Zimbabwe Stock Exchange (ZSE) listed seed producer, Seed Co, after tax profit for the year to March 31, 2018 surged 5 percent to $21,4 million despite the group being afflicted by a number of adverse factors, which weighed down on revenue.
Seed Co group finance director John Matorongofa, told an analyst briefing last week that overall earnings for the period increased on the back of strong growth in other income from commission based sales and exchange gains.
Further, earnings growth was also propelled by lower finance costs, which retreated by a weighty 40 percent on 2017, and a sterling performance by the listed group’s associate cotton seed business.
Mr Matorongofa said that the group’s net finance income more than doubled ($1,4 million) due to the group’s strong cash position at the beginning of the year which delayed use of facilities during the year.
The improvement in associate income, 216 percent higher at $1,2 million, was achieved due to increased volume of cotton seed sales made to the Zimbabwe Government’s annual inputs programme.
The group’s other income, which rose 100 percent to $4,4 million, was made up of commission, non seed sales, and doubtful debt recoveries.
The massive jump was due to increased volume of commission based sales and non seed sales.
Overall gross margins remained unchanged due to increased volume of lower margin winter cereals and soya beans, reduced volume of high margin long season varieties, the finance director said.
Mr Matorongofa said the group’s modest financial performance in the year under review came against the backdrop of downside factors of “product shortages caused by seed production challenges”, but “improved volume of winter cereals and soya beans mitigated the decline.”
Operating costs were up 1 percent due to increased research and development activity at the new research stations, increased sales and agronomy activities during the selling season and group restructuring activities underway.
Group chief executive Morgan Nzwere, said the season under review presented many challenges at all production centres, all working against growers leading to overall yield losses of close to 23 percent.
These challenges resulted in overall revenue decline of 5 percent to $128,5 million on the back of high disease pressure, poor pollination due to high temperatures at pollination stage followed by excessive rainfall when seed crops were coming to maturity, and high incidence of fall army worm.
“Product demand outstripped supply in all markets leading to critical shortages. The group is targeting a 40 percent maize seed production increase.
“Challenges for production still being experienced: High disease pressure, poor pollination due to high temperatures experienced and erratic rainfall,” Mr Nzwere told analysts.
Individual asset and liability values decreased as the regional balance sheet was classified as “held for distribution” because of the impending unbundling of Seed Co International.
The reduction was due to reallocation of $42 million of property, plant and equipment for the regional operations to assets held for distribution.
Capex of $7,9 million during the year was spent on acquisition of land in Zambia and Botswana for production and future construction of a warehouse respectively as well as capital improvements at various research stations.
Current and non current financial assets primarily comprised TBs of which $12,26 million maturing in the financial periods 2019 and 2020 and the remainder in current assets maturing in the group’s 2019 financial year.
The increase was due to Treasury Bills received during the year in settlement for the sales to Zimbabwe Government during the year.
Operationally, Zimbabwe led the group’s volumes contribution at 43 percent, followed by Zambia 29 percent, Malawi 8 percent, Tanzania 8 and Kenya 7 percent.
Mr Nzwere said that total volumes sales were the same as in the prior year; maize volumes down due to product shortages in all markets, winter cereals sales more than doubled due to high demand and improved power.
He said that all seed processing plants in good working condition across the group. Additional seed processing facilities will be set up in East Africa to increase capacity for this growing market.
The group is exploring cob harvesting and seed drying technology to speed up seed availability and contain diseases associated with late harvesting.
On small business unit performance, Zimbabwe got a lion’s share of the government business again this year with high demand for premium varieties by commercial farmers.
Mr Nzwere said that the business was in stock-out position.
In Zambia, local maize seed sales reduced by 31 percent due to late roll out of the e-voucher programme, maize commodity prices, which slumped to a low of $120, and thus dissuading farmers from planting as well as the drought experienced during the planting.
The stronger Kwacha in Malawi, Mr Nzwere said, and better export opportunities and improved pricing resulted improved margins by 4 percent.
Turnover was slightly higher than prior year in Tanzania due to amplified demand on the back of the drought experienced last year coupled with aggressive marketing efforts to increase footprint in the region.
In the outlook Mr Nzwere said “earnings will be maintained improved seed supplies in most markets.
(There) will be continuation of the Command Agriculture programme in Zimbabwe, continued market share growth in East Africa; Nigeria beginning to make contribution to group numbers while there will be adoption of vegetable seed hybrids across the markets we serve.”