Namoi Cotton's ginning volumes and profitability prospects may have rebounded, but company directors have taken an unexpected kick in the guts, copping a "first strike" against their remuneration report at the annual general meeting.
Unusually, the report was voted down, not because its pay arrangements were too generous, but largely because one key critic felt Namoi Cotton should be offering board members bigger incentives, in particular, bonus shares, to reward growth in the company's share price.
Namoi management is scrambling to understand and discuss the rationale behind major shareholder, Samuel Terry Asset Management, leading the vote against the remuneration report.
If more than 25 per cent of shareholders attending an AGM vote down a company's remuneration report in two successive years the board may be immediately replaced.
Sydney-based Samuel Terry, a boutique investment manager which owns about 20 per cent of Namoi Cotton's shares, held significant voting sway among those attending last week's Toowoomba AGM, even though it was one of only two shareholders actually opposing the remuneration report.
Almost 60pc of votes at the meeting were against the report.
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"We don't think the vote represents what the majority of shareholders believe," said chairman, Tim Watson.
"Unfortunately it's not a good look.
"We've always had a positive relationship with Samuel Terry, we already talk a lot, and I would think we get on very well,
"They've said their actions were not being aggressive, but in our opinion it certainly felt like they have been fairly aggressive.
"I've expressed our disappointment."
Mr Watson said his board valued all shareholders' views and he hoped further discussions would help reinforce Namoi Cotton's thinking on long term incentives.
Better communication
He conceded the company needed to communicate its remuneration policy better, although its views on the best way to promote higher share value and reward management and directors were "very consistent with other companies".
In fact, he said Samuel Terry's approach was not the sort of incentive policy encouraged by the Australian Securities Exchange.
Mr Watson assured shareholders Namoi's strategy was already to weighted to deliver shareholder value, compound annual growth and profits and the past year's improved season was the start of a turnaround in the cotton industry after several years of punishing drought.
Ginning volumes for 2022-23, following the most recent harvest, could exceed 1.1 million bales - up from 490,000 bales last financial year and a modest 120,000 in 2019-20.
Importantly, the next couple of years should deliver similar or greater ginning throughput given next summer's total Australian crop could be another 1m bales bigger than the most recent harvest, leaping to more than 6m bales.
Improving earnings
The board promised the much improved 2022-23 cash flow and earnings would be used appropriately to maximise shareholder value and pay down debt owed to financiers.
Directors would reintroduce dividend payments in coming years, as cash flow allowed.
Namoi's losses after tax last financial year had been contained at $4.4m, despite below average crop production - an improvement on 2020-21's $14.4m loss - while earnings before interest tax, depreciation and amortisation were positive for the first time in three years.
The company was also delivering growers greater investment facilities and services.
The past year's $2.1m upgrade to the Merah North gin in northern NSW meant Namoi handled the region's wet picking season far more efficiently than normal, although wet weather, freight congestion and harvest labour shortages meant ginning would continue until October, or a month longer than expected.
"We maintain a focus on reducing debt and only investing capital in projects that deliver returns in excess of our cost of capital," Mr Watson said.
Virtual concerns
Shareholders physically attending Namoi's AGM and via a webinar format also voted overwhelmingly against future virtual meetings.
The vote reflected a general mood of frustration among investors everywhere about AGMs becoming stage managed, restricting opportunities for shareholders to ask specific questions and interact with directors and senior management.
"I fully understand shareholders' concerns and suspicions about virtual meetings, and it is our intention to hold every meeting in person, although we believe hybrid meetings would provide flexibility and maximise AGM attendances," Mr Watson said.
There had been no intention to hold full virtual shareholder meetings unless there were extreme circumstances such as the past two years' COVID-19 pandemic lockdowns.
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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).
