Sugar processor, Hippo Valley Estates Limited’s profit for the year to March 31, 2021 more than halved to $1,1 billion on fair value loss while sugar production took a dip.

According to the group sugar production went down 4 percent on the back of lower than expected mill efficiencies and inclement weather conditions (incessant rains) which impacted cane quality.

Steps were however taken during the January to April 2021 off-crop period to rehabilitate the mill to ensure improved performance in the 2021/22 production year, whilst solar projects to augment electricity at critical water pumping installations are under consideration. Cane harvested from company improved 3 percent to 1 million tonnes while cane harvested from private farmers took a 14 percent dip to 592 722 tonnes.

“Overall, cane deliveries from the company’s plantations (miller-cum-planter) and private farmers were impacted by irrigation power challenges and the dry spell experienced during the 2019/20 peak growing period of October 2019 to March 2020.

“Additionally, the wet spell in December 2020 interrupted the harvesting programme resulting in a total of 555 hectares for both the company and private farmers being carried over for harvest in the 2021/22 production season,” said chief executive officer Aiden Mhere in a statement accompanying financial results for the year.

During the year, Hippo’s share of total industry sugar sales volume of 440 000 tonnes was 50 percent compared to 48 percent contribution in the prior year.

Total industry sugar sales into the domestic market for the year of 325 000 tonnes were marginally above prior year’s 324 000 tonnes having recovered from low sales during the first quarter of the financial year on account of then existing economic distortions.

Despite the Covid-19 impacts, demand in the local market remained strong while Industry export sales for the year recorded a 29 percent growth to 115 000 tonnes driven largely by a growth in the Kenya market despite a temporary suspension of sugar imports into that market in June 2020. In terms of financial performance, Hippo recorded a 34 percent increase in revenue to $16,8 billion largely due to the increased export volumes.  Operating profit and profit for the year decreased by 28 percent to $3,8 billion and by 58 percent to $1,1 billion respectively, weighed down by a fair value loss on biological assets of $1,1 billion.

Mr Mhere said: “This was due to a drop in forecast cane price at current purchasing power from prior year.”

However, excluding the non-cash impact of biological asset valuations and depreciation, adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) improved by 26 percent as the company benefited from prudent management of costs and the positive impact of forward purchasing of key inputs in a hyperinflationary environment.

Net cash inflow from operating activities doubled to $1,2 billion driven by the improved adjusted EBITDA partially offset largely by an increase in tax paid. Capital expenditure increased by 129 percent to $365 million of which $225 million was for root replanting.  By end of the financial year, net cash balance was at $886, which was 118 percent above prior year comparable.

Demand for sugar is expected to remain firm while total production for the sugar industry for the forthcoming 2021/22 season is forecast to increase marginally on projected improvements in yields, cane quality and efficiencies.