Seed : HY23 Results & Audit Review

SUSTAINABILITY COMMITMENT REAFFIRMATION

Seed Co 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.

FOR THE HALF YEAR ENDED 30 SEPTEMBER 2022

				INFLATION ADJUSTED		UNAUDITED HISTORICAL COST
				30 SEPTEMBER	30 SEPTEMBER	30 SEPTEMBER	30 SEPTEMBER
				2022 (Reviewed)	2021 (Unaudited)		2022		2021
					ZWL$'000
Revenue	8,439,095	8,062,908	5,917,864		1,965,283
Cost of sales	(6,154,058)	(5,901,776)		(2,720,226)		(1,098,710)
Gross profit	2,285,037	2,161,132	3,197,638		866,573
Other income	20,454,863	2,084,536	16,813,323		442,769
Operating expenses	(4,632,567)	(3,456,445)	(3,742,880)		(853,712)
Sales and marketing costs	(1,031,666)	(489,396)		(535,955)		(132,847)
General and administrative costs	(1,919,467)	(1,935,974)		(1,938,237)		(470,983)
Research costs	(1,308,395)	(1,031,075)		(1,035,186)		(249,882)
Movement in expected credit losses	(373,039)	-		(233,502)		-
Operating profit	18,107,333	789,223	16,268,081	455,630
Finance income	1,816	1,106	1,291	271
Finance cost	(3,902,880)	(1,212,390)	(3,403,701)		(294,354)
Net monetary gain/(loss)	(8,418,295)	(3,845,820)	-		-
Share of profit from associates
and joint venture (JV)	(1,163,968)	(275,929)		(591,109)		52,686
Profit/(Loss) before tax	4,624,006	(4,543,810)	12,274,562		214,233
Income tax expense	(2,017,440)	(2,886,709)		(6,246,466)		(137,788)
Profit/(Loss) for the period	2,606,566	(7,430,519)	6,028,096		76,445
Attributable to:
Equity holders of the parent	2,606,566	(7,430,519)		6,028,096		76,445
Earnings per share		cents
Basic earnings per share	712.98	(1,126.31)	2,438.80		30.91
Diluted earnings per share	697.25	(1,124.97)	2,438.80		30.91
Headline earnings per share	716.02	(1,124.88)	2,443.30		32.34

FOR THE HALF YEAR ENDED 30 SEPTEMBER 2022

				INFLATION ADJUSTED		UNAUDITED HISTORICAL COST
				30 SEPTEMBER	30 SEPTEMBER		30 SEPTEMBER	30 SEPTEMBER
				2022 (Reviewed)	2021 (Unaudited)		2022	2021
					ZWL$'000
Profit/(loss) for the period	2,606,566	(7,430,519)	6,028,096	76,445
Other comprehensive (loss)/income
Share of other comprehensive
income/(loss) from associates	(40,655)	787,400	(40,654)	295,193,251
Total comprehensive
income/(loss) for the period,
net of tax	2,565,911	(6,643,119)	5,987,442	295,269,696
Attributable to:
Equity holders of the parent	2,565,911	(6,643,119)	5,987,442	295,269,696

AS AT 30 SEPTEMBER 2022

				INFLATION ADJUSTED	UNAUDITED HISTORICAL COST
				30 SEPTEMBER	31 MARCH 2022	30 SEPTEMBER	31 MARCH
				2022 (Reviewed)	(Audited)	2022	2022
					ZWL$'000
ASSETS
PPE	16,533,886	16,863,434	6,254,961	6,322,021
Investment in associates and JV	6,017,675	12,075,989	3,812,519	4,444,283
Other financial assets	31,192	84,940	32,235	31,843
Inventories	13,242,689	8,833,882	12,439,548	2,431,420
Trade and other receivables	26,035,747	12,591,626	25,480,183	4,709,989
Cash and cash equivalents	1,118,005	691,900	1,118,005	259,391
Total assets	62,979,194	51,141,771	49,137,451	18,198,947
EQUITY AND LIABILITIES
Equity
Share capital	126,700	126,700	2,472	2,472
Non-distributable reserves	30,716,510	30,757,165	7,856,333	7,896,988
Retained earnings	1,286,782	3,534,953	10,936,363	4,908,268
Total equity	32,129,992	34,418,818	18,795,168	12,807,728
Liabilities
Deferred tax liability	5,008,494	6,171,446	4,501,575	1,435,501
Bank borrowings	18,762,294	8,238,446	18,762,294	3,088,560
Trade and other payables	7,078,415	2,313,061	7,078,414	867,158
Total liabilities	30,849,203	16,722,953	30,342,283	5,391,219
Total equity and liabilities	62,979,195	51,141,771	49,137,451	18,198,947

