Seed Co Limited (SEED.zw) HY2024 Interim Report
Increased macro and micro-environment uncertainty and operating difficulty characterized the first half of the trading year. Liquidity crunch, foreign currency shortages and prohibitive borrowing costs were among the major obstacles encountered in the period. On the global scale, the unending geopolitical dispute in Eastern Europe, as well as the recent war outbreak in the Middle East, has had a massive impact on global supply chains compounding the challenges of already fragile economies.
Value tracking price adjustments on the backdrop of inflationary pressures and comparative exchange rate movements resulted in inflation-adjusted turnover being 121% higher than prior year.
In volume terms, the business registered 8% growth in winter wheat and barley sales of 6,828mt despite a myriad of challenges experienced by farmers. On the other hand, the summer selling season started slowly mainly because of the late start of Government related input support initiatives. This saw maize sales volumes reducing by 22% when compared with prior year. Gross profit margins notched up to 58% compared to 54% in prior year benefiting from price reviews and older wheat stocks.
Inflation and exchange rate movements saw overheads increasing 181% compared to prior year.
The regional associate, Seed Co International, registered an encouraging start in terms of volume and turnover and this resulted in a reduced first half loss compared to prior year.
Net finance costs were 22% lower than prior as the business largely accessed funding at productive sector interest rates averaging 95% on ZWL$ borrowing’s compared to the average funding cost of 113% year on year.
The carrying value of PPE increased 9% since 31 March 2023 because of the sales shop construction, office complex solar installation, and office complex refurbishment at Stapleford. The intake and processing of raw seed is almost concluded for this year’s selling season. The business has more than adequate stocks in the required varieties for the forecast rainfall season.
The carrying value of debtors of ZWL$135bn is mainly attributable to:
- prior year Government related debtors;
- current year winter cereal credit sales; and
- the revaluation of USD denominated grower advances.
Short-term borrowings increased in line with the borrowing cycle of the business, characterized by the intake of seed from growers as well as processing. The increase is also due to an inflation-induced increase in working capital requirements as well as the need to fund the debtors’ book.
Research and Development
Research and Development remains the key competitive advantage for the Company. Various research initiatives are at various stages of the pipeline to produce climate responsive products. The Company has progressed well in crop diversification with significant progress on the advancement of rice and potato. The maize seed basket has been expanded with the release of SC 661 and SC 657.
Despite the harsh and uncertain operating environment, the business is committed to remain the most preferred as well as trusted producer and supplier of improved crop seeds. Going forward the business is focusing on increasing the contribution of exports and USD denominated sales as well as pricing right while containing costs. The regional associate business is poised to continue the growth trend established in the first half leveraging on its diversified geographical footprint and climate smart products to respond to the favourable and unfavorable El Nino weather conditions in East Africa and Southern African respectively. Overall, the Company has an optimal varietal mix of seed suitable for both drought and good rainfall forecasts.
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