Seed Co International Limited (SCIL.zw) HY2020 Interim Report

We have extracted the Company’s Secretary’s statement from the 2020 half year report for Seed Co International Limited (SCIL.zw), listed on the Zimbabwe Stock Exchange:

Income statement

Revenue

Turnover remained unchanged at $17.7m as the increase in maize seed sales volumes in Malawi, Tanzania and Zambia were neutralised by unfavourable currency movements and the delayed start to the planting season in Kenya due to late arrival of rains.

Gross margin

The improvement in margin is attributable to the product sales mix.

Other income

Non-core income declined to $1.3m on account of reduced exchange gains on foreign-currency denominated receivables in Zambia as the Zambia Kwacha’s rate of depreciation decelerated.

Operating expenses

At $11.6m, overheads were marginally higher than prior year but well within the regional inflation range due to cost containment efforts by management.

Finance costs

Interest costs rose to $1.6m on the back of increased borrowings with working capital tied up in receivables and inventories.

Loss for the period

The Group’s loss for the period widened to $2.5m because of the decrease in exchange gains and increased finance costs.

Statement of financial position Property, plant and equipment

Fixed assets increased to $39.2m resulting from capital expenditure partially offset by depreciation and exchange adjustments. The bulk of the capital investment went towards the purchase of a farm for seed production in Mkushi in Zambia.

Investment in joint venture

The Group injected additional capital into Prime Seed Co International in Botswana for acquisition of an 80% stake in Alliance Seeds – a South African based vegetable seed company.

Inventories

The growth in stock value to $30.3m arose from current year’s production in preparation of the main selling season in the second half of the financial year. The current stock position is therefore expected to unwind as the year progresses.

Trade and other receivables

The receivables balance nudged up to $54.2m as collections of outstanding balances from customers were negated by current year’s credit sales to date. Management is engaging major Group debtors with overdue balances.

Cash and cash equivalents

Bank balances decreased to $13.0m after payments for seed production, capital expenditure and the dividend to shareholders.

Equity

The movement in equity from $82.7m at the last financial year end to $71.7m at the reporting date consisted of loss for the period ($2.5m), exchange differences on translation of foreign operations ($7.3m) and the dividend paid to shareholders ($1.3m).

Bank borrowings

At reporting date, current Group borrowings amounted to $46.8m to cover the working capital gap created by the current high levels of inventories and receivables.

Trade and other payables

Seed deliveries by growers which were received just before the reporting date had not yet been paid for then hence the increase in trade and other payables to $16.8m.

Research and development

During the period under review, the following maize seed varieties were officially released in the respective markets:

  • SC 441 resistant to the Maize Lethal Necrosis Disease (MLND) and SC 661 in Kenya;
  • SC 649 in Ghana; and
  • SC 733 in Zambia.

The changing weather patterns have a potentially significant impact on the Group’s future financial performance. With the emerging risks of global warming and erratic rainfall; the Group’s research and development is increasingly focusing on breeding more drought tolerant varieties.

Outlook

Management is forecasting strong growth in full year earnings from prior year. This will be driven by:

  • Likely increase in revenue following recovery of demand in Kenya and Tanzania with normal to above normal rainfall forecast after the drought experienced in that region in the last financial year;
  • Anticipated improvement in margins; and
  • Planned operating cost control initiatives.

Directorate

Patrick Spadin replaced Antoine Colombo during the period under review. All regulatory requirements regarding this change were fully satisfied.

Dividend

No dividends were declared during the first six months as per Group policy.

By Order of the Board
E.M. Kalaote
Secretary