Summer seed sales only begin in earnest in October.
Announcing the groups’ interim results for the period ending September 30, the industrial agricultural inputs company, said the fall in commodity prices reduced winter cereals sales in Zambia and Zimbabwe with 2 247 tonnes sold compared to 7 000 tonnes achieved during the same period last year.
Viability problems associated with the credit crunch and low cotton prices affected ginners. This the company said cut the traditional early cotton seed sales.
“Higher production costs from last season as a result of higher inputs costs due to the commodity price spike in 2008 have reduced margins to 42% against 49% last year. This was expected and the relevant adjustments have been made,” Seed Co said.
During the period under review full dollarisation of costs in Zimbabwe increased overheads significantly compared to prior years which made most of these costs in Zimbabwe dollars converted to US dollars at unrealistic exchange rates.
The liquidity shortages which resulted from the financial crisis have increased the cost of borrowing by the group both in the region and in Zimbabwe.
“Both inventories and borrowings have gone up compared to the yearend position reflecting seed deliveries that are at their peak at this time of the year.”
In addition to amounts due from growers for inputs advanced (which get recovered as growers deliver seed) receivables also include US$5,4 million due from the Zimbabwe government which was outstanding as at yearend,” said Seed Co.
The group’s revenue during the period under review was US$12,9 million, with the gross profit amounting to US$7 461 823. Seed Co suffered a loss after tax of US$1 961 846.
“Due to the prevailing hyper-inflationary conditions in the Zimbabwean economy, there were significant price differentials in the pricing of similar assets and liabilities and this resulted in fair value determination difficulties,” the company said.
These conditions resulted in a high level of subjectivity in determining fair value and in the application of pricing models for the fair valuation of transactions, assets and liabilities.
The group’s balance sheet as at March 31 reported in US dollars using the historical cost with the regional operations translated using the closing exchange rate of the various currencies against the US dollar.
“For Zimbabwe operations, professional valuers were engaged to assist the directors in ascertaining the fair value of the fixed assets with increases being put to revaluation reserves,” said the company.
Going forward, increased support to government in the region for improvements in food selfsufficiency continue to push demands for seed.
The company said the decline in commodity prices will see reduced inputs costs such as fuel, fertiliser and chemicals for the coming season and this should improve margins for the group.
“The strength of our retail distribution network is growing, this being an important part of our growth strategy. Prices of goods and services in Zimbabwe have stabilized and there should be a reduction in overheads for the Zimbabwe operations in future,” Seed Co said.