Command Agriculture boosts SeedCo

HARARE - The early purchase of seed by government for its Command Agriculture programme has boosted SeedCo’s financial performance for the six months ended September 30, 2018, a local equities group has said.

IH Securities (IH)’s commentary come as interest earned on Treasury Bills (TBs) held boosted the listed seed producer’s earning by 102 percent increase in finance income from $572,640 during the first half of 2018 to $1,16 million in the review period.

“Seedco’s performance for the half was based on the government purchasing seed early for the Command Agriculture programme therefore boosting their performance which normally would have been poor,” IH said.

Morgan Nzwere, the SeedCo chief executive, recently said government had paid for Command Agriculture inputs in TBs, boosting the firm’s revenue.

IH said inflationary pressures — indirect price controls and cost escalations are expected to have a negative impact to SeedCo’s performance next year.

“The expectations for the second half of 2019 however, is that performance will be highly subdued owing to the current economic turbulence specifically impacting SeedCo through indirect price controls and cost escalations,” IH said.

The research firm said margins will be under pressure as prices for supplies and raw materials as well as production costs are expected to increase as a result of the operating environment.

“Due to inflationary pressures, we expect the group to increase their prices by about five percent as they will still face bottlenecks from the government if they increase their prices at the same rate as inflation,” IH said.

The group had good results for the half year ended September 30, 2018, recording a profit, despite the first half being the weaker half.

During the period under review, SeedCo partially unbundled its wholly owned subsidiary SeedCo International which will now be equity accounted for as an associate.

Aggregate volumes for the period increased 6,3 percent to 13,318 million tonnes, from 9,737 million tonnes with maize seed sales growing by 114,5 percent.

Winter cereals were down 15,4 percent while barley and other seeds were up 135,8 percent.

The volumes resulted in revenue growth of 81,8 percent to $29 million compared to $15,96 million reported in prior period.

“The increase in revenues was as a result of early maize seed sales which were due to the public agricultural support programmes, with the prices being invoiced at the same price as last year,” IH said.

Despite inflationary pressures, operating expenses remained flat at $9,34 million.

Share of loss from associates and joint ventures amounted to $45,930, an improvement from a loss of $274,010 in the prior comparable period.

Seed production for the 2018/19 summer season is underway and this is expected to increase production by a further 40 percent which will be sold in full year 2020.

“We therefore expect the company to sell most of what they produce, either here in Zimbabwe or export the seed to other countries that rely on import of seeds from other subsidiaries,” IH said.

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