Namoi plans more cost cutting and restructuring after $11m loss

Namoi Cotton's $11m loss prompts marketing revamp to survive severe year

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The razor is out again at Namoi Cotton and its joint marketing venture with Louis Dreyfus set for a shake up as drought leaves just 150,000 bales to process.

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Drought-punished Namoi Cotton is preparing for a second round of restructuring cuts and business changes after posting an $11 million loss for the year to February 29.

The company's 51 per cent owned joint venture marketing business Namoi Cotton Alliance is set for a shake up as this season's national cotton harvest shrinks to about 600,000 bales, or just 17pc of its yield average.

Last year the pioneer cotton processor and marketer ginned less than 450,000 bales compared with 1.2m the the previous season.

It expects to handle only about 150,000 bales during the current harvest season which ends a crippling summer in which most southern Queensland and northern and central NSW growers produced no crop, or very little.

Pre-tax earnings of $4.3m

Although Namoi reported $4.3m in earnings before interest, tax, depreciation and amortisation, thanks to improved ginning prices and good cottonseed earnings, its profit after costs, taxes and impairment writedowns sank to a $10.99m loss.

Having anticipated a tough 2020, the company slashed about 40pc of its labour costs late last year, losing more than 50 staff.

A new executive team and strategic plan have been introduced.

That first stage of the company's transformation aimed to achieve $4.5m in annualised savings, plus more focus and accountability on services to growers and customers.

Chief executive officer Michael Renehan, who was appointed eight months ago, said Namoi had also been reviewing the best way to configure its marketing activities in the seven-year-old NCA partnership venture with international commodity trader Louis Dreyfus.

NCA under microscope

Changes on the horizon are likely to include revamping information technology platforms to provide more real time market insight for growers, altered roles for NCA employees and possibly fewer staff on the payroll as the business adjusted.

Michael Renehan

Michael Renehan

Namoi blamed NCA losses during the lean 2019-20 year and writedowns in the market value of the business for contributing about $8.6m to the parent company's total loss.

Drought cut NCA's total cotton lint marketing volumes by 57pc to just 350,000 bales in 2019, while coronavirus-related market shocks, losses from shipping delays, contract renegotiations were adding more pressure this year.

"A lot has changed in seven years, particularly technology and the way growers interact with merchants," said Mr Renehan in identifying the need for more restructuring and cost control.

"Personal relationships are still really important to growers, but it's also important for people to have a lot more information at their fingertips and to broaden the portfolio of skills and information we offer.

"Growers don't want to only trade off relationships."

For example, he said croppers and buyers appreciated detailed data on different aspects of the crop as it was processed, making it possible for them to respond with timely adjustments to picking operations or buying orders.

Mr Renehan said no changes in the ownership relationship with Louis Dreyfus were planned and the partners were currently discussing best options for funding NCA beyond May.

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He said last year's uncomfortable, but important cost cutting and restructuring decisions ensured Namoi had backing from its bankers to weather the current difficult season and fund technology and maintenance upgrades while much of its infrastructure was in mothballs.

I am confident we will come out the other side a stronger, more responsive business - Michael Renehan, Namoi Cotton

"We are now right-sized for the season and we have financial support to cover costs in a year when our ginning and marketing income will not meet those expectations," he said.

"Others in the cotton industry have reacted to the unprecedented drought conditions with similar adjustments and tough decisions for their operations, cutting back or even pulling out of the market."

Trade headwinds

The severe season had been complicated by difficult domestic and international market headwinds, including the China-US trade war and more recent coronavirus-related shutdowns or restricted access to processing operations, including in Bangladesh and Vietnam.

"Conditions have been tough for everyone, and the 2020 season will be equally challenging with production forecasts down 83pc on the average Australian cotton crop," he said.

"I am confident, however, we will come out the other side a stronger, more responsive business.

"This is particularly important as a favourable rainfall outlook is seeing increased confidence in the 2021 cotton crop with preliminary estimates of between 2.1m and 2.5m bales."

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