Namoi posts $4m drought loss, but cottonseed earnings help

Namoi loses $4m as drought burns into cotton prospects

True to its predictions, Namoi Cotton has confirmed the savage impact drought is having on the ginning and marketing business, also tipping another slump in ginning throughput as Australia's cotton crop area shrinks again.

The industry's oldest cotton processing business has reported a $4 million after-tax loss for the first half of 2019-20, down from a $14.3m profit in same period to August 31 in 2018-19.

Namoi's cotton season ginning volumes fell more than 60 per cent or 677,500 bales during the six month period, nearly halving its revenue.

However, with less crop to gin it achieved 50pc to 60pc cost reductions on labour and energy bills and benefited from drought-driven demand for cottonseed and improved cotton fibre prices earlier this year.

On a normalised basis, the company was actually in the black, declaring an after-tax profit of $1.7m after writing down impairment charges against the value of its Ashley gin, near Moree, and its investment in joint venture marketing business, Namoi Cotton Alliance.

However, that after tax profit was almost 90pc down on the previous year's result.

Namoi said trading results had been "profoundly impacted by the severe drought conditions being experienced in eastern Australia, particularly in core cotton growing regions".

It has also warned ginning volumes in the first half of next financial year would likely fall a further 66pc on its already disappointing figures from the start of 2019-20.

Michael Renehan

Michael Renehan

"Clearly the results are disappointing at face value, however the business has reacted quickly to the downturn in cotton availability with strong cash management and tight internal controls," said chief executive officer, Michael Renehan.

"A number of internal initiatives are already in place to ensure we scale our organisation to the current economic conditions.

"Our seed business has been well placed to supply into the feedlot and livestock market at improved margins, with additional revenue coming from our other by-products."

Key priorities included taking further costs out of the business while retaining core skills and capacity and ensuring the business was "right-sized" and ready for the anticipated much reduced crop this summer.

Current estimates for Australia's cotton production in 2019-20 range from 600,000 bales to just above 1 million, with Namoi bosses tipping a likely outcome at the lower end of the range unless significant rain falls soon.

In line with those expectations, Namoi is forecasting it will gin up to 175,000 bales next autumn-winter - 66pc less than this year.

Chairman, Tim Watson, said the big dry was unprecedented in its impact, surpassing the severity of the Millennium drought, which was a blow to all regional NSW and Queensland farm sector businesses.

Tim Watson

Tim Watson

Namoi was using this period to streamline and strengthen its business, but was also "very mindful the drought had put growers and staff under significant financial and emotional strain".

Due to the continuing big dry directors have not declared and interim dividend and have told shareholders not to expect a dividend at the end of the financial year either.