El Niño effects threaten Seed Co margins, sales

One the country’s major hybrid seed processor, Seed Co Limited, anticipates reduced margins and sales volume at year-end due to the drought forecast, which has significantly slowed sales.

The latest forecasts indicate normal-to-above-normal rainfall in most parts of East Africa and below-normal rains in Southern Africa from November 2023 to January 2024.

Group chief executive officer, Morgan Nzwere, told an analyst briefing on Wednesday that the environment remains uncertain and the biggest issue is the El Niño effect that Zimbabwe in particular is facing.

“Up to now, we have done sales volumes of about 50 percent of the budget; as you know, our sales catalyst is the beginning of rain.

“Farmers were buying in the early months and seed was moving, but now we see a lot of stickiness in sales as people wait to see if we are going to have the rains in the next few weeks or so,” he said, commenting on the interim financials for the period to September 30, 2023.

He noted that generally, in Zimbabwe, we have had rains coming late every year, but the forecast of the draught has made it very uncertain.

The company’s maize sales volumes decreased by 22 percent from the prior year, while winter wheat and barley sales grew by 8 percent.

Nzwere said that in order to protect shareholder value, the group opened shops where it is selling directly to customers, which enabled the group to access US dollar sales compared to traditional customers who would always pass local currency.

“We have had traction in these shops until now due to drought. Our USD sale has helped the business cushion against seed losses.

“We think we will still have a decent profit or loss, but the volumes will be lower than the prior year unless the situation improves in terms of weather,” he said.

For the period under review, regional associate Seed Co International registered an encouraging start in terms of volume and turnover, resulting in a reduced first-half loss compared to the prior year.

Nzwere said with the rains happening in East Africa, the group is having stockouts in Zambia, Tanzania, and Kenya.

“We expect good performance in international business where the rain is pouring, but in Zimbabwe, because of the drought, we are not certain of where we will end up,” he said.

He noted the Nigerian market will be below expectations because there is no input support programme from the government.

Seed Co. International said in its financials that despite enormous and largely exogenous challenges, the Seed Co brand continues to demonstrate resilience, as evidenced by open market sales growth in various markets.

The group, which is incorporated and domiciled in Botswana and listed on the Botswana Stock Exchange and the Victoria Falls Stock Exchange, has subsidiaries, associates and joint ventures located across Africa.

The countries include Angola, Botswana, the Democratic Republic of the Congo (DRC), Ethiopia, Ghana, Kenya, Malawi, Mozambique, Nigeria, Rwanda, South Africa, Tanzania and Zambia.

“As a result, first-half performance was in tandem with the seasonality of the business. However, the group achieved an interim operating profit of $1,3 million, a rebound from the prior year’s $2,6 million interim operating loss,” the company said.

It added that a combination of volume growth and a better product mix boosted revenue by 23 percent compared to the comparative period.

The company said encouraging first-half maize sales were booked in Kenya, Malawi, Mozambique, Tanzania and Zambia, buoyed by firm grain prices in the region and globally.

“Improved margins and containment of overheads below the USD inflation rate also helped the business post an interim operating profit,” reads the financials.

During the period under review, group net finance costs increased due to higher interest rates and more local currency borrowing facilities utilised to expunge USD-denominated liabilities and manage elevated foreign exchange risk from depreciating regional currencies.

The company said, as is the norm, the group’s inventory levels were at their peak this time of the year in preparation for the main summer selling season.

The group indicated that it will continue to deliver improved products from its research and development (R&D) investment over the years.

Meanwhile, Nzwere said the Seed Co. Limited is adequately stocked with 33 000 tonnes against a budget of 16 000 tonnes for the market.

Cumulatively, the group has 68 000 tonnes, benefiting from good carry overs from last season.

Nzwere noted that the seed dryer plant reached its full capacity of 5000 tonnes, which contributed to early seed sales.

He said the group is going to invest in backup power in the region to minimise the effects of power shortages across the region.-businessweek