Seed : FY23 Results & Audit Opinion

Seed Co Limited is committed to sustainable ethical business practices, the protection of the environment, and economic development while improving the livelihoods of all its stakeholders, including but not limited to employees, farmers, consumers, and communities. To this end, the DNA of our seed-to-feed business is to innovate and make available climate-smarthigh-yielding seed solutions, agronomic support, and training for the efficient utilization of arable land and other farming inputs to sustainably make both small and large-scale farming profitable enterprises that feed both people and livestock with catalytic effects on critical economic value chains.

OUR BUSINESS SOCIAL IMPACT AND BENEFITS:

During the year under review, our business continued to contribute positively to:

Improved food security

Enhanced agricultural productivity

Empowering smallholder farmers

Conservation of biodiversity

Climate change adaptation

Knowledge sharing and capacity building

Employment generation and empowerment of local communities

Fiscal revenue generation by being a responsible and compliant corporate citizen in all our markets

KEY METRICS

KEY METRICS		Inflation adjusted		Historical cost
Maize seed sales volumes	↑	12.2%	↑	12.2%
Revenue	↑	56.5%	↑	454.7%
EBITDA	↑	450.6%	↑	1212.4%
Net debt	↑	191.3%	↑	752.6%

• All inflation adjusted comparatives have been presented in terms of the measuring unit current at the end of the latest reporting period.
  ^ Foreign currency translation reserve through OCI and investments in associates have been restated at the applicable exchange rates.

ABRIDGED COMPANY INCOME STATEMENT

	Inflation adjusted	Historical cost
	Audited
	Mar 2023	Mar 2022	Mar 2023	Mar 2022
	ZWL'm	ZWL'm	ZWL'm	ZWL'm
Revenue	42,653.2	27,255.1	38,219.4	6,890.4
Cost of sales	(25,200.4)	(18,224.1)	(15,687.5)	(3,156.8)
Gross profit	17,452.8	9,030.9	22,531.9	3,733.5
Other income	36,801.0	5,472.1	34,743.9	1,470.8
Operating expenses	(18,366.1)	(8,619.7)	(16,014.5)	(2,206.1)
Operating profit	35,887.8	5,883.3	41,261.1	2,998.3
Net finance costs	(11,142.4)	(2,493.0)	(10,082.8)	(629.2)
Monetary loss	(4,377.0)	(2,914.4)	-	-
Share of profit from associates & JV	1,867.9	850.4	3,104.4	454.2
Profit before tax	22,236.2	1,326.3	34,282.7	2,823.3
Income tax expense	(6,443.9)	(3,515.8)	(7,014.1)	(642.1)
Profit/(loss) for the year	15,792.3	(2,189.5)	27,268.6	2,181.2
BEPS - cents	6,348	(884)	10,961	881
DEPS - cents	6,166	(859)	10,647	856
HEPS - cents	5,545	(734)	10,245	932

ABRIDGED COMPANY STATEMENT OF CHANGES IN EQUITY

	Inflation adjusted	Historical cost
	Audited
	Mar 2023	Mar 2022	Mar 2023	Mar 2022
	ZWL'm	ZWL'm	ZWL'm	ZWL'm
Opening shareholders' equity	37,767.5	47,774.6	12,807.7	6,345.1
Comprehensive income	41,412.6	(10,032.9)	68,245.5	6,457.2
Exercise of share options	366.9	-	144.9	(2,4)
Share based payments	214.3	32.7	84.6	7.8
Closing shareholders' equity	79,761.3	37,774.4	81,282.7	12,807.7

ABRIDGED COMPANY STATEMENT OF FINANCIAL POSITION

	Inflation adjusted	Historical cost
	Audited
	Mar 2023	Mar 2022	Mar 2023	Mar 2022
	ZWL'm	ZWL'm	ZWL'm	ZWL'm
Assets	132,326.7	56,117.4	131,543.4	18,198.9
Property, plant & equipment (PPE)	37,166.9	18,504.1	37,157.0	6,322.0
Investments in associates & JV^	25,413.4	13,250.9	25,303.6	4,444.3
Other financial assets	4,096.2	1,879.8	4,096.2	642.2
Inventories	10,819.9	9,693.3	10,234.1	2,431.4
Receivables	54,090.1	12,030.0	54,012.2	4,099.5
Cash and cash equivalents	740.2	759.2	740.2	259.4
Equity and liabilities	132,326.7	56,117.4	131,543.4	18,198.9
Shareholders' equity	79,761.3	37,767.5	81,282.7	12,807.7
Loans and borrowings	24,860.4	9,040.0	24,860.4	3,088.6
Deferred tax liability	15,858.6	6,771.9	13,553.9	1,435.4
Payables and provisions	11,846.2	2,538.1	11,846.2	867.2