FOR THE HALF YEAR ENDED 30 SEPTEMBER 2022

		INFLATION ADJUSTED		UNAUDITED HISTORICAL COST
		30 SEPTEMBER	30 SEPTEMBER		30 SEPTEMBER	30 SEPTEMBER
		2022 (Reviewed)	2021 (Unaudited)		2022	2021
			ZWL$'000
Operating activities
Profit/(Loss) before tax	4,624,006	(4,543,810)	12,274,562	214,233
Non-cash adjustments	5,526,038	14,693,854	4,309,995	350,263
Working capital adjustments	(15,695,322)	(8,792,465)	(27,562,530)	(2,989,745)
Tax paid		(610,216)	(2,321,276)		(113,087)	1,266,992
Operating cash flows		(6,155,494)	(963,697)		(11,091,060)	(1,158,257)
Investing activities
Proceeds from sale of PPE	7,170	19,124	3,751	6,468
Purchase of PPE	(274,411)	(349,516)	(238,385)	(201,388)
Loans and receivables net
(advances)/receipts	(580)	(84,271)	(391)	(22,785)
Dividends received			-	632
Interest received		1,816	775		1,291	271
Investing cash flows		(266,005)	(413,888)		(233,734)	(216,802)
Financing activities
Dividend paid	-	-	-	-
Net cash flows from investing activ	13,255,875	6,378,690	8,962,352	1,272,689
Interest paid		(3,902,880)	(4,605,528)		(3,403,702)	(294,354)
Financing cash flows		9,352,995	1,773,162		5,558,650	978,335
Movement in cash and cash
equivalents	2,931,496	395,577	(5,766,144)	(396,724)
Effects of net monetary
movement on cash and cash
equivalents	(14,282,797)	4,344,042	-	-
Effects of exchange rate on forex	10,006,345	95,637	6,711,381	34,818
Cash and cash equivalents at
beginning of period		2,462,961	(2,372,296)		172,768	534,673
Cash and cash equivalents at
end of period		1,118,005	2,462,960		1,118,005	172,767

FOR THE HALF YEAR ENDED 30 SEPTEMBER 2022

		INFLATION ADJUSTED		UNAUDITED HISTORICAL COST
		30 SEPTEMBER	30 SEPTEMBER		30 SEPTEMBER	30 SEPTEMBER
		2022 (Reviewed)	2021 (Unaudited)		2022	2021
			ZWL$'000
Opening shareholders' equity	29,564,081	30,488,306	12,807,727	6,345,103
Profit for the period	2,606,566	(7,430,519)	6,028,095	76,445
Other comprehensive (loss)/income	(40,655)	787,400	(40,654)	295,193
Dividend - cash		-	(6,338)		-	(2,376)
Closing shareholders' equity		32,129,992	23,838,849		18,795,168	6,714,365

-1. Corporate information	Overview
The first half of the year was an increasingly difficult operating environment in
Seed Co Limited is a company which is incorporated and domiciled in
Zimbabwe with constant policy interventions. Liquidity crunch, foreign currency
Zimbabwe and listed on the Zimbabwe Stock Exchange (ZSE).	shortages and prohibitive borrowing costs were among the major obstacles
2. Basis of preparation	encountered in the period. During the period under review, the cost of key
agricultural inputs continued to rise and thereby threaten achievement of food
- These abridged financial statements are presented in Zimbabwe Dollars	security. On the global scale, the unending geopolitical dispute in Eastern
(ZWL$). The basis of preparation of these financial statements is International	Europe has had a massive impact on international supply chains compounding
Financial Reporting Standards (IFRS) with the exception of IAS 8 and IAS 21	the challenges of fragile regional economies.

as documented in the audit report for the year ended 30 September. Inflation	Financial Performance
adjusted financial statements have been draw up using the conversion factors	Record local winter and barley sales were achieved during the first half i.e., a
derived from the Consumer Price Index (CPI) prepared by the Zimbabwe	growth of 30% from prior year to 6,320mt. Overall, winter sales were 8% lower
Central Statistic Office. The conversion factors used to restate the financial	in the absence of repeat export sales. Last year 2,000mt of wheat was
statements are as follows:			exported to Nigeria. On the other hand, maize seed sales began on a lower
		Index	Conversion	note as farmers did not pre-stock as they did in prior year given the liquidity
		Factor	crunch in the economy.	The rollout of Government programmes was also
30	September 2022	12,713.12	1.00	delayed this year. This saw maize sales volumes declining by 45% from same
31	March 2022	4,766.10	2.67	prior year period.
30	September 2021	3,342.02	3.80	On the export front, the business registered a notable 88% volume growth
31	March 2021	2,759.83	4.61	satisfying the shortage in the regional caused by drought in prior year
Average for the six (6) months to:			particularly in East Africa.
30	September 2022	9,468.14	1.48	On the local market, selling prices were regularly adjusted in line with
30	September 2021	3,043.50	4.19	inflationary pressures	and exchange rate movements resulting in
				inflation-adjusted turnover being 5% higher than prior year.

