• Local maize sales went down by nearly a third
• However, Seed Co had to leverage on exports
• New seed varieties, high yielding and drought tolerant introduced

Harare- Seed Co Zimbabwe, the largest operating seed company, has leveraged increased export sales of maize seed in 2023_2024 season to offset the impact of recurring El Niño-induced drought spells that affected local maize seed sales.

The sales volume of the company's flagship crop, maize seed, was nearly a third lower than the prior year. This prompted the group to focus more on exports, which helped to both increase foreign currency inflows and reduce maize inventories due to the reduced domestic sales.

Local farmers opted to scale down their maize production, fearing the risk of losing their investments due to the drought conditions.

"Overall sales volumes were nearly a third lower than the prior year because of the El Niño-induced drought, which negatively impacted both maize and soya seed sales volumes,"

“The extensively publicised drought dampened cropping plans as farmers cautiously tried to curb the risk of crop failure because of moisture stress,” Morgan Nzwere, the group’s CEO said in a statement accompanying the financials for the full year ended 31 March 2024.

However, Seed Co has introduced new seed varieties that are more resilient to drought conditions. Specifically, the company has launched SC661 and SC657, both medium maturity varieties that are more resistant to drought compared to previous offerings like SC649.

SC661 is a high-yielding variety with good disease tolerance and an excellent stay-green character, making it better equipped to withstand water-stressed conditions. SC657, on the other hand, has a yield potential of up to 16 tonnes per hectare at about 55,000 plants per hectare in a good season. It reaches physiological maturity in 138-145 days at 1,100 to 1,300 metres, making it an elastic variety with wide regional adaptation and producing extra-large sized cobs.

The 2024/2025 season is projected to be mainly affected by La Niña, which usually brings more rainfall than drought spells. This could provide some relief to farmers and potentially improve crop yields compared to the recent drought-affected seasons.

Thus, Seed Co's introduction of these new drought-resistant seed varieties appears to be a strategic move to help farmers mitigate the risks posed by the recurring drought conditions in the region.

However, while Seed Co's new seed varieties SC661 and SC657 are more drought-tolerant, they remain medium maturity varieties that require at least 750 mm of rainfall, which is currently well below Zimbabwe's average. However, for irrigation-based farming, these varieties still offer the best crop yield and maturity profile.

On the wheat side, the company reported that sales volumes remained constant compared to the prior year, as farmers faced difficulties stemming from power cuts, high prices of key inputs like fertilizer, and exchange rate volatility.

To address these challenges, Seed Co introduced a new high-yielding wheat variety called SC W9104 during the year.

To offset the poor sales due to the drought, in addition to the new seed varieties, Seed Co is also targeting an expansion of its export footprint and U.S. dollar-denominated sales. This strategy is aimed at achieving more competitive pricing and effective cost management, as foreign currency is less affected by local volatility.

These strategies are expected to help widen the company's top-line, which reduced by 10% to ZWL813.66 billion from ZWL1 trillion in 2023.

Despite the revenue decline, the company's cost of sales decreased from ZWL597.73 billion to ZWL487.60 billion, and other income increased to ZWL1.2 trillion due to exchange gains on U.S. dollar-denominated receivables and an increase in non-seed sales. This resulted in an observed operating profit of ZWL1.1 trillion.

With finance costs reducing to ZWL105.09 billion from ZWL264.29 billion, Seed Co was able to attain a profit after tax of ZWL463.34 billion, up from ZWL374.58 billion in the prior year. This represents an 8% improvement in profitability despite the subdued sales volumes.

The improved profitability was mainly driven by exchange gains from revaluing U.S. dollar-denominated receivables. The increase in receivables was largely attributable to delayed settlement of government-related receivables.

Additionally, the carrying value of Seed Co's property, plant and equipment (PPE) increased by 28% due to the construction of sales shops, the installation of a solar power system at their office complex, and the revaluation of assets at the end of the financial year.

However, operating expenses surged due to the current hyperinflationary environment in Zimbabwe, where pricing has become indexed to the U.S. dollar. Nevertheless, the company expects this pressure on operating expenses to narrow as the Zimbabwe Gold (ZiG) maintains its current momentum.

Overall, despite the challenges posed by the drought and other macroeconomic factors, Seed Co was able to improve its profitability through effective cost management, foreign currency-denominated sales, and strategic investments in its infrastructure and operations.

Our View

Seed Co has demonstrated resilience in the face of the recurring drought challenges in Zimbabwe, leveraging increased maize seed exports and the introduction of new drought-resistant seed varieties like SC661 and SC657 to offset the impact of poor local sales. While the company's top-line revenue declined due to the drought, it was able to improve profitability through favourable exchange rate movements on its U.S. dollar-denominated receivables, cost management, and strategic infrastructure investments. Looking ahead, the projected shift to La Niña conditions in the 2024/2025 season could provide some relief and potentially improve crop yields compared to the recent drought-affected periods. The company's continued focus on export market expansion and U.S. dollar-denominated sales, along with the rollout of its new seed offerings, should help mitigate the impact of volatile local market conditions and support the company's overall growth prospects.

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