ABRIDGED COMPANY STATEMENT OF CASH FLOWS

	Inflation adjusted	Historical cost
	Audited
	Mar 2023	Mar 2022	Mar 2023	Mar 2022
	ZWL'm	ZWL'm	ZWL'm	ZWL'm
Profit before tax	22,236.2	1,326.3	34,282.7	2,823.3
Reconciling items to net cash flows	15,423.7	5,556.1	7,575.4	375.2
Working capital changes	(34,868.2)	3,147.8	(48,274.1)	(2,204.4)
Tax paid	(1,399.8)	(3,394.0)	(851.6)	(755.5)
Operating cash flows	1,391.9	6,636.1	(7,267.6)	238.6
PPE disposal proceeds	25.8	42.7	24.2	13.6
Purchase of PPE	(749.1)	(1,275.2)	(675.8)	(393.6)
Non-current financial assets changes	(17.9)	346.5	(79.2)	(30.2)
Dividends received	15.7	9.5	14.8	2.4
Interest received	4.8	6.7	4.0	2.1
Investing cash flows	(720.7)	(869.9)	(712.1)	(405.7)
Net proceeds from borrowings	18,239.5	6,137.0	13,780.0	816.9
Interest paid	(11,147.1)	(2,499.7)	(10,086.8)	(631.2)
Net cash flows during the year	7,763.5	9,403.5	(4,286.5)	18.6
Effects of monetary changes	(14,092.8)	(10,924.1)	-	-
Effects of exchange rate	6,310.3	(423.0)	4,767.3	(294.0)
Opening cash and cash equivalents	759.2	2,702.7	259.4	534.7
Closing cash and cash equivalents	740.2	759.2	740.2	259.3

IAS 29 discourages the publication of historical cost financial statements as the inflation adjusted results are the primary records. However, the historical cost results are included as supplementary information to allow for comparability during the transitional phase of applying the Standard and to meet most user requirements.

ABRIDGED COMPANY STATEMENT OF OTHER COMPREHENSIVE INCOME

				Inflation adjusted	Historical cost
				Audited
				Mar 2023	Mar 2022	Mar 2023	Mar 2022
				ZWL'm	ZWL'm	ZWL'm	ZWL'm
		Profit/(loss) for the year	15,792.3	(2,189.5)	27,268.6	2,181.2
		Exchange differences^	10,354.4	4,697.1	17,530.9	1,604.8
		Revaluation net of tax	15,265.9	3,038.2	23,446.0	2,671.1
		Total comprehensive income for the year	41,412.6	5,545.9	68,245.5	6,457.2

3. Accounting policies

"The abridged Seed Co Limited results for the year ended 31 March 2023, should be read in conjunction with the inflation adjusted financial statements for the year ended 31 March 2023, from which they have been extracted.

The inflation adjusted financial statements for the year ended 31 March 2023 have been audited by KPMG Chartered Accountants (Zimbabwe) and an adverse opinion issued thereon.

The auditors' report is modified for IAS 21, The Effects of Changes in Foreign Exchange Rates, in respect of use of internally generated rates in accounting for transactions with growers and determination of split of exchange gains into realised and unrealised portions, IAS 28, Investments in associates and joint ventures, in respect of the associate entity's application of the cost model in accounting for property, plant and equipment (PPE) which is not consistent with Company's policies which require PPE to be revalued annually, in respect of non-compliance with IFRS 13, Fair Value Measurement, in relation to the valuation of land and buildings, IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors due to these areas of non-compliance remaining uncorrected in the comparative periods and the consequential impact of these items on IAS 29, Financial Reporting in Hyperinflationary Economies.