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.

Gross margins were stable in inflation-adjusted terms owing to inflation tracking price adjustments and the relatively lower carrying value of wheat stock carried over from prior year.

Inflation and exchange rate movements saw overheads increasing significantly compared to prior year.

• 3. Application of accounting policies

• The principal accounting policies of the Group have been consistently followed in all material respects.

4. CAPEX	INFLATION ADJUSTED	UNAUDITED HISTORICAL COST
		30 SEPT	30 SEPT		30 SEPT	30 SEPT
		2022	2021	2022	2021
		(Reviewed) (Unaudited)
			ZWL$'000
	Capital expenditure	274,411	349,516	238,385	201,388
5.	Depreciation	551,901	304,855	290,580	60,454
6.	Contingent liabilities	Nil	Nil		Nil	Nil

• There were no contigent liabilities in the period under review.

1. Approval of financial statements

• These abridged financial statements were approved by the Board on

1. December 2022.

• 8. External auditors' review conclusion

• The abridged Group results for the half year ended 30 September 2022, should be read in conjunction with the interim condensed consolidated inflation adjusted financial statements for the six months ended 30 September 2022, from which they have been extracted.
  The interim condensed consolidated inflation adjusted financial statements for the six months ended 30 September 2022 have been reviewed by KPMG Chartered Accountants (Zimbabwe) and a qualified review conclusion issued thereon.
  The auditors' review conclusion is qualified in respect of non-compliance with IFRS 13, Fair Value Measurement, in relation to the valuation of land and buildings, IAS 21, The Effects of Changes in Foreign Exchange Rates, in respect of accounting for blocked funds, IAS 28, Investments in Associates and Joint Ventures, in relation to applying inconsistent accounting policies and non-compliance with IAS 21 and IFRS 13 within the associates and joint ventures, 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 review conclusion has been made available to management and those charged with governance of Seed Co Limited. The engagement partner responsible for this review is Vinay Ramabhai (PAAB Practising Certificate Number 0569). The auditors' review conclusion is available for inspection at the Company's registered office.

A loss was absorbed from associates mainly contributed by Seed Co International whose first half performance was subdued with notable early sales reduction in Malawi and drop in revenue in Nigeria due to product unavailability and in East Africa due to drought.

Financial Position

The carrying value of property, plant and equipment was relatively stable compared to last year end with no major capital expenditure during the period under review.

The business is still taking deliveries of raw seed and by the end of the first half 15,500mt tonnes of maize seed was in stock across all varieties. The business will have adequate seed available for this summer selling season.

The carrying value of debtors quadrupled from the closing position last year end and this is attributable to winter cereal credit sales as well as the revaluation of grower debts that were advanced denominated in USD. Nearly half of the debtors' book related to grower advances whose balances are being recovered with the delivery of raw seed.

Short-term borrowings increased in line with the borrowing cycle of the business, characterised with the intake of seed from growers as well as processing. The increase is also due to inflation-induced increase in working capital requirements as well as the need to fund delayed settlement of Government related debtors.

Research and Development

Research and Development remains the key pillar of the competitive advantage for the business. Various innovative research projects are underway to produce seed solutions in both existing product portfolio and new crops that are adaptable to the constantly evolving climate and disease regiment. The business has progressed well in crop diversification with remarkable work on rice and potato seeds having been recorded.

Dividend

No interim dividend was declared.

Outlook

Despite the harsh and uncertain operating environment, the Board and management will focus on defending the leading market position and stakeholder value enhancement by harnessing hard currency local sales as well as exploiting regional export opportunities. The business has adequate seed and is prepared for the main summer selling season which is now underway. The regional business is also well prepared for the season on the back of adequate stocks out of Zambia also serving the East African markets, improving economic environment in Zambia, stability in Tanzania and continued business growth in Mozambique. The Group has optimal varietal mix of seed to match the mixed rainfall forecasts with most parts of Southern Africa expecting normal to above normal rains and East Africa anticipating normal to below normal rains.

