Seed Co focuses on value preservation

20 Jan, 2020 - 00:01 0 Views
Seed Co focuses on value preservation

The Herald

Enacy Mapakame and Michael Tome
Zimbabwe’s biggest seed processor, Seed Co Limited, says the firm’s key focus going forward will be retaining value as well as implementing pricing model that enables restocking of product.

A sustainable pricing model is key for both the group and the market due to the importance of the product and its impact on the agriculture sector.

In 2019, the country battled economic volatility due to foreign currency shortages, erratic power supplies and inflationary pressures that saw disposable incomes significantly reduce as prices of goods and services sky-rocketed.
The soaring inflation also saw the price of seed go up beyond the reach of many.

The seed making giant has, however, indicated it is cognisant of the challenging operating environment but will focus on various strategies for survival.

“The prevailing operating environment remains unpredictable characterised by continuous local currency depreciation and hyperinflation.

“Management’s focus is therefore geared towards: initiatives to retain value and protect the balance sheet, pricing to enable restocking and ensuring the majority of the group’s stakeholders (shareholders, growers, employees) are not prejudiced,” said Seed Co in statement accompanying the group’s financial results for the half year to September 30, 2019.

This comes as the half year period was characterised by economic volatility, which also saw volumes going down 46 percent on the back of non-recurrence of early maize seed sales made in the comparative period.

Seed Co also attributed the decline to reduced open-market demand due to squeeze on customer disposable income as well as lower wheat seed acreage planted resulting from limited irrigation capacity caused by electricity and water shortages that were experienced in the country.

Despite the challenges that led to volumes decline, Seed Co’s revenue for the six months under review more than doubled from the previous year due to alignment of selling prices with inflation to enable inventory replacement.

The period closed with $96,7 million in revenue compared to $85,2 million achieved in the same period last year. During the period under review the group swung back to the black posting $34,4 million profit for the half year from a $29,1 million loss in the same period last year.

Gross profit rose 36 percent to $61,2 million, while other income surged 600 percent to $29 million compared to $4,2 million recorded during the same period in the prior year. At 14,02 cents, basic earnings per share grew 16 percent from prior year comparable period’s 12,04 cents.

Total assets jumped 71 percent to $1,062 billion from $620 million. According to the company, fixed assets were revalued to current market values hence the huge increase in property, plant and equipment, equity and deferred tax liability from prior year end.

Operating expenses were three and half times the prior year level, which is lower than the implied year-on-year inflation for the year to date due to concrete cost control initiatives by management during the period under review.

Meanwhile, Seed Co said low wheat hectarage planted during the 2019 winter-wheat season sizably contributed to the firm’s overall volumes uptake decline.

In the year, National Wheat Contract Farming Committee (NWCFC) fronted by the Grain Millers Association of Zimbabwe (GMAZ) also reviewed its initial wheat harvest target downwards to 90 000 tonnes from 150 000 tonnes all translating to reduction in the cereal seed uptake.

Zimbabwe’s wheat production has been on the down-trend in recent years despite Agriculture ministry’s aspirations of increasing the cereal’s hectarage from 43 000 to ensure self-sufficiency at the same time saving foreign currency by reducing grains import bill.

“Lower wheat seed acreage planted was a result of limited irrigation capacity caused by electricity and water shortages,” said Seed Co.

Wheat is the second most important cereal crop after maize in the food security basket in Zimbabwe and irrigation is necessarily required to achieve a high yielding wheat crop given the absence of rainfall during winter in Zimbabwe.

Zimbabwe requires at least 450 000 tonnes of wheat per year to meet the national bread requirements of nearly a million loaves per day and Zimbabwe has been producing less than a quarter of that over the recent years.

Since the nation is in a drive for import substitution, producing wheat locally will result in foreign currency savings, which would otherwise be channelled to other more productive areas of the economy.

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