The independent auditors' opinion has been made available to management and those charged with governance of Seed Co Limited. The engagement partner responsible for this audit is Vinay Ramabhai (PAAB Practising Certificate Number 0569).

The auditors' opinion is available for inspection at the Company's registered office."

These abridged results have been extracted from the full set of financial statements and are the responsibility of the directors . The full set of financial statements which have been signed on behalf of the board by the Chairman and CEO, are available on the ZSE data portal and Company's website.

Overview

In a continuous trend from prior year, the period under review saw a worsening harsh operating environment where inflationary pressures, scarcity of critical inputs, high prices, unstable exchange rates, liquidity challenges, policy inconsistencies and uneconomic interest rates brought about an unprecedented difficult operating landscape. Uncertainty around commodity prices and unreliability of the payment system for produce delivered to approved buyers had a direct impact on farmer interest in certain cropping lines especially the winter wheat production whose condition was made worse by the absence of reliable power and water supply.

Sales volume performance

Maize and soyabean seed sales volumes increased by 12% and 49% from prior year respectively driven by the heightened seed demand due to improved rainfall received and government programmes aimed towards ensuring food security supplemented by export opportunities across the region.

Winter wheat sales were subdued when compared to prior year, dropping by 7% driven mainly by high prices of inputs, unreliable power supply and uncertainty around commodity producer prices

Financial performance

The revenue growth recorded was on the back of 14% increase in sales volumes and selling price adjustments in response to inflation-induced increases in operating costs, as well as the general effects of exchange rate fluctuations.

Other income increased due to exchange gains on debtors and non seed sales Operating expenses rose steeply due to the prevailing hyperinflationary conditions.

Finance costs were at 26% of turnover with an interest cover ratio of 4.4 caused by the unexpected hikes in interest rates that ranged 80%-200% p.a. The appetite to borrow was worsened by delayed payments from Governemnt schemes and a sharp increase in prices for both operating expenses and seed deliveries.

Associate and joint venture operations made a negative contribution to 'the Company's performance due to subdued sales volume growth. Quton sales declined 10% and Prime Seed sales were 18% below prior year due effects of the various the challenges in the Zimbabwean economic landscape

Financial position

The rise in property, plant and equipment was driven by revaluation assets and acquisitions made during the year.

Inventories on hand at the reporting date where higher than prior year due to wheat seed which has since been sold during the ongoing winter growing season.

The increase in receivables at the year end date was attributable to the growing sales and the outstanding debt from growers and Government programmes.

Trade payables were significantly high as compared to prior year as the business has been facing liquidity challenges due to the mismatch between inflows from debtors and expected outlfows. To finance seed production, the Company raised its borrowing levels during the year.

Outlook

The operating economic environment is crowded with a busload of headwinds and increasing uncertainties. The Global economy is also facing unprecedented challenges . Whilst these developments impact fragile economies the most, the unavoidable need to focus on food security places the Company in a better position to leverage its strong brand and intellectual property to actively participate in enhancing primary food production to plug supply gaps.

By Order of the Board

T Chatiza (Group Secretary)

25 July 2023

		25 July 2023	25 July 2023

KPMG

Mutual Gardens 100 The Chase (West)

Emerald Hill, Harare, Zimbabwe

Telephone [phone]

Internet www.kpmg.com/zw

Independent Auditors' Report

To the shareholders of Seed Co Limited

Adverse opinion

We have audited the inflation adjusted financial statements of Seed Co Limited (the Company), set out on pages 10 to 55, which comprise the inflation adjusted company statement of financial position as at 31 March 2023, and the inflation adjusted company Income statement , inflation adjusted company statement of comprehensive income, inflation adjusted company statement of changes in equity and the inflation adjusted company statement of cash flows for the year then ended, company accounting policies and notes and other explanatory information.

In our opinion, because of the significance of the matters described in the Basis for adverse opinion section of our report, the inflation adjusted financial statements do not present fairly the inflation adjusted financial position of Seed Co Limited as at 31 March 2023, and its inflation adjusted financial performance and inflation adjusted cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS Standards) and in the manner required by the Companies and Other Business Entities Act [Chapter 24:31].

