SEED | Seed Co Limited FY23 Earnings Update; Maize remains the flagship seed crop

According to Seed Co Limited management, the period under review saw a worsening harsh operating environment where inflationary pressures, scarcity of critical inputs, high prices, unstable exchange rates, liquidity challenges, policy inconsistencies and uneconomic interest rates brought about an unprecedented difficult operating landscape. Uncertainty around commodity prices and unreliability of the payment system for produce delivered to approved buyers had a direct impact on farmer interest in certain cropping lines especially the winter wheat production. The situation was exacerbated by the absence of reliable power and water supply. Resultantly, winter wheat sales were subdued when compared to prior year, dropping by 7%. Contrarily, maize and soyabean seed sales volumes increased by 12% and 49% from prior year respectively supported by the heightened seed demand on the back of improved rainfall and government programmes aimed towards ensuring food security. Consequently, in real terms, revenue increased by 24% also supported by selling price adjustments in response to inflation- induced increases in operating costs as well as the general effects of exchange rate fluctuations. Other income increased due to exchange gains on debtors and non-seed sales. However, operating expenses rose steeply due to the prevailing hyperinflationary conditions. Finance costs were at 26% of turnover owing to the unexpected hikes in interest rates that ranged 80%-200% p.a. The appetite to borrow was worsened by delayed payments from government schemes and a sharp increase in prices for both operating expenses and seed deliveries. A loss was absorbed from associates mainly due to subdued sales volume growth. Quton sales declined 10% and Prime Seed sales were 18% below prior year due to effects of the various challenges in the Zimbabwean economic landscape. Factoring out fair value adjustments, the Group closed FY23 in a loss position. On the balance sheet, the rise in property, plant and equipment was driven by revaluation assets and acquisitions made during the year. Inventories on hand at the reporting date where higher than prior year due to wheat seed which has since been sold during the ongoing winter growing season. The increase in receivables at the year-end date was attributable to the growing sales and the outstanding debt from growers and government programmes. Trade payables were significantly high as compared to prior year as the business has been facing liquidity challenges due to the mismatch between inflows from debtors and expected outflows. Resultantly, Seed Co Limited did not declare a dividend for FY23.


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