SeedCo in precarious position

LIVINGSTONE MARUFU

Seed producer, SeedCo Limited, is battling to recoup about US$14m from government for seed provided for its programmes, which leaves it with very thin operational capital, forcing it to borrow cash at  exorbitant interest rates, it has been learnt.

This was revealed by the company’s Group CEO, Morgan Nzwere.

He told Business Times on the sidelines of the company’s analyst briefing held last week that the debt has put the company in a precarious position and is currently finding it difficult to pay its daily bills.

“We are owed around US$14m by the government on account of delays in settling its obligations through its various programmes in both summer cropping season and winter wheat farming season. The delay in payments has left us with very thin working capital resulting in us borrowing at punitive interest rates,” Nzwere said.

He added: “Government payments were delayed, resulting in operating difficulties and unavoidable funding gaps, forcing companies to borrow and incur huge finance costs.

The company remained reliant on borrowings to fund the cash flow gap created by delayed settlement of government related receivables and the inflationary increase in operational costs.”

Nzwere said the average interest rate year-on-year was 90% per annum compared to 112% per annum in the prior year.

According to him, this has hurt the company’s top line, with revenue falling by 10% to ZWL$813.66bn in the 12 months to March 31, 2024, from ZWL$1.011 trillion reported in the previous year.

This was because of low sales volume performance and reduced cash sales due to government’s delays in payments.

Despite the fall in revenue, Seed Co profit for the year jumped 24% to ZWL$463.34bn in the period under review from ZWL$374.58bn reported in the previous year due to US$ sales and stellar  performance from associates where there was good rainfall patterns.

Nzwere said other income increased due to exchange gains on US$ denominated receivables and increase in non seed sales.

He said overall sales volumes were nearly a third lower than prior year because of El Nino-induced drought which negatively impacted 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. Sales volume of the flagship crop, maize seed, was below prior year by nearly a third,” Nzwere said.

On the other hand, he said,  export sales increased notably earning the business much needed foreign currency while at the same time reducing the impact of lower local demand for seed.

Wheat sales volumes remained constant in comparison to prior year despite challenges experienced by farmers which included power cuts, high prices of key inputs like fertiliser and exchange rate volatility.

Nzwere said operating expenses surged due to the current hyperinflationary environment as pricing index to the US$ became the norm.

Seed Co finance costs were 16% of turnover, down from 26% the previous year.

He said research and development remained the primary driver of competitive advantage for the business, with multiple initiatives at various pipeline stages aimed at producing climate-responsive products.

The maize seed portfolio has been expanded with the release of SC661 and SC657, both medium-maturing hybrids.

Additionally, a high-yielding wheat variety, SC W9104, has been introduced.