		D. E. B. Long	M. Nzwere
		Chairman	CEO	T. Chatiza
		12 December 2022	12 December 2022	Group Secretary	12 December 2022

KPMGKPMG

Mutual Gardens 100 The Chase (West)

Emerald Hill, Harare, Zimbabwe

Telephone [phone]

Internet www.kpmg.com/zw

Independent auditor's report on review of interim condensed consolidated inflation adjusted financial statements

To the shareholders of Seed Co Ltd

Introduction

We have reviewed the accompanying interim consolidated inflation adjusted statement of financial position of Seed Co Ltd and its subsidiaries ("the Group") as at 30 September 2022, the consolidated inflation adjusted income statement, consolidated inflation adjusted statement of other comprehensive income, consolidated inflation adjusted statement of changes in equity and consolidated inflation adjusted statement of cash flows for the six month period then ended, and notes to the interim condensed consolidated inflation adjusted financial statements. Management is responsible for the preparation and presentation of these interim condensed consolidated inflation adjusted financial statements in accordance with IAS 34, Interim Financial Reporting. Our responsibility is to express a conclusion on these interim condensed consolidated inflation adjusted financial statements based on our review.

Scope of Review

We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity." A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Basis for Qualified Conclusion

Matter 1: Valuation of land and buildings (IFRS 13, Fair Value Measurement ("IFRS 13")) The Group's property, plant and equipment ("PPE") which is carried at ZWL 16 533 886 250, as disclosed in note 7 includes land and buildings, plant and machinery, equipment and motor vehicles. The PPE balances were revalued as at 31 March 2022 and as at 31 March 2021, using inputs which were not in accordance with IFRS 13. The prior year audit opinion for the year ended 31 March 2022, and review conclusion for the six-monthperiod ended 30 September 2021, issued by the predecessor auditor, were also modified due to these matters. Accordingly, these matters impact the comparable periods presented.

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

Values as at 30 September 2022 were determined by applying the change in CPI from 31 March 2022 to 30 September 2022. As the prior period matters were not addressed, the misstatements continued in the current period, however, could not be quantified, as alternative appropriate inputs were not determined.

Consequently, the following line items are impacted in the current and prior period: Property, plant and equipment, asset revaluation reserve, and deferred tax liability in the consolidated inflation adjusted Statement of Financial Position, and the associated depreciation charges included in cost of sales and operating expenses and deferred tax charges in the interim condensed consolidated inflation adjusted Income Statement.

Matter 2: Equity accounting for joint ventures and associates due to inconsistent accounting policies applied to the Group and underling equity accounted amounts not being correct due to modified audit opinions

The investments in associate and joint venture is disclosed in note 8.2. The share of loss from associates and joint venture is stated as ZWL 789 779 189, and the investment in associates and joint venture balance is stated at ZWL 6 727 712 176. These balances are misstated due to the following matters:

1. In respect of the associate company, Quton Seed Company (Private) Limited, property, plant and equipment (PPE) is recorded on the cost model, which is not consistent with the Group's annual revaluation policy. The Group has not made any adjustments at a consolidation level as required by IAS 28, Investments in Associates and Joint Ventures.
2. While the Group's share of foreign creditors related to blocked funds in Quton Seed Company (Private) Limited are correctly stated as at 30 September 2022, after conversion at auction rate, the comparative foreign creditor balances and the associated exchange losses were not recorded at an appropriate exchange rate in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates ("IAS 21"), and have not been corrected in terms of IAS 8, Accounting policies, Changes in accounting Estimates and Errors.
3. The ZWL valuation inputs used to revalue the PPE amounts for Prime Seed Co (Private) Limited, an associate company, were not considered to be appropriate in determining fair values in accordance with IFRS 13, Fair Values.

These are prior period errors which have not been corrected in terms of IAS 8 and are continuing in the current interim period.

The impact of these matters is considered to be material, however, cannot be quantified in respect of the share of loss from associates and joint ventures and the investment in associates and joint venture. The prior year audit opinion for the year ended 31 March 2022 and review conclusion for the six-month period ended 30 September 2021, issued by the predecessor auditor, were also modified due to these matters.

Matter 3: Accounting for foreign currency denominated payables related to Blocked Funds Foreign currency denominated payables were incorrectly translated at an exchange rate of ZWL$1: US$1 for the year ended 31 March 2021 and the six- month period ended 30 September 2021, which was not in accordance with IAS 21. As a result, exchange gains and losses (within other income) in the comparative consolidated inflation adjusted Income Statement of ZWL 2 084 535 613 remains materially misstated.

2