ZIMBABWE’S tough economic environment characterised by high inflation, currency valuation concerns, rising costs and price controls will hit Seed Co Ltd earnings at year-end, the company said.
CE Morgan Nzwere told analysts in Harare this week that he expects adverse impact from the economic situation in the country. He said Zimbabwe earnings will be negatively impacted by economic turbulence being experienced in the second half of the year.
Nzwere said the company’s inability to increase prices in line with rising inflation was a cause for concern.
“When we tried to re-price, there was a lot of outcry in the market. Essentially, we are faced with a situation where costs are rising and we can’t increase prices. When we increased prices, we became public enemy number one,” he said in his presentation to analysts.
Zimbabwe accounts for a significant share of Seed Co sales volumes thanks to government’s command agriculture programmes.
The country’s currency, the bond note, which was said to have the same value as the US dollar at introduction two years ago, is trading at a discount of 350% to the greenback.
Government is now charging duty on imported cars in forex, a development many say signals the slow redollarisation of the economy.
He said the company had made an investment in processing facilities in East Africa from the US$90 million raised from the unbundling of Seed Co International.
Nzwere said gross margins had remained steady in the period under review owing to a better product mix that saw more certified wheat seed sales compared to standard grade sales.
He said the group had experienced seed-drying challenges in most production centres as the rainfall season ended late. Nzwere said product demand continued to outstrip supply due to climate change in all markets.
“We ended up leaving a lot of money on the table,” he said.
Despite these production challenges, current season production is higher than last year, Nzwere said.
He said seed available for sale is expected to close the FY19 20% higher than last year with 80% of the seed having been received from growers.
Regional sales volumes came down 3% as a result of delays on account of late stocks delivery.
“In Nigeria we are ramping up production but security concerns remain. Whenever there is an election, there is always a bit of tension. We are operating north of Abuja,” he said, adding the company is developing markets and sales channels.
Nzwere said Angola was showing a lot of potential.
“They want the yellow maize variety and we are a white variety sort of company. We then said to them can you make a commitment so that we don’t end up with stock sitting on the balance sheet,” he said.
Nzwere said the group’s vegetable business was progressing in the way he wanted.
“By end of year, we should get money on the bottom line,” he said.
On Zimbabwe, Nzwere said the country was a concern, given the nostro and liquidity challenges.
“Seed growers are concerned and we have to keep them motivated. But worries over how much the company has to pay remain a headache,” he said.
“Inflationary pressures post-reporting period to impact monetary assets, cashflows and profitability as public support business was secured before October currency crisis. Value preservation (is a) key focus area going forward.”
He is optimistic Malawi will fare much better this year financially.
Turnover went up 21% on higher maize seed sales and exports into Mozambique.
The group’s revenue rose 82% in the half year to September 30 at US$29 million from US$15,9 million.
The company reported net earnings from continuing operations of US$5,9 million in the period under review and US$63 million from discontinued operations.
Earnings per share stood at 28,54 cents.