eBusiness Weekly
Enacy Mapakame
Sugar processor – Hippo Valley’s cane production is expected to remain flat according to analysts’ projections.
Although the 2022/23 rainfall season is projected to be normal to above normal, this is also likely to cause water logging which will have a knock on effect on cane production.
“Forecasts for rainfall in the 2022/23 season are weighted towards normal to above average downpour increasing irrigation water cover which is currently set to cover two planting seasons easing constraints on production.
“However, downside from prolonged wet spells include waterlogging potentially compromising the improvement in yields. On this backdrop, we expect annual cane production to remain flat at 1,655 tonnes,” said IH Securities in an earnings review for the group.
In terms of the demand side, the Government announced that it will not be extending the exemption of import duty on basic commodities aiding a marginal recovery for sales into the domestic market going into the company’s last quarter.
During the first half year period- to September 30, 2022, domestic sugar sales for the industry were impacted by SI 198 allowing duty free importation of basic commodities from neighbouring countries, sugar being one on the list.
“Sales volumes year on year are expected to trend sideways with the top line being supported by elevated prices of agricultural commodities,” adds the research firm.
As for financial performance, Hippo’s revenue is seen closing FY23 at US$135 million.
For forecasts to remain relevant in the present inflationary environment, IH Securities have shifted to a US dollar based valuations.
EBITDA margins are also seen starting moderating going forward initially slowing to 40 percent whilst net income is expected to come in at US$31 million in the current earnings cycle.
“However, as margins correct to historical averages, we expect normalisation of profits there-after.” Said IH Securities.
Meanwhile, the operating environment in the first quarter of the financial year saw increased deterioration of macros on the back of imported inflationary pressures and a rapidly deteriorating currency.
This was followed by contractionary measures from the central bank to slow the rate of inflation, which also had the effect of inducing a liquidity crunch.
Despite the challenges, cane contribution from the company’s plantations grew 12 percent year on year aided by improvements in yields, although rainfall was not as pronounced as the previous year.
But deliveries from private farmers underperformed the comparable season by 5 percent as spells of wet weather delayed harvest operations.
Overall tonnes milled grew 2 percent with Hippo contributing the bulk of it.
In terms of sugar production, the marginal increases in tonnes milled were unfortunately diluted by poor quality of cane leading to a decline of 3 percent in sugar output.
Despite subdued demand in the domestic market, sugar exports by the industry performed well aided by increased volume allocation in the United States.
Sugar volumes into the Kenyan market grew 38 percent despite protectionist policies being implemented whilst volumes into Botswana fell 23 percent impacted by delayed shipments and prioritisation of supply into the domestic market.
Total export volumes were up 19 percent to 32,265 tonnes whilst aggregate sales slid 3 percent.
