Cane processor Hippo Valley Estates says it is intensifying cost-containment measures as rising labour and production costs continue to erode margins, despite a sharp improvement in earnings.
The Tongaat Hulett subsidiary mounting cost pressures remain one of the biggest threats to long-term profitability, even after reporting stronger financial results for the year ended 31 March 2026.
Revenue increased 15 percent to US$220,8 million during the period, while operating profit climbed more than fourfold to US$33,6 million. Profit after tax rose 79 percent to US$24,1 million, supported by higher sales volumes and the release of carry-over sugar stocks.
However, chairman Canaan Dube said the stronger performance masked structural cost challenges affecting both the agriculture and manufacturing businesses.
“Our agriculture division bears the largest share of the high wage bill as previously reported and still places the business at a significant disadvantage relative to other sectors within the agriculture and sugar production industry, locally and in the region,” Dube said in a statement accompanying the group’s full-year financial results.
He said increasing reliance on sugarcane supplied by private farmers had further reduced the company’s ability to manage production costs because the Cane Purchase Agreement fixes the cane price at US$71 per tonne.
Hippo Valley said the growing contribution of privately supplied cane was steadily increasing its average cost of production while reducing profitability on sugar exported into lower-priced regional markets.
The company also flagged mounting pressure in its manufacturing operations, saying high production costs had created “a severe cost-price squeeze” that was weakening its competitiveness against regional producers.
Dube said cane procurement costs under the Cane Purchase Agreement remained significantly above regional benchmarks, while cane sourced under the Cane Milling Agreement also remained expensive.
The company attributed this to Zimbabwe’s 77 percent Division of Proceeds allocation in favour of private growers, compared with regional averages of between 56 percent and 65 percent.
A pending court case could increase growers’ share to 80,5 percent with retrospective effect from April 2022, adding further pressure to production costs.
“Notwithstanding the current year performance, cane costs under CPA remain a significant driver of low margins in the milling segment and materially higher than regional benchmarks,” Dube said.
Hippo Valley said recent tax policy changes had also increased operating costs after sugar was reclassified from a zero-rated to an exempt value-added tax product under Statutory Instrument 15 of 2024, reducing the company’s ability to claim input tax credits.
The group added that intermediated money transfer tax charges on electronic transactions had also weighed on cash flows and profitability.
To counter the rising cost base, Hippo Valley said it was pursuing a broad efficiency programme that includes greater factory automation, improved sucrose extraction, expanded use of solar energy, precision agriculture, drones and artificial intelligence-driven data management.
The company said it would continue investing in production equipment, irrigation infrastructure and factory maintenance to improve productivity and protect margins against persistent cost inflation.