Arab Cotton Ginning: Towards vertical integration

Annelle Sheline
5 Min Read

CAIRO: Arab Cotton Ginning Company (ACGC), currently identified as an integrated textiles group, detailed its restructuring plans on Sunday, which will see it transform into a holding company specialized in textiles.

The decision, voiced by CEO, Chairman and Managing Director Hany Olama, is largely motivated by ACGC’s significant land holdings that it desires to sell as prime real estate.

The restructuring will also lead to vertical integration of clothing production, with dyeing and weaving added to existing cotton production and clothing retail, thus undertaking all the steps in transforming cotton to clothing.

The decision appears to demonstrate that the Egyptian real estate market has begun to regain its luster, even in areas outside of Cairo. Delta land in Zifta and Tanta now represents a valuable asset for wealthy Egyptians seeking to escape Cairo’s crowds.

After spending 33 years as a public ally owned ginning mill, ACGC has been evolving steadily since it privatized in 1996, moving beyond cotton to accumulate each step in clothing production. In 1998 ACGC partnered with Modern Nile, now ACGC’s cotton trading arm, and modernized its mills and pressing technology.

Three years ago, ACGC joined with Amwal Al Khaleej to establish Amwal Al Arabia, creating a textile arm and becoming an integrated textiles group. In 2007, Amwal Al Arabia swapped its shares into ACGC, initiating the current trajectory for ACGC to become a holding company.

The current structure comprises Amwal Al Arabia, Egypt Ginning, Modern Nile and Wave, as well as partial shares in Egyptian Spinning and Weaving, El Nasr for Textiles and Clothing (KABO) and Alexandria Spinning and Weaving.

ACGC’s noncore investments include Beltone Financial and Upper Egypt Flour Mills.

The expected developments will see expansion into weaving, dyeing and finishing, shirting and bed linens, in addition to existing areas of cotton trading, ginning and pressing, spinning, knitting, garment making, and retail.

If the past three years are any indication, ACGC’s real estate arm is likely to have a wide reach: LE 700 million have been poured into the textiles arm since its creation in 2006.

However, ACGC did suffer in the decline of cotton prices, global trade and tumbling stocks that accompanied the global financial crisis. Their highly liquid stock, largely based on retail, left ACGC stock especially vulnerable, declining with the other EGX 30 companies by almost 70 percent from May 2008 to February 2009.

The crisis halted plans to acquire additional links in the textiles value chain. Had such acquisitions taken place prior to the crisis, the ACGC would now be kicking itself for paying pre-crisis prices. Instead, it preserved its strong cash position that now allows it to carry out earlier plans at lower cost.

KABO, the knitting, apparel manufacture and retail capacity for ACGC, owns both JIL International for the MENA region as well as Wave, which together have 55 retail outlets in Egypt.

KABO’s counts Calvin Klein, Marks and Spencer, Macy’s, GAP, Old Navy and Walmart among its clients. ACGC’s plans for KABO include the purchase of a specialized shirt brand targeting the American, European and North African markets, as well as a home textile/bed linen brand.

A significant aspect of ACGC’s restructuring appears to be the happy accident in which the ACGC finds itself in possession of lands worth a combined LE 1 billion. Cotton ginning facilities historically received rights to land near the cotton farmers. Now, this prime Delta land is far more valuable than the ginning facilities built there. Plans are in place to move the ginning to industrial areas and develop the land as real estate.

Descriptions of land parcels in Zifta and Tanta already read like a brochure, promising “spectacular uninterrupted views of the Nile and “conveniently located by main roads and rail road station, respectively.

Amr El-Sharnoubi, vice chairman and managing director of Amwal El Arabia, gave details on the restructuring, and specific aspects of retail and branding.

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