aligned with projected delivery needs, consistent cane supply, and enhanced mill operations and uptime.
In contrast to the prior year, which was impacted by delays stemming from the late finalisation of supply agreements, the performance of private farmers increased this period due to earlier cane deliveries, thereby improving the company’s overall performance.
“With the successful off-crop (annual) maintenance to ensure more plant reliability, the mill is performing optimally with good crush rates ahead of target and better than prior seasons,” the company noted.
During the quarter under review, Hippo Valley’s domestic sales declined by 7 percent compared to the previous year, largely attributable to the lingering effects of duty-free sugar imports, which continued to have a spillover impact.
According to the trading update, the firm’s sales performance was initially impacted by a slow start from the country’s sugar refineries.
“However, this situation has since improved, and the refineries have recovered their operating momentum.
“The Company believes that with the good start in sugar production, positive milling performance, and continuous engagements with the authorities, there will be no need for the reintroduction of duty-free sugar imports in the current and ensuing years,” it said.
The company says the reduction in export sales volume across the industry was primarily due to a strategic decision to prioritise the domestic market during the first quarter in order to ensure consistent product availability and supply to all local consumers and customers.
However, the group’s revenue for the first quarter grew by 15 percent, driven by an improved sales mix and higher price realisations, despite a decline in overall sales volumes.
Online Reporter