After years of weather-related setbacks gnawing at its earnings, Australia's biggest cotton ginner, Namoi Cotton, has clearly turned the corner posting a 37 per cent revenue jump and an $11.8 million after-tax profit for the first half of 2023-24.
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The profit for the six months to August 31 was almost 200pc bigger than the company's full year result for 2022-23.
Although total cotton production shrank 10pc in the company's catchment areas of southern Queensland and NSW, Namoi ended its ginning season last week after handling 1.16m bales, or 36pc of the available crop - a slight increase in its 2022 share.
The return to a more normal cotton growing and harvest season followed last year's wet weather challenged picking which delivered lower quality lint and was plagued by boggy field conditions and other local and global supply chain disruptions.
"We've finished a great season, with great results and great cotton," said Namoi board chairman and former cotton grower, Tim Watson.
Mr Watson also became executive chairman' mid-year after chief executive officer, John Stevenson's departure.
Ginning records
Record processing throughput at most Namoi's gins after the autumn harvest were aided by recent upgrades to its Merah North gin in North West NSW and Trangie in the Central West which lifted their productivity 10pc and 14pc, respectively.
Gas, electricity and other ginng costs were generally down, too, thanks to the better quality cotton crop and forward hedges on power prices.
Meanwhile, the $5m in first half capital expenditure costs included $1.4m spent on the early construction stages of Namoi's Ord River joint venture cotton gin development in West Australia's far north.
Kimberley Cotton Company's site at Kununurra is due to be operating by the later part of next financial year.
"It's a very exciting project backed by Northern Australia Infrastructure Finance funding which minimises our financial exposure," Mr Watson said.
"With the water supply available for cotton production around Kununurra, who knows what opportunities may develop for us in that region."
The 62-year-old listed Namoi has 10 existing gins at nine sites, although it did not operate its North Bourke gin during the recent harvest, instead diverting that district's crop to Trangie.
Like most of Australia's early stage cotton processors, the ginning, storage and marketing business has endured a tumultuous run with seasonal conditions of late.
The former grower co-operative recorded a full year loss of $4.4m for the year ending in early 2022, which followed two prior year losses as cotton industry volumes were scorched by drought.
Last financial year's net profit after tax climbed over the line at $4m.
Upbeat new crop outlook
Despite drought conditions returning to eastern Australia, Namoi is tipping the coming summer will still produce above average production in central and southern NSW thanks to current irrigation storage levels supporting what is tipped to be at least an average national cotton planting.
The Australian crop is forecast to yield about 4.4m bales - down from 2003's above average 5.5m - of which the company expected to process between 800,000 and 1m bales.
Namoi generated almost $27m in earnings before interest, tax, depreciation and amortisation in its first six months of 2023-24, up from $20 for the same period a year ago, leading to a pre-tax profit of $16.8m.
The earnings uplift was driven by increased contributions from ginning operations and from its Namoi Cotton Alliance packing and marketing alliance joint ventures with its biggest shareholder Louis Dreyfus Company.
Cottonseed marketing earnings were below average due to dry summer seasonal conditions impacting seed yields, and Namoi also reported extra storage and distribution costs after carrying over a big cottonseed inventory from last year's crop.
However, improved cottonseed capacity management at its upgraded 8000 tonne Boggabri site and improved sales activity had since reduced stock levels.
The better season, improved ginning efficiencies, bigger seed and grain packing volumes and higher ginning fees to cover cost increases have also contributed to Namoi pruning its debt.
Gearing ratios are back to 2018-19 levels and core debt, down to $13.7m to $20m, is at pre-drought levels.
However corporate costs grew $2.4m to $6.2m for the year.
They reflected expenses involved in changing CEOs, including Mr Watson's new $70,833 monthly fee, plus costs associated with a strategic review the company is conducting into ways to strengthen the business and its footprint.
Initial recommendations from the review were likely to be released when full year results are reported in February, while corporate and support costs were expected to be pruned by $2m in 2024-25.
Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
