The accompanying financial results were restated to account for inflation in accordance with the requirements IAS 29 – Financial Reporting in Hyperinflationary Economies per the guidance issued by the Public Accountants and Auditors Board (PAAB) and the Institute of Chartered Accountants of Zimbabwe (ICAZ) on 11 October 2019 and 20 November 2019 respectively.
The Consumer Price Indices (CPI) used to restate the historical numbers were sourced from the Zimbabwe Statistical Office (ZIMSTATS) through the Reserve Bank of Zimbabwe (RBZ) website. Management deems these rates highly subjective on the basis of comparative prices being denominated in a different currency (US$) to the current ones which are denominated in ZWL$. This results in a blanket comparison of dissimilar items. In addition, actual price increases on the ground seem to be much higher than suggested by the CPI. Therefore, management advises stakeholders and the investing public to exercise caution in making any decisions on the basis of these inflation-adjusted financial statements due to the relative subjectivity of the CPI used in their compilation. The financial commentary below is based on the historical cost numbers.
Total volumes were 46% below prior year because of:
- non-recurrence of early maize seed sales made in the comparative period;
- reduced open-market demand due to squeeze on customer disposable income; and
- lower wheat seed acreage planted resulting from limited irrigation capacity caused by electricity and water shortages.
In spite of the decline in volumes; revenue more than doubled from the previous year due to alignment of selling prices with inflation to enable inventory replacement. The margin increase is largely due to the mismatch between valuation of stock sold at the respective cost incurred at the time of production and processing and the selling prices at the time of despatch to customers. Operating expenses were three and half times the prior year level which is lower than the implied year-on-year inflation for the year to date due to concrete cost control initiatives by management during the period under review. Finance costs surged riding on the increased borrowings.
Associated companies had a mixed set of results. The International field seeds business recorded an increased loss from prior year caused by decreasing exchange gains on account of adverse exchange rate movements. Meanwhile, Zimbabwean based vegetable and cotton seed business achieved better than last year results driven by selling price increases. Net profit for the period rose by 175% driven by:
- selling price adjustments;
- cost control; and
- increased contribution from local associate and joint venture.
Statement of financial position
Fixed assets were revalued to current market values hence the huge increase in property, plant and equipment; equity and deferred tax liability from prior year end. In addition, the Group continues its capital investment in the seed dryer project which is expected to be commissioned sometime in 2020.
Other financial assets consist of RBZ savings bonds; Grower Transformation Initiative (GTI) receivables and fixed deposits. The savings bonds matured in October 2019 with the proceeds received then and the process to deposit these with the RBZ in lieu of legacy foreign debts is in progress.
The inventory balance soared on the back of seed receipts from growers at current costs. The stock comprises of commercial seed; other production and processing inputs i.e. fertilisers, chemicals and packaging and foundation seed. Trade and other receivables mainly relate to current credit sales; prepayments to suppliers including inputs advanced to growers and VAT receivable. Borrowings and payables grew to fund capital expenditure and the working capital gap created by the decimation of monetary asset values in the wake of the liberalisation of the exchange rates in February 2019.
The prevailing operating environment remains unpredictable characterised by continuous local currency depreciation and hyperinflation. Management’s focus is therefore geared towards:
- initiatives to retain value and protect the balance sheet
- pricing to enable restocking
- ensuring the majority of the Group’s stakeholders (shareholders, growers, employees etc.) are not prejudiced.
Patrick Spadin joined the Board while Andrew Barron, Antoine Colombo and Chance Kabaghe resigned from the Board during the period under review. All regulatory requirements regarding these changes were fully satisfied. Dividend No dividends were declared during the first six months as per Group policy.
By Order of the Board