Basis for adverse opinion

Non-compliance with IAS 21, The Effects of Changes in Foreign Exchange Rates (IAS21)

Use of internally generated exchange rate

The accounting policy of the Company is to record foreign currency denominated transactions and balances at the foreign currency exchange rate ruling at the transaction date (spot rate). Purchases of seed to growers and sales of farming inputs to growers, are undertaken with the growers using US$ values and invoiced in US$. The invoices are then recorded in the system on transaction date at a translated amount using an internally agreed exchange rate with the growers. These transactions are ultimately settled in ZWL at the internally generated rates, which vary from the official foreign currency exchange rates.

Grower balances, receivable in ZWL at the year end, are determined by translating the underlying US$ values outstanding using the official interbank exchange rate. To the extent these transactions are settled in the financial period and the related inventories have been sold, a potential misstatement may arise between cost of sales and the exchange gains and losses accounts in the income statement. Where the related inventories have not been sold a potential misstatement also arises between closing inventory balances and exchange/fair value gains or losses in the income statement. The impact on the exchange gains/losses, cost of sales and inventory balances could not be quantified as this would be impracticable.

KPMG, a Zimbabwean partnership, and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

Document classification: KPMG Confidential

Foreign exchange gains/losses: determination of the amount of realised and unrealised portions

Included in Other income is net exchange gains of ZWL 32 872 234 004. Management determined split of ZWL 7 455 596 135 as the realised portion and ZWL 25 416 637 869 as the unrealised portion, based on proportion of foreign currency denominated trade receivables collected and uncollected, during the year. However, foreign currency denominated trade receivables are not the only driver of exchange rate gains and losses. Other drivers include currency swap, external borrowings, foreign denominated cash balances and foreign currency denominated creditors/payables, which were not taken into account in determining the split of realised and unrealised portions.

The resultant split into realised and unrealised portions does not reflect the correct actual split for all the exchange rate drivers. The inability to correctly split foreign exchange gains and losses impacts (i) the allocation into current tax expense and deferred tax expense, and the related tax liabilities, and (ii) the portion of realised net exchange rate gains to which inflation indices are applied to obtain IAS 29 numbers (see point on IAS 29 below). In addition, as stated under IAS 21 mentioned above, the company was using Seed Co internally generated exchange rates. Whilst considered to be material the impact on the exchange gains/losses, related taxliabilites and expense could not be quantified.

Non-compliancewith IAS 28, Investments in Associates and Joint Ventures - Inconsistent application of policies

An associate, Quton Seed Company (Private) Limited ("Quton"), accounts for its property, plant and equipment (PPE) using the cost model, which is not consistent with the accounting policies which require PPE to be revalued annually. The Company has not made any adjustments on the equity accounting of Quton, as required by IAS 28 to apply uniform accounting policies. The impact, whilst considered to be material, cannot be quantified on the share of profit/(loss).

This is also a prior period error which has not been corrected in terms of IAS 8, Accounting policies, changes in accounting estimates and errors, and is continuing in the current year, thus still impacting the comparatives.

Non-compliance with IFRS 13, Fair Value Measurement (IFRS 13) - Inappropriate valuation inputs used

As disclosed in note 9.3, the Company's property, plant and equipment, which is carried at ZWL 37 166 822 989 includes land and buildings of ZWL 18 509 633 514, which are revalued annually. The market approach was applied for the valuation of land and buildings and key inputs into the calculations include rentals per square metre and yield rates. The valuation of land and buildings was performed based on USD denominated inputs and converted to ZWL reporting currency at closing spot foreign currency exchange rates.

IFRS 13 defines fair value as the price that would be received to sell an asset in an orderly transaction between market participants at a measurement date. Current market practice is to determine the ZWL fair value of land and buildings using ZWL denominated inputs. Valuing in USD and applying a conversion rate to USD valuation inputs may not provide an accurate reflection of market dynamics and fair values. The impact, whilst considered to be material, cannot be quantified.

This is also a prior period error which has not been corrected in terms of IAS 8, Accounting policies, changes in accounting estimates and errors, and is continuing in the current year, thus still impacting the comparatives.

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