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. Subsequent contractionary measures from the central bank to slow the rate of inflation also had the effect of inducing a liquidity crunch. Whilst the rainfall season was not as pronounced as the previous year, cane contribution from the company’s plantations grew 12% y/y aided by improvements in yields from 101tn/ hectare to 107tn /hectare. However, cane deliveries from private farmers underperformed the comparable season by 5% as spells of wet weather delayed harvest operations. Overall tonnes milled grew 2% to 1,310k tonnes with Hippo Valley contributing 735k tonnes whilst private farmers brought in 575k tonnes. 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% in sugar output to 157k tonnes. The company’s share of total production remained relatively flat in 1H23 registering at 53.11% versus 52.9% in 1H22. 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. Despite subdued demand in the domestic market, sugar exports by the industry performed well aided by increased volume allocation on the United States Tariff Rate Quota from 13,087 tonnes to 17,751 tonnes. Sugar volumes into the Kenyan market grew 38% despite protectionist policies being implemented whilst volumes into Botswana (-23%) were impacted by delayed shipments and prioritisation of supply into the domestic market. Total export volumes were up 19% to 32,265 tonnes whilst aggregate sales slid 3% to 293K on account of the domestic market. EBITDA margins remained elevated above historical averages at 61% whilst OCF/ EBITDA dropped from 25% in the same period last year to 1.6% due to aggressive working capital changes. Hippo declared an interim dividend of USc0.3 giving a dividend yield of 0.99% at current levels.
