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Seed Co 1HY18 turnover up 45% on back of improved sales volumes

Friday, November 24, 2017

HARARE - Seed Co FD John Matorofa told analysts yesterday that the group’s turnover for the half year ended 30 September increased by 45% to $36.07 million 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 million from $14.98 million. Meanwhile, gross profit went up to $17.81 million from $9.820 million 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 million 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 million 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 million due to the strong cash position at the beginning of the year. Loss before taxation decreased to $1.791 million from $9.409 million while loss for the period decreased by 78% to $2.005 million “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 million from $24.06 million due to reclassification of some $7.6 million treasury bills maturing in less than 12 months to other receivables. Meanwhile, trade receivables increased to $43.21 million from $38.02 million due to high winter cereal sales despite cumulative collections of $38 million. The FD highlighted that significant progress was made in collection of government debt. Inventories decreased to $42.54 million from $48.26 million 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 African 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 update, 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 are underway to import the shortfall.

Early sales in Zimbabwe resulted in 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 programmes were maintained at the same levels as the prior year. The economy, however, still faces challenges and is 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 the 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 is continuing. The ISPAAD programme in Botswana was replaced with tender business which Seed Co 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.

Commenting on 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 as is the continuing input programmes in Zambia, Zimbabwe and Malawi. The bumper maize harvests recorded in Zambia and Malawi 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 Seed Co 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. Seed Co has sizeable treasury bills and cash on its balance sheet, both of which should benefit from the new political dispensation. The local currency exchange rate on the parallel market has been strengthening, thus monetary assets should gain some value, or at least stop losing value on fears of inflation and currency depreciation.

Seed Co Financial Summary $000

  HY16 HY17 FY17 HY18  
  Sep-15 Sep-16 Mar-17 Sep-17 % change
Revenue 18790 24808 134574 36075 45.4%
Cost of sales 10499 14987 61317 18257 21.8%
Gross profit 8291 98821 73257 17818 -82.0%
Operating expenses 15687 15711 44033 20019 27.4%
Operating loss 4914 7556 29125 1819 -75.9%
Pretax loss 5297 9410 27099 1792 -81.0%
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%
Price (c)   91.25   153.09 67.8%
PE (historic)   23.04   184.45  
PPE 52421 64422 65569 67167 4.3%
Loans and receivables 27190 24064 19448 12613 -47.6%
Inventories and biological assets 39686 48260 25248 42547 -11.8%
Trade receivables 44998 38029 41780 43218 13.6%
Other current liabilities 11235 18307 21723 26761 46.2%
Non-distributable reserves 27472 20338 25950 31588 55.3%
Bank borrowings - current 20672 45192 37161 32658 -27.7%
Other current liabilities 27158 18307 25302 26761 46.2%

Seed Co has provided us with a stable market and technical support during the season.

We received a planter, plough and harrow from Seed Co and this greatly improved our lives as communal farmers.

Firstly, I would to thank Seed Co for the opportunity to brag about Seed Co. They are a fantastic company and they have put me on the map.