Seed Co to leverage on regional associate
Seed producing giant, Seed Co Limited, intends to leverage on its regional associate to grow export opportunities and generate the much needed foreign currency for its business.
During the past financial year, the group experienced reduced export opportunities after its operations were negatively impacted by erratic rains received in regional markets.
The group is also looking to recover margin compression experienced during the year to March 31, 2022 when gross margins fell to 33 percent from 64 percent in the prior year due to marked increased cost of production as well as pricing conundrum from the huge disparity between official and alternative market exchange rates.
Although the regional associate – Seed Co International (SCIL) Limited – posted 35 percent reduced US dollar profit, management remains upbeat of recovery in the associate and leveraging on it to increase exports into the region. The Victoria Falls Stock Exchange listed associate has operations that spread across Zambia, Botswana, Tanzania, Kenya, Nigeria and Malawi, among others.
“Among other strategies, we are renegotiating distribution agreements to ensure that we earn and collect real value from the sale of our products while we continue leveraging on our continental associate to exploit export opportunities,” said group chief executive officer Morgan Nzwere.
This comes as regional seed production is also expected higher than last year despite rainfall challenges which were however offset by use of irrigation.
Although the environment is expected to remain challenging due to exchange rate volatility, Seed Co remains upbeat about meeting demand and increasing its contribution to food security in Zimbabwe and across the region.
Mr Nzwere said the gap between the official and alternative exchange rates in Zimbabwe was expected to continue putting pressure on profitability as the group produces staple seeds sold at official rates.
“Selling prices are somewhat controlled at official rates while growers and suppliers of other inputs demand viable prices,” he said adding the group would however continue to prioritise food security to mitigate global supply shocks as African governments activate import substitution local production strategies.
“The group is better positioned to leverage the strong brand and intellectual property to actively contribute to primary food production to plug supply gaps,” he said.
For the financial year 2022, revenue declined 8 percent as volume on reduction due to late rains and pricing confusion in the market.
Profit before tax was $0,6 billion compared to prior year’s $1,9 billion despite a significant monetary decline from $3,3 billion to $1 billion. Profit before tax reduced due to margin shrinkage from 64 percent down to 33 percent in a distorted market with de facto price controls.
Associates and joint venture contribution was lower mainly because the continental associate with Seed Co International posted 35 percent reduced US dollar profit from US$11,1 million to US$7,1 million in the financial year 2022. Margin erosion against increasing operating expenditure reduced Quton’s profit by 90 percent while Prime Seed had a good year boosted by dollar denominated sales to non-governmental organisations (NGO) and growing exports to Mozambique.