ZIMBABWE – Zimbabwe’s largest seed producer Seed Co Limited is on course of restructuring its business model in a bid to offset the adverse impacts of exchange losses incurred during the year to March 31, 2023, as well as the rising cost of doing business.
Speaking at the analyst briefing, group finance director Mr. John Matorofa highlighted the group’s intentions in changing the structure of the business and its borrowings.
“Restructuring of business model is expected to alleviate exchange losses,” weighed in brokerage firm IH Securities,” Matorofa said.
According to the financial report, during the past financial year, Seed Co Limited’s regional operation Seed Co International incurred exchange losses of US$4,5 million versus exchange gains of US$1,5 million in the prior comparable period as regional currencies weakened against the US dollar.
Like any business in the country, the group was also affected by imported inflation stemming from the war in Ukraine, which saw increased input costs also driven by seed production challenges in drought-impacted parts of Africa for its regional operations in addition to loss of value from currency exchange volatility.
In addition, across the region, performance was not uniform in the various markets as some segments experienced growth within the year, like in Zambia and East Africa under its regional operations, where volume growth added to top-line growth.
Matorofa revealed that, despite registering a 16 percent growth in revenue to US$103,5 million, margins remained under pressure from imported global inflation that could not be passed on in pricing to small-scale farmers. Subsequently, earnings before interests, tax, depreciation, and amortization (EBITDA) margins fell from 19 percent in financial 2022 to 13 percent in 2023.
He also expressed fear following the recent announcement by the US science agency about the arrival of El-Nino conditions which are normally synonymous with hotter weather and droughts in Southern Africa thereby potentially affecting demand for seed.
Bright future still ahead
The group, however, remains optimistic about the prioritization of primary food production in Africa and is also leaning on climate-smart products suitable for mixed rainfall patterns.
According to Seed Co, African Governments and development partners continue to prioritize primary food production to mitigate global shocks, and this augurs well for the business adding that with full implementation of the restructuring, the business is projected to see earnings growth.
The group projects its revenue to grow 7 percent for the financial year 24 while the adjusted EBITDA margin is expected to remain flat at 27,4 percent. A profit after tax of US$9 million is expected for financial 2024. For Seed Co International, the EBITDA margin is projected to increase from 13,4 percent to 19,5 percent.
Resultantly, EBITDA should close FY24 at US$19,72 million, registering a 43 percent growth according to IH Securities projections with after-tax profit closing at US$9,2 compared to US$2,9 recorded during FY23.