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Hippo Valley to exhaust available borrowing facilities for capital

Business
Hippo said marketing efforts were aimed at restoring market share and optimising export revenue.

SUGARCANE miller, Hippo Valley Estates Limited, will leverage on available borrowing facilities up to the end of its financial year to cushion its working capital requirements.

Local companies had been missing critical financing for long-term trade and development projects due to uncertainty over the continued use of US dollars, causing banks to opt out of lending for long-term projects past 2025.

While usage of the multi-currency was, however, extended to 2030, banks are still reluctant to lend in foreign currency.

“The company’s strategic focus remains on improving yields and ensuring plant reliability, maximising capacity utilisation and achieving sustainable operating cost efficiencies in the medium to long term,” Hippo said in its trading update for the third quarter ended December 31, 2023.

“In the short term, the priority is to complete the off-crop programme which is well underway to ensure an efficient and reliable milling campaign in the 2024/25 season, improving quality and safety performance, reconfiguring the route to market, and implementing innovative work streams to contain the cost of goods and services.”

The firm added: “The company will also leverage on available borrowing facilities up to the end of the financial year to cushion its working capital in light of off-crop requirements.”

The company noted that it was looking forward to improved domestic sales volumes after the removal of duty on imported basic commodities.

This is because the increase in duty-free sugar imports on the market led to an 18% decline in total industry sugar sales to 227 855 tonnes in the nine months ended December 31, 2023, from the 2022 comparative.

However, the benefits from the removal will take time to realise as the market still has large quantities of imported sugar.

Hippo said marketing efforts were aimed at restoring market share and optimising export revenue.

“While the local market remains pivotal to the industry, management is also prioritising the development of new markets, necessary for the generation of additional foreign currency to sustain the industry’s requirements for critical imports,” the company said.

For the period under review, Hippo reported a difficult business environment owing to significant inflationary pressures, exchange rate volatility, and constrained Zimdollar and United States dollar liquidity.

The effect of the imported sugar on cash flow made it difficult for the company to get critical spare parts to run its mills leading to an increase in mill stoppages by 3,2 percentage points to 17,8%.

Production was, resultantly affected, leading to carryover cane amounting to 652 hectares.

Hippo’s total sugar produced for the period was down 6% to 194 684 tonnes from the comparative year, owing to unfavourable weather conditions.

Revenue, however, was up by 77% to ZWL$977,7 billion during the period from the 2022 comparative period, driven by price adjustments in line with the local currency’s depreciation.

Export sales volumes also supported revenue as this increased by 68% to 67 527 tonnes during the period, from the 2022 comparative.

“However, the increase in revenue was not sufficient to offset the increased costs of business, particularly in respect of manpower costs,” Hippo said.

The company expects the new taxes implemented and geopolitical tensions to increase costs.

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