Seed Co Limited (Zimbabwe) releases its Abridged Group Results for the HYE 30 September 2022

Seed Co Limited (SEED.zw) HY2023 Interim Report

Overview

The first half of the year was an increasingly difficult operating environment in Zimbabwe with constant policy interventions. Liquidity crunch, foreign currency shortages and prohibitive borrowing costs were among the major obstacles encountered in the period. During the period under review, the cost of key agricultural inputs continued to rise and thereby threaten achievement of food security. On the global scale, the unending geopolitical dispute in Eastern Europe has had a massive impact on international supply chains compounding the challenges of fragile regional economies.

Financial Performance

Record local winter and barley sales were achieved during the first half i.e., a growth of 30% from prior year to 6,320mt. Overall, winter sales were 8% lower in the absence of repeat export sales. Last year 2,000mt of wheat was exported to Nigeria. On the other hand, maize seed sales began on a lower note as farmers did not pre-stock as they did in prior year given the liquidity crunch in the economy. The rollout of Government programmes was also delayed this year. This saw maize sales volumes declining by 45% from same prior year period.

On the export front, the business registered a notable 88% volume growth satisfying the shortage in the regional caused by drought in prior year particularly in East Africa.

On the local market, selling prices were regularly adjusted in line with inflationary pressures and exchange rate movements resulting in inflation-adjusted turnover being 5% higher than prior year.

Gross margins were stable in inflation-adjusted terms owing to inflation tracking price adjustments and the relatively lower carrying value of wheat stock carried over from prior year.

Inflation and exchange rate movements saw overheads increasing significantly compared to prior year.

A loss was absorbed from associates mainly contributed by Seed Co International whose first half performance was subdued with notable early sales reduction in Malawi and drop in revenue in Nigeria due to product unavailability and in East Africa due to drought.

Financial Position

The carrying value of property, plant and equipment was relatively stable compared to last year end with no major capital expenditure during the period under review.

The business is still taking deliveries of raw seed and by the end of the first half 15,500mt tonnes of maize seed was in stock across all varieties. The business will have adequate seed available for this summer selling season.

The carrying value of debtors quadrupled from the closing position last year end and this is attributable to winter cereal credit sales as well as the revaluation of grower debts that were advanced denominated in USD. Nearly half of the debtors’ book related to grower advances whose balances are being recovered with the delivery of raw seed.

Short-term borrowings increased in line with the borrowing cycle of the business, characterised with the intake of seed from growers as well as processing. The increase is also due to inflation-induced increase in working capital requirements as well as the need to fund delayed settlement of Government related debtors.

Research and Development

Research and Development remains the key pillar of the competitive advantage for the business. Various innovative research projects are underway to produce seed solutions in both existing product portfolio and new crops that are adaptable to the constantly evolving climate and disease regiment. The business has progressed well in crop diversification with remarkable work on rice and potato seeds having been recorded.

Dividend

No interim dividend was declared.

Outlook

Despite the harsh and uncertain operating environment, the Board and management will focus on defending the leading market position and stakeholder value enhancement by harnessing hard currency local sales as well as exploiting regional export opportunities. The business has adequate seed and is prepared for the main summer selling season which is now underway. The regional business is also well prepared for the season on the back of adequate stocks out of Zambia also serving the East African markets, improving economic environment in Zambia, stability in Tanzania and continued business growth in Mozambique. The Group has optimal varietal mix of seed to match the mixed rainfall forecasts with most parts of Southern Africa expecting normal to above normal rains and East Africa anticipating normal to below normal rains.

T. Chatiza
Group Secretary

12 December 2022

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