Hippo Valley Estates Limited, a subsidiary of Tongaat Hulett Zimbabwe, a leading agricultural company, has reported a tumultuous first quarter ending June 30, 2024, marked by significant currency fluctuations and operational challenges.
The company noted that the introduction of the new Zimbabwe Gold (ZIG) currency, which has since been assigned a new currency code ‘ZWG’, aimed at reducing USD dominance, has resulted in a mismatch between revenue and expenditure, negatively impacting the company’s bottom line.
The company has struggled with a decrease in USD-denominated sales and an increase in ZWG-denominated sales, while providers of goods and services prefer settlement in USD, exacerbating the issue.
This has led to a surge in the cost of doing business, posing significant challenges for the company’s operations.
Despite adopting the USD as the reporting currency, Hippo Valley Estates Limited is grappling with the implications of the new monetary policy framework.
The company will no longer apply the provisions of IAS 29 hyperinflation, but the currency dynamics continue to affect its financial performance.
“At the onset, the exchange rate between the ZWG currency and the USD was ZWG1: USD13.56 and this eventually closed the quarter on 30 June 2024 at ZWG1: USD14.39.
“The Company has to date complied with all the directives of the 2024 Monetary Policy Statement and focus remains on ensuring all operations adapt to the current trading environment,” the Zimbabwe Stock Exchange Listed company noted.
“However, currency dynamics have had a negative effect on the cost of doing business as the Company is currently experiencing a mismatch between the ZWG and USD on revenues and expenditure where the currency mix on revenues is currently showing a decrease in USD denominated sales and an increase in ZWG denominated sales while providers of goods and services are currently preferring settlement more in USD than what the Company is able to generate from the normal sales.”
On a positive note, the company’s agricultural operations have not been severely impacted by the El Nino-induced weather patterns due to adequate irrigation water from supplying dams.
The company said the Mkwasine area, which services private farmers, is, however, facing water supply concerns, with less than a year’s cover.
Sugar cane production increased due to better yields, increased harvesting targets, and improved mill uptime. However, domestic sales dropped by 76% compared to the prior period, mainly due to the lingering effects of duty-free sugar imports and a slow start from the country’s sugar refineries.
Despite the challenges, the company is optimistic about its outlook, expecting better returns driven by improved agricultural output, positive mill performances, and enhanced commercial re-engineering.
The company has assured adequate sugar stocks to meet domestic and critical export market demands.
“While the introduction of the new currency (ZWG), has demonstrated its potential to anchor the economy through stabilisation of prices, and restoring confidence, there is currently a cashflow mismatch between the two major trading currencies (ZWG and USD) which is resulting in limited USD denominated receipts than required for critical imports and other local supplies which are currently priced in USD,” the company said.
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