Hybrid seed processor, SeedCo Limited, banks on remodeling of its business model to offset the adverse impacts of exchange losses incurred during the year to March 31, 2023 as well as rising cost of doing business.
During the past financial year, regional operation – SeedCo International, incurred exchange losses of US$4,5 million versus exchange gains of US$1,5 million in the prior period as regional currencies weakened against the US dollar.
Like any business in the country, the group was also affected by imported inflation stemming from the war in Ukraine, which saw increased input costs also driven by seed production challenges in drought impacted parts of Africa for its regional operations in addition to loss of value from currency exchange volatility.
Across the region, performance was not uniform in the various markets as some segments experienced growth within the year, like in Zambia and East Africa under its regional operations, where volumes growth added to topline growth.
Despite registering a 16 percent growth in revenue to US$103,5 million, margins remained under pressure from imported global inflation that could not be passed on in pricing to small-scale farmers.
Subsequently, earnings before interests, tax, depreciation and amortisation (EBITDA) margins fell from 19 percent in FY22 to 13 percent in FY23.
At their analyst briefing held recently, group finance director, John Matorofa, highlighted the group’s intentions to restructure its business model and balance sheet. He said the group was changing the structure of the business and its borrowings.
“Restructuring of business model is expected to alleviate exchange losses,” weighed in brokerage firm IH Securities.
“The effects of the Russia/ Ukraine war are still lingering with global inflation and supply chain shocks yet to fully dissipate. This will play into elevated costs of inputs for the company in the short term. The US science agency has also announced the arrival of El-Nino conditions which are normally synonymous with hotter weather and droughts in Southern Africa thereby potentially affecting demand for seed,” said the research firm.
The group, however, remains optimistic about the prioritisation of primary food production in Africa and is also leaning on climate-smart products suitable for mixed rainfall patterns. African Governments and development partners continue to prioritise primary food production to mitigate global shocks, and this augurs well for the business.
With full implementation of the restructuring the business is projected to see earnings growth.
Revenue for the group is projected to grow 7 percent for FY24 while adjusted EBITDA margin is expected to remain flat at 27,4 percent.
A profit after tax of US$9 million is expected for FY24.
For SeedCo International, EBITDA margin is projected to increase from 13,4 percent to 19,5 percent.
Resultantly, EBITDA should close FY24 at US$19,72 million, registering a 43 percent growth according to IH Securities projections with after tax profit closing at US$9,2 compared to US$2,9 recorded during FY23.