- 800 tonnes of lint were converted to yarn
- Intake increased by 48%
- Acquisition of controlling stake by government still ongoing
Harare- Cottco's value addition initiative has achieved remarkable success from July 2022 to August 2023, as the company has successfully converted over 800 tonnes of lint into yarn for the local market. This strategic move towards value addition not only enhances Cottco's competitiveness but also contributes significantly to the growth of the domestic textile industry in Zimbabwe.
In addition to the successful implementation of the value addition initiative, Cottco has experienced a notable increase in intake. During the period, the company's intake rose by an impressive 48%, surging from 46,748 metric tonnes to 69,146 metric tonnes. This substantial increase in intake demonstrated Cottco's improved performance, even in the face of funding challenges.
During the period under review, Cottco faced significant challenges with local market liquidity, making it difficult for the company to access funding from approved facilities. Despite these challenges, the government tightened liquidity, exacerbating the situation for Cottco. In November 2014, Cottco took the step of applying for the voluntary suspension of trading in its shares on the Zimbabwe Stock Exchange. This decision was driven by the company's inability to settle debts totalling approximately US$56 million, resulting from its failure to recover the costs of inputs provided to contracted cotton farmers due to widespread side marketing. However, the government intervened and provided assistance, ultimately rescuing the company.
As of the latest trading update, Cottco is engaged in ongoing discussions with the government regarding a potential increase in the government's stake in the company. The government intends to raise its stake from the current 37% to a controlling 51%. In order to facilitate this process, the Ministry of Finance and Economic Development has appointed Grant Thornton to conduct a Financial Due Diligence on Cottco. This evaluation was completed in August 2023, marking an important step in the ongoing engagement between the company and the government.
As of August 2023, Cottco has made progress in paying farmers for their produce. However, it is worth noting that the company still has outstanding payments to be made. Cottco had already paid US$15.9 million to farmers, which accounts for 68% of the total amount owed. The remaining 32% is expected to be cleared by the end of September 2023. With the month already coming to a close, it is important for Cottco to fulfil its commitment and make the remaining payments to the farmers in a timely manner.
For the season, Cottco utilised local borrowings and offshore pre-finance arrangements as part of its financing strategy. While these measures helped reduce finance costs, they also increased the company's overall debt, when considering both the borrowed funds and the outstanding payments to farmers.
Looking ahead to the upcoming 2023/2024 season, Cottco is relying on the Presidential Input Scheme for support. Suppliers for the Presidential Inputs for Cotton Program have already commenced the delivery of fertilizers, which will be distributed to farmers. This timely provision of inputs is crucial for facilitating early crop establishment, particularly in light of the forecasted El Nino weather patterns for the forthcoming season.
Cottco has made progress in deposit and site clearance for a new oil expression plant in Gokwe. The establishment of a new oil expression plant in Gokwe is expected to bring several benefits to Cottco. Firstly, it signifies the company's commitment to diversification and value addition in its operations. By venturing into the oil expression segment, Cottco aims to bolster its footprint into the market for oilseed products, which can be derived from crops like cotton, sunflower, and soybeans.
The oil expression plant will enable Cottco to process oilseeds and extract oil from them. This extracted oil can be used in various industries, including food processing, cosmetics, and biodiesel production. By having its own oil expression plant, Cottco can gain more control over the production process and potentially reduce costs associated with procuring oil from external sources.
Additionally, the plant's location in Gokwe holds strategic significance. Gokwe is known for its agricultural potential and is a hub for cotton production in Zimbabwe. By establishing the plant in this region, Cottco can leverage the local cotton supply and strengthen its value chain. This proximity to the source of raw materials can help reduce transportation costs and improve operational efficiency.
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