Seed producer, Seed Co International Limited says a decision by the Zambian government to purchase inputs in local currency, the kwacha, significantly reduced the company’s turnover and a reduction of the company’s net foreign assets, an executive has said.
“The decision by the government to denominate its input purchases in local currency reduced Seed Co Zambia’s net foreign denominated assets cancelling out exchange gains that the business unit used to enjoy previously,” group CEO Morgan Nzwere (pictured) said.
He said the depreciation of the kwacha has also threatened the viability of Seed Co Zambia as well as the group’s overall performance as the unit will be eating into other units’ profitability.
“The continued kwacha devaluation diluted the overall increase in turnover to 10% despite the volume surge,” Nzwere said.
However, the good rains received in the country buoyed product demand resulting in overall sales volumes increasing by almost 26% as compared to prior year.
Nzwere said the government made efforts to pay outstanding debts by settling current debts through Letters of Credit. However, the continued delays in paying long overdue debts resulted in the business carrying high levels of debt for the greater part of the year incurring higher finance costs as compared to prior year.
He said despite the Seed Co Zambia’s struggling , the business was starting to reap the infrastructure benefits of its recently acquired Mkushi Farms in the form of reduced production costs as well as timely and quality in-house seed production of both summer and winter cereals.
Annual profit after tax eased 10% to $6m in the year to March 31,2021,with significant improvement in the quality of the earnings in the absence of notable exchange gains.
Nzwere said: “The reduced exchange gains in Zambia as net foreign denominated assets declined and reduced fertiliser chemicals trade in Botswana resulted in a significant reduction in other income.”
The past financial year was also marred by the global Covid-19 pandemic whose effects on livelihoods in the group’s operating markets was somewhat cushioned by above average rains which buoyed crop cultivation and output.
The good rains and focus on food security amidst the pandemic stimulated seed demand across markets and the volume surge helped to absorb the effect of depreciating local currencies.
Nzwere said a combination of above average rainfall in all key markets, and the increased focus on primary food production by governments and development partners, drove product demand in all markets resulting in volumes growing by 34%.
The group’s revenue went up 26% to US$88.5m during the period under review from US$70.1m in prior comparative period.
Revenue growth was in tandem slightly behind volume growth due to depreciation of local currencies against the reporting currency. The group’s profit performance improved markedly spurred by robust revenue growth and interest cost savings.
Seed Co’s total assets stood at US$137.2m during the period under review from US$127.7m in the previous year.