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Cottco surpasses analysts’ forecasts

Conrad Dube

THE Cotton Company of Zimbabwe Ltd (Cottco) has recorded a 473% increase in earnings per share to $17,92 surpassing analysts’ range of forecasts of between $12 and $17 for the full year ended Mar

ch 31 2003.

International lint prices which firmed up by an average of 20% on last year’s prices to about US0, 60 per pound, spurred on the largest buyer, processor and marketer of cotton in southern Africa’s performance to record 473% increase in attributable profit to $13,5 billion from $2,4 billion previously.

Turnover rose by only 67% to $26,4 billion from $15,8 billion during the year comparable.

Cottco declared a final dividend of 896 cents per share, 589% up on last year’s 130 cents per share.

“The results are all the more pleasing when the year’s extremely complex business climate typified by unstable macro-economic variables and high inflation, is considered,” Nick Nyandoro said in his first report as Cottco chairman.

The financial results were “commendable and masked the difficulties experienced in achieving them”, but the group was concerned by the “advent of cotton buyers, be they local or foreign, who do not invest in the crop.”

The company said proposals hadbeen submitted to government con-cerning the introduction of an industry regulatory framework, which would encourage the production and promotion of the crop as well as protect Zimbabwe’s quality reputation.

Cottco exports premium quality handpicked cotton to 21 countries in Africa, Europe, South America and the Far East.

Zimbabwe lint, supplied predominantly by Cottco, has maintained its position on international markets largely because it is contamination free, unlike other handpicked cottons originating from Africa, and is sold by reliable suppliers.

Through its spinning subsidiary, Scottco, the company also exports quality yarns to Europe.

Cottco said: “The regulatory framework, should ideally address quality standards and ensure they are upheld. It should also provide adequate safeguards to those who will have invested in the production and promotion of the crop.”

The Chinhoyi seed cotton bulk-handling project is nearing completion and will be commissioned in the third quarter of this year. Cottco was granted a concession allowing exclusive operations of Mozambique during the year under review.

The company said the exchange rate review made in February and the accompanying promise that it was not a once-off event was most encouraging in view of the continuing high levels of inflation.

It said the lifting of price controls on ginned seed and lint in May had given a stimulus and would offset the effects of inflation on the group’s profitability.

Nyandoro said healthy producer prices, the prospects of a normal rainfall season, a strong domestic and international market for the group’s products, would enable Cottco to sustain profitability in the year to March 31 2004.

Analysts said all the indicators that drive Cottco “look positive” going forward.

“With Cottco exporting close to 75% of its products it was expected for the company to perform at this level and going forward all the indicators that drive Cottco’s business such as the promised quarterly review of the exchange rate, appear to be positive,” said Sheunesu Juru a research analyst.

Juru said forecasts were high in the currently prevailing US dollar economy as most companies were only now trying to explore investments in the region.

The firming up of demand would benefit Cottco as reports say cotton production estimates would be at least 29 million tonnes lower than the consumption requirements and the group was set for another solid performance in the current financial year, Juru said.

Cottco is involved in the provision of agronomic advisory services, production and sale of cotton planting seed, crop financing and merchandising of planting seed, chemicals and fertiliser.

It is also involved in raw cotton transportation, cotton ginning and classing, as well as marketing and warehousing lint and cotton seed.

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