Seed Co record a 5% decline in 2018

The Seed Co Full Year Results Analyst Briefing for 2018 held at the Royal Harare Golf Club on 1 June 2018 was presented by the Group Finance Director, Mr. John Matorofa & the Group CEO Mr. Morgan Nzwere in the presence of executives, financial analysts and the media.

Seed Co Group recorded a 5% decline in revenue from $134 mln in 2017 to $128 mln in 2018 with consolidated maize sales volumes dropping from 45 mt to 39 mt. This was a result of product shortages caused by seed production challenges, which were mitigated by improved volume of winter cereals and soya beans.

Zimbabwe produced 43% of sales volumes, with Zambia coming in at 29%, with the main products being maize 70%, and the following have grown significantly, winter cereals 13%, soybeans 12% and others at 5%.

Overall gross margins have remained largely unchanged as the complementary crops have increased volume of lower margin winter cereals and soya beans as well as reduced volume of high margin long season varieties.

FD John Matorofa stated that operating costs were up 1% due to increased research & development activity at the new research stations, increased sales and agronomy activities during the selling season as well as group restructuring activities. The overall earning also increased through income from commission based sales and exchange gains, reduced finance costs & strong performance of the associate cotton seed business.

Individual asset and liability values decreased as the regional balance sheet was classified as “held for distribution” because of the impending unbundling of Seed Co International. The reduction was due to reallocation of $42mof PPE for the Regional operations to Assets held for distribution Capex of $7,9m during the year was spent on:

Acquisition of land in Zambia and Botswana for production and future construction of a warehouse respectively:

• capital improvements at various research stations;
• purchase of vegetable seed processing and packing plant by Prime Seed;
• renovations at the factory in Zambia;
• replacement of processing equipment in Zimbabwe and completion of the Kenya facility which was commissioned last year.

GCEO Mr. Morgan Nzwere highlighted that the last season presented many challenges at all production centres, all working against growers leading to overall yield losses of close to 23%:

• high disease pressure,
• poor pollination due to high temperatures at pollination stage followed by excessive rainfall when seed crops were coming to maturity, and
• high incidence of fall army worm.

Progress made in registration of varieties under COMESA catalogue:

• 11 maize varieties
• 4 soya varieties on Molecular genotyping lab optimised and operations enhanced,
• Consequently, the breeding programs have begun deploying molecular markers in breeding projects

The first generation of MLND tolerant hybrids have been submitted for registration in Kenya while 7 hybrids submitted to the NPT in Kenya were progressed to first and second year of testing.

Product demand outstripped supply in all markets leading to critical shortages. The Group is targeting a 40% maize seed production increase.

Challenges for production still being experienced:

• High disease pressure,
• Poor pollination due to high temperatures experienced.
• Erratic rainfall

Our lab at Rattary Arnold is making significant progress in our breeding program as the Group is exploring cob harvesting and seed drying technology to speed up seed availability and contain diseases associated with late harvesting

All seed processing plants in good working condition across the group and additional seed processing facilities to be set up in East Africa to increase capacity for this growing market.

• Total Volumes sales same as prior year
• Maize volumes down due to product shortages in all markets
• Winter cereals sales more than doubled due to high demand and improved power

There is significant development throughout the continent, Nigeria the seed production more than doubled and seed growers now showing signs of improvement. In Ethiopia we are still chasing the business license & recent developments show political will to attract new investors and a breakthrough is eminent. Lastly, the Group now has a physical presence in Ghana to be used as a spring board to develop Francophone West Africa territory using already registered products. Vegetables JV with HM Clause now operational in most markets, it has now been capitalized in order to develop the new markets and the breeding and testing program commenced

In Zimbabwe we are working on alleviating the current production challenge that we have by working on working capital & inputs support, centre pivots, seedgraders, silos, etc in a bid to empower our farmers and also meet with the high demand for premium varieties by commercial farmers.

Zambia

The local maize seed sales reduced by 31% due to:

• Late roll out of the e-voucher program, with the bulk of the activations in late December and January,
• The maize commodity prize slumping to a low of $120, and thus dissuading farmers from planting
• Drought during the planting period from mid-December to 25 January
• Delayed payments by the Food Reserve Agency leaving farmers with no cash to buy
• Exports to other markets affected by varietal shortages
• Gross margin down by 12% due to write downs and product mix resulting in profits reducing by 37,5%

Malawi

• the stronger Kwacha and better export opportunities and improved pricing resulted improved margins by 4%
• Reduced interest bill by restructuring the borrowings mix
• Earnings were $1m as compared to prior year loss

Kenya

• While demand was buoyant as farmers needed to replant following the drought, the SBU experienced serious stock shortages in all the popular varieties.
• gross margin down 5% due to product mix and some write downs of some seed stocks resulting in earnings reducing by almost 50%

Tanzania

• Turnover was slightly higher than prior year due to amplified demand on the back of the drought experienced last year coupled with aggressive marketing efforts to increase footprint in this country’s vast untapped potential
• Increasing activities in the Southern highlands – Tanzania's bread basket
• Increased local production enhanced margins resulting in 30% increase in profits

CCU

• ISPAAD program in Botswana replaced with tender business which was cut-throat
• Business affected by product shortages during the year

Prime Seeds

• JV achieved a breakeven position

Quton

• 40% associate
• Benefited from a Govt order of over 8000mt
• $1,3m contribution to Group profit
• Tz and Malawi still struggling
• Technology and skills transfer from Mahyco in progress

Looking ahead we are increasing our production by 40%, all the markets should have adequate seeds to provide.

• Improved seed supplies in most markets
• Continuation of the Command Agriculture programme in Zimbabwe
• Continued market share growth in East Africa;
• Nigeria beginning to make contribution to group numbers and
• Adoption of vegetable seed hybrids across the markets we serve

The business is on a growth projectile, though we could have done better this year if we had enough product but in the coming year we will provide enough seeds for our farmers.