Namoi Cotton’s warehousing site at Wee Waa in north-west NSW. Photo: Namoi Cotton

AUSTRALIAN ginner Namoi Cotton Limited has recorded a loss of $4 million in the six months to 31 August, the first half of its 2020 financial year.

The figure compares with the after-tax profit of $14.3M recorded in the corresponding first-half 2019 period.

“The result was profoundly impacted by the severe drought conditions being experienced in eastern Australia, and particularly in the core Australian cotton-growing regions,” Namoi said in a statement to the Australian Stock Exchange (ASX).

At 436,037 bales, Namoi’s 2019 cotton-season ginning volume was 61 per cent below the 1.1M bales ginned in the 2018 season, which reflects the decline in volume for the entire 2019 Australian cotton crop.

The reduction in ginning volumes caused significant decreases in Namoi’s major revenue streams in 1H20, although revenue declines were less than the underlying ginning-volume decrease.

This was achieved on the back of increases in ginning price per bale, and higher prices per tonne on cottonseed sales.

“Given the scale of the revenue decline that it was confronted with, and its significant fixed-cost base, Namoi was unable to reduce its costs sufficiently in H1 FY20 to maintain profit levels.”

Cost reductions of 50-60pc were achieved in casual labour costs, electricity charges, “hessian, ties and tags “charges, maintenance costs, and depreciation expenses.

Further decline seen

In its half-yearly report, Namoi said the 2020 Australian cotton crop had now entered the planting phase, but with limited water in public storages available for irrigators, and almost no water in on-farm storages, the crop will rely heavily on bore water and the possibility of a dryland crop if significant rain falls by the end of November.

Current estimates for the 2020 Australian cotton crop sit between 600,000 and 1.1M bales.

With dry conditions prevailing, Namoi sees the 2020 crop to be in the bottom half of this range.

Consistent with this, Namoi has forecast an FY2021 ginning volume of 125,000-175,000 bales, with 150,000 bales representing a further 66pc decline in volume over Namoi’s “already disappointing” 2019 ginning volume as ginned in 1H20.

Extra charges

Namoi’s 1H20 result was also impacted by a $3.65M post-tax charge against the carrying value of ginning assets, driven primarily by impairment of the Ashley ginning site to a nil book value attached to its altered service potential.

This was partially offset by the repositioning of bales to other sites.

A $2.1M post-tax impairment charge against the carrying value of Namoi’s investment in Namoi Cotton Alliance (NCA), a joint venture with Louis Dreyfus Commodities, was also incurred.

NCA includes Namoi’s cotton warehousing and trading arm, and three container-packing sites.

As previously foreshadowed by Namoi, NCA had unrealised contract losses of $6.3M, with Namoi incurring $3.2M of that.

NCA losses were tied to exposures caused by shipment delays and contract renegotiations on forward-sales contracts.

In 1H20, Namoi generated net cash outflows from operating activities of $11.5M, which was $31.5M below the 1H19 result, when inflows of $20M were recorded.

Namoi expects to generate positive cash flows from operations in 2H20 as a result of contracted cottonseed-debtor realisations.

Namoi’s target FY20 net cash flows from operating activities remains in the range of plus or minus $2.5M.

The company has said it hoped to resolve its commercial dispute with Cargill in relation to the Cargill Oilseeds Australia partnership and the Cargill Processing Limited investment, which recorded a loss in FY19 of $4.8M in relation to cottonseed trading losses, and the mothballing of the Narrabri crush facility.

Source: ASX, Namoi Cotton