HARARE - SeedCo FD John Matorofa told analysts yesterday that the group’s turnover for the half year ended 30 September increased by 45% to $36.07 mln due to early maize seed sales and improved winter cereal seed sales.
Maize seed sales volumes increased by 34% to 10 300MT while winter cereal sales volumes grew by 251% to 7 420MT due to high demand and improved power. Cost of sales in the period under review increased to $18.25 mln from $14.98 mln. Meanwhile, gross profit went up to $17.81 mln from $9.820 mln while gross margin rose by 9% to 49% due to increased maize seed sales with higher margin. Matorofa indicated that other income increased to $382 103 from the previous negative $1.665 mln due to reduced exchange losses on net foreign denominated monetary items mainly in Zambia and Malawi due to the stability of the Kwacha. The increase is also attributable to doubtful debt recoveries.
Operating expenses went up by 27% to $20.02 mln “on account of increased research activities at Muzarabani and Potchefstroom research stations as well as increased throughput at the technical laboratory.” There were also increased sales and marketing activities ahead of the selling season. Finance costs reduced by 40% to $1.283 mln due to the strong cash position at the beginning of the year. Loss before taxation decreased to $1.791 mln from $9.409 mln while loss for the period decreased by 78% to $2.005 mln “due to a combination of increased sales during the period, improved margins, reduced finance costs and increased profits from the cotton business.”
Commenting on the statement of financial position, Matorofa noted that loans and receivables decreased to $12.61 mln from $24.06 mln due to reclassification of some $7.6 mln treasury bills maturing in less than 12 months to other receivables. Meanwhile, trade receivables increased to $43.21 mln from $38.02 mln due to high winter cereal sales despite cumulative collections of $38 mln. The FD highlighted that significant progress was made in collection of government debt. Inventories decreased to $42.54 mln from $48.26 mln as Matorofa explained that the stock levels are up due to deliveries of current year production by growers in preparation of the selling season in the second half of the year. Turning to borrowings and trade payables, he noted that these reduced as most of the operations were funded from cash resources during the period.
Commenting on the general environment, group CE Morgan Nzwere said normal rains are expected in Southern Africa. He also noted that most Africa currencies are stable although most African markets still face liquidity challenges. On research, he highlighted that progress was made in registration of 11 maize and 4 soya varieties on COMESA catalogue, quickening speed to market for released products in any member country. He also said the genotyping lab is working very well with all testing now being done in-house. The first generation of MLND tolerant products have been submitted for registration in Kenya.
The CE noted that anticipated demand in the current season is leading to stock outs in some markets and plans are underway to increase production this season from 43 000MT last season to 62 000MT due to stockouts. Giving an SBU updates, Nzwere said in Zimbabwe, the group got a lion’s share of the government business again this year. The business is in a near stockout position and plans underway to import the shortfall.
Early sales in Zimbabwe resulted in the posting a profit as compared to a loss last year. In Zambia, he said, government is facing some liquidity challenges and is taking time to clear its debt. However, improved power pushed up demand for winter cereals. Stable Kwacha in Zambia reduced the exchange losses by more than 60% as compared to last year. In Malawi, the government subsidy programs were maintained at the same levels as prior year. The economy, however, still faces challenges and driving poverty up.
Seed Co MNLD tolerant varieties are being registered in Kenya and product supply in the country is still a challenge. Sales volumes increased by 40% compared to prior year. The Highlands processing facility is now complete and equipment is being installed. Volumes in Tanzania doubled during the period and emphasis on increasing market coverage and footprint continuing. The ISPAAD program in Botswana was replaced with tender business which SeedCo may or may not get this year. The government of Botswana has since almost cleared its debt.
At Prime Seeds, the CE noted that JV with HM Clause is now fully operational and the stand alone vegetable SBUs are now registered in most countries. The JV is in the process of being capitalised with both partners and the business is aiming to register a profit this year. Nzwere said plans are already underway to exit Quton. The business is expected to post good full year results again this year.
Giving the outlook, he said; “We expect a stable set of earnings due to continued market share growth in key markets, particularly East Africa as adoption of our hybrids in that region is on the rise and the continuing input programs in Zambia, Zimbabwe and Malawi.” The bumper maize harvests recorded in Zambia and Malawi, he said, have led to a subdued commodity price for grain, and it’s not yet clear what the overall impact on the demand of seed will be in these markets, but the group expects demand to remain steady.
Aggregated analysts comment
A good set of results from SeedCo on the back of a normal rain season and stable regional currencies with early sales underpinning performance in this traditionally cost accumulation half for the company. Sub Saharan Africa region is expected to receive normal rains which should bode well for seed sales. Government input schemes are expected to buttress seed sales growth in the region. Zimbabwe will be getting into the second year of the Command agriculture programme. The scheme was championed by then VP ED Mnangagwa and his elevation as the president could see the programme, not only continuing but possibly expanding. This year's attractive maize selling price of $390 per tonne and prompt payment from GMB, could also encourage farmers to grow more maize and thus demand more seed. Seedco has sizeable treasury bills and cash on its balance, both of which should benefit from the new political dispensation largely expected to be, not only stable but growing. The local currency exchange rate on the parallel market has been strengthening since the military took over, thus monetary assets should gain some value, or at least stop losing value on fears of inflation and currency depreciation.
SeedCo Financial Summary $000
|Cost of sales||10499||14987||61317||18257||21.8%|
|Loss for the period||5569||9291||20710||2006||-78.4%|
|Basic loss per share (c)||2.53||3.96||8.77||0.83||-79.0%|
|Loans and receivables||27190||24064||19448||12613||-47.6%|
|Inventories and biological assets||39686||48260||25248||42547||-11.8%|
|Other current liabilities||11235||18307||21723||26761||46.2%|
|Bank borrowings - current||20672||45192||37161||32658||-27.7%|
|Other current liabilities||27158||18307||25302||26761||46.2%|