daniel chigunwe
. . . eyes growth on ZiG stability
Nelson Gahadza
Seed Co Limited says it is largely funding its business with short-term borrowings from local banks, but a lack of liquidity in the market is impacting its ability to secure long-term facilities for working capital.
Morgan Nzwere, the group’s chief executive officer, told an analyst briefing on Wednesday that the short-term borrowings from local banks are a combination of ZiG facilities and US dollars; however, there is no liquidity.
“The banks will sign up a facility with you for US$5 million to fund our business, but when the time comes to draw down that facility and probably say I need US$1 million out of that US$5 million facility, they don’t have liquidity. This is what we are finding,” he said in a presentation of financials for the year ended March 31, 2024.
The group’s borrowings for the year increased to $481,42 billion in historical terms from $24,86 billion in 2024.
Nzwere said the borrowings increased in line with the borrowing cycle of the business and the need to fund delayed collection of receivables.
During the year under review, receivables increased to $1 070 trillion in historical terms compared to $54,01 billion in the prior year and the increase is largely because of the delayed settlement of Government-related receivables.
As of March 31, 2024, Nzwere said Government-related debt was US$23,36 million and US$10,05 million was received, leaving an outstanding prior-year debt of US$13,31 million.
“Of the debt, 23 percent of receipts were in US$ Nostro and 77 percent of receipts were in ZWG at the prevailing interbank. Collections and engagements are continuing and should be fully settled before the commencement of next season,” he said.
Group finance director, John Matorofa, said the indicative USD financials show that revenue decreased by 30 percent to US$45 million and operating profit by 19 percent to US$13,8 million from US$17 million in the prior year, while profit after tax was down 31 percent to US$10,4 million from US$15 million in the prior year.
In terms of the USD revenue split, the Government contributed 46 percent, followed by retail at 31 percent, while cash and exports accounted for 12 and 11 percent, respectively.
In terms of inventory, Nzwere said the group was adequately stocked with 28 000 tonnes at the close of FY24, including estimated deliveries that were more than adequate for the local market and to satisfy the 8 100 tonnes of confirmed export orders.
He said 6 100 tonnes of wheat and 852 tonnes of barley have already been sold this winter and delivery of export orders is already underway.
“Seed deliveries and processing are ongoing in Zimbabwe and the region. Drought impacted production adversely and yields were expected to be a third lower than planned, but we have significant carryover stocks, mainly in Zimbabwe, to help plug shortages in the region.
“Overall, group stocks are adequate and the immediate task is ensuring timely movement of seed from surplus markets to deficit markets,” said Nzwere.
He said the group had a successful debut in commercial production in Ethiopia and going forward, the focus is on equipping growers with irrigation infrastructure to secure production amidst global warming.
Nzwere noted that in Zimbabwe, the dryer plant operated at full capacity this year and the benefits are beginning to be realised.
“We are also assisting growers with small on-farm driers to help get product ready for early delivery,” he said.
He noted that the group is also working on a new processing plant in Tanzania set to be commissioned before the end of this financial year and a medium-size processing plant is also planned for Ethiopia,
which has proved to be a very promising market.
“Overall, processing capacity is adequate in production hubs in Zambia, Zimbabwe and Malawi,” he said.
Nzwere said during the year under review, the group recorded reduced sales in Zimbabwe, Mozambique and Botswana because of the El Niño, while record sales were in East Africa (Tanzania and Kenya), with exciting export opportunities closed in Uganda and Burundi.
“We are witnessing notable open market sales growth in most markets, including Zimbabwe, Zambia and Malawi. In Tanzania and Kenya, sales are 100 percent open-market, sustainable and either cash or near-cash.
According to Matorofa, maize volume at 10,236 tonnes was lower because of the El Niño, which forced a reduction in Government orders, while wheat (5 962t) sold in Zimbabwe was 6 percent higher than the prior year, despite challenges experienced by farmers in the winter cropping season.
Barley sales were higher at 864 tonnes compared to 550 tonnes.
FBC Securities, in its review of the financials said Seed Co’s reach is widely spread across various markets in Africa, which neutralises losses that could have been suffered if it were relying only on the local market.
The research company said increased export sales cushioned the group against depressed local demand.
“The company’s association with Seed Co International, Prime Seed Co, and Quton is generating positive gains, with a circa $25,78 billion profit share having been earned by Seed Co Limited during the year under review.
“As a result, the company’s profitability firmed by 8 percent, notwithstanding the subdued volumes and increased costs of financing and other inflation-driven operating expenses,” FBC Securities said.
The research company said growing investments in research and development aimed at producing climate-responsive products and anticipated favourable weather conditions as El Niño transitions to La Nina next season are expected to boost demand for Seed Co’s products and improve shareholder value.
“This improvement will be more pronounced if the prevailing liquidity crisis for both USD and ZiG is tamed so that the company reduces its overdependence on debt capital, which is currently expensive, to finance operations,” reads the review report.
Bongani Ndlovu