Hippo reported a fair set of results for FY22 albeit below our expectations. Cane deliveries from the company were 14% below the same period in prior year as aphid infestations and water logging of soils reduced cane yields. Cane deliveries from private farmers were up 30% y/y. The incessant rains in December 2020/21 disrupted the harvesting program resulting in 555 hectares being carried over for harvest in the FY22 financial year. The company’s sugar production increased by a marginal 3% y/y from 204k tons in FY21 to 209k tons in FY22. The company’s share of total industry sales volume was 53% from 50% in the prior year. Sales volumes into the domestic market were up 10% as demand firmed and supply improved. Following a reduction in COMESA quota allocation in Kenya, total industry exports fell by a drastic 67% y/y to 38k tons from 115k tons. Volumes originally intended for Kenya were mopped up by the domestic market. Revenue for FY22 was down a marginal 4% from FY21 in real terms. Cane costs increased in line with increased volume of cane from third parties and reduced benefits from forward purchasing of key inputs. EBITDA margins declined to 45% for the period from 50%, historical averages for the EBITDA margins are circa 20%. Net Operating Cash Flow to EBITDA ratio plummeted from 37% in FY21 to 4% in FY22. The previously unleveraged company closed the year with a debt-to-equity position of 10%. The current dividend yield is 0.6%.
