Seed Co Limited 2019 abridged report

We have extracted below the Chairman’s Statement from the 2019 abridged report of Seed Co Limited (SEED.zw), listed on the Zimbabwe Stock Exchange:

Overview

The Group opted to maintain its presentation currency as the USD following the change in functional currency on 22 February 2019 to RTGS$. The translation to USD was done as practicably possible in the extenuating circumstances based on the prevailing legal statutes. This was however deemed to be non-compliant and in conflict with IAS 21 by the Group’s external auditors hence an adverse opinion was issued on the Group’s financial statements.

Income statement

Revenue
Turnover increased to $73.4m mainly due to upward price adjustments necessitated by the inflationary environment prevailing in the country.

Gross margin
Gross margin shed 3 percentage points due to the increase in the seed production costs. Operating expenses Overheads were 5% higher than prior year despite huge inflationary pressures due to cost reduction measures across the value chain.

Operating expenses
Overheads were 5% higher than prior year despite huge inflationary pressures due to cost reduction measures across the value chain.

Profit from continuing operations
The Group’s profit from continuing operations was up resulting from:

  • increase in revenue;
  • interest from government savings bonds; and
  • share of profit from associates and joint venture.

Share of profit from associates and joint venture
This mainly relates to profit from unbundled foreign operations now accounted for as an associate entity. In addition, the local vegetable and cotton seed businesses achieved a solid set of results.Profit from discontinued operations.

The profit arose from the partial unbundling of a former foreign subsidiary.

Net finance income
Finance income rose because of interest received from the investments in the government savings bonds.

Profit from discontinued operations
The profit arose from the partial unbundling of a former foreign subsidiary. Statement of financial position Property, plant and equipment The $3.9m decrease in property, plant and equipment resulted from the local currency devaluation. This was partly offset by the subsequent revaluation of fixed assets.

Statement of financial position

Property, plant and equipment
The $3.9m decrease in property, plant and equipment resulted from the local currency devaluation. This was partly offset by the subsequent revaluation of fixed assets.

Other financial assets
The majority of the treasury bills matured and were settled during the period with part of the proceeds reinvested in government savings bonds. Inventories The book value of stock is substantially lower than at the previous year end following the conversion of local currency values to USD.

Inventories
The book value of stock is substantially lower than at the previous year end following the conversion of local currency values to USD.

Trade and other receivables
Trade and other receivables also declined due to the currency redenomination. The balance outstanding from government was settled post year end. Cash and cash equivalents The decrease was mainly due to translation from RTGS to USD. Equity The decrease in equity resulted from the dividends (cash and in-specie) and exchange differences on translation of the Group’s financial statements from RTGS to USD negating the profit for the year and asset revaluations carried out during the year. Liabilities The Group paid off most of its local creditors and bank borrowings. However, remittances for foreign obligations remained lodged with the bankers pending repatriation on availability of the required foreign currency.

Cash and cash equivalents
The decrease was mainly due to translation from RTGS to USD.

Equity
The decrease in equity resulted from the dividends (cash and in-specie) and exchange differences on translation of the Group’s financial statements from RTGS to USD negating the profit for the year and asset revaluations carried out during the year.

Liabilities
The Group paid off most of its local creditors and bank borrowings. However, remittances for foreign obligations remained lodged with the bankers pending repatriation on availability of the required foreign currency.

Seed Supply

Despite the inflationary challenges experienced by growers and the dry spell experienced during the production season; the Group has adequate stocks to meet anticipated demand for the forthcoming season.

Research and Development

A total of 3 new maize hybrids in the medium to late series were officially released with the Seed Services in Zimbabwe while an additional 11 varieties are in their final stages of observation pending release. One new Soyabean variety was released and registered for commercialisation. Significant progress is being made on the rice varieties being developed.

Outlook

It is difficult at this stage to estimate the impact of exchange rate changes on future financial performance but the Group expects that:

  • it will maintain its market dominance with new products expected to spur growth;
  • the vegetable business will maintain its upward growth trajectory;
  • the new seed drying facilities currently under installation will enhance the early availability of seed for sale post-harvest; and
  • the currency dynamics will continue to present product pricing challenges.

Directorate

There were no changes to the directorate during the period under review.

Dividend

The board declared a dividend of 0.40 USD cents per share payable to shareholders in RTGS at the ruling interbank rate on 13 June 2019, the analysts briefing date. The dividend is payable either in cash or scrip at the rate of 1.35 new shares for every 100 existing and held as of 12 July 2019 depending on the option selected by each Shareholder. Shares will trade cum-div until 9 July 2019 and ex-div from 10 July 2019. The payment date is 7 August 2019.

By Order of the Board
T.N. Chimanya
Secretary