Seed Co International (BSE) – Abridged Group Results for the HYE 30 September 2022

Seed Co International Limited (SCIL.bw) HY2023 Interim Report

Overview

Adverse effects of the Russo-Ukraine conflict bedevilled the global economy characterised by constrained global supply-chain induced inflation, rising inflation and interest rates. Regional economies in which the Group operates are impacted the most on the backdrop of already fragile economies, the aftermath of the peak of Covid-19 as well as the bad rainfall season last year that was more pronounced in East Africa. On a positive note, the Covid-19 pandemic is largely under control. These developments also impacted the Group mainly through rising input costs, seed production challenges in drought impacted parts of Africa and declining aggregate demand.

Financial performance

Performance reverted to the usual first half cost accumulation and loss outturn in line with the seasonality of the business. Unlike prior year, sales volume was subdued in the absence of early seed distribution mainly in Malawi as the Government delayed pronouncing its input programme for the 2022/23 season causing the SBU’s half-year volume to decline by 80%. A similar situation also obtained in Zambia with the Government delaying the intake of seed to the next half of the year unlike last year and reduced the SBUs’ volume by 20%.

In Kenya drought as well as product unavailability resulted in volume declining by 46% while product shortages in Nigeria handicapped volume by 40% in this market.

Overall, Group volume dropped by 34% and this was partially offset by the appreciation of the Zambian kwacha curtailing the decline in turnover to 28%. Consequently, margins were also weighed down by the drop in turnover.

Operating expenses increased due to imported global inflation in regional markets as well the impact of a strong Zambian kwacha.

Net finance costs were higher due to rising interest rates. The Group’s net debt increased mainly as a result of the translation impact of a kwacha on local Zambian borrowings.

Associate and joint venture operations loss contribution almost halved driven by South African associate that had a good early season headstart on the back of better product availability.

The Group’s tax expense decreased notably as the business cycle reverted to the normal seasonal first half loss unlike prior year when the Group benefited from early season sales.

Financial position

Capital expenditure coupled with the aforementioned strong Kwacha drove the increase in property, plant and equipment values. Notable fixed asset additions include production farm capacitation in Zambia; marketing and distribution fleet replacement across markets.

The carrying value of investments in joint ventures and the associate declined on account of the share of losses booked during the period.

Receivables increased with the early sales though this was partially offset by collections since the last financial year end.

In line with the seasonality of operations, the value of inventory peaks during the first half as seed is being received from growers and being processed ahead of the planting season in most markets.

The movement in equity is mainly attributable to the loss recorded during the first half.

The increase in borrowings mainly arose from the draw-down of seasonal short-term working capital facilities to fund the intake of raw seed from growers and the commencement of seed processing.

Payables mainly relate to amounts outstanding on seed delivered by growers settled subsequent to the reporting date.

Seed supply

In spite of climate change and global inflation induced challenges encountered by seed growers, overall the Group has adequate stocks to satisfy demand in most markets save for Kenya and Nigeria.

The Group is however leveraging its production bases in Southern Africa, Zambia and Malawi as well as Zimbabwe, to supply seed to the East and West African markets that have shortages.

Research and development

The Group continues to leverage its intellectual capacity to innovate and release seed products that are adaptable to ever changing climatic conditions and emerging pests and diseases. To renew and diversify the product basket, a number of new products were released during the first half.

Outlook

Rainfall forecasts are indicating normal to above normal rains in most parts of Southern Africa and below normal to normal rains in parts of East Africa. On the back of enhanced focus on regional food security and the Group’s strong geographical presence as well as a diversity of climate-smart products suitable for mixed rainfall patterns, we are well prepared to satisfy market demand. Improved performance is expected from the South African associate that is now on a firm footing following its recent establishment. In addition, the vegetable joint venture is expected to be boosted by exciting opportunities in Mozambique, a new market. We are however cognisant of the global risks, and we continue to implement mitigating measures to continue growing stakeholder value.

By Order of the Board

E. M. Kalaote
Company Secretary
12 December 2022

• Seed Co International Limited (SCIL.bw) on AfricanFinancials