Namoi Cotton CEO, Michael Renehan, said the unprecedented drought conditions, combined with difficult domestic and international market conditions, are impacting many agribusinesses across the sector and Namoi Cotton was no exception.
This saw Namoi Cotton's ginning volumes fall from 1.2 million bales in FY19 to less than 450,000 bales in FY20.This was primarily the result of severe drought conditions prevailing in eastern Australia, particularly in the core Australian cotton growing regions.
"However, despite these challenges, improved working capital management as well as better ginning prices and solid cotton seed trading operations has meant we were able to achieve a positive EBITDA of $4.3 million," Mr Renehan said.
"These have been tough conditions for everyone, and the 2020 season will be equally challenging with production forecast to be down 83% on the average Australian cotton crop."
At the end of last year Namoi Cotton implemented a wide-ranging modernisation plan designed to build a more resilient business which could respond not only to the drought conditions, but also any significant domestic and international headwinds.
"The first stage of this transformation is now largely complete and will deliver forecast annualised savings of $4.5 million as well as an increased focus and accountability on the delivery of services to growers and customers. The second phase is underway with the appointment of a new executive team and the development of a new strategic plan," he said.
"We have taken the tough decisions now to ensure we can weather these difficult conditions and I am confident 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 Australian cotton crop with preliminary estimates in the region of between 2.1 million to 2.5 million bales."
A significant contribution to Namoi Cotton's FY20 results was an $8.59 million loss including impairments for the company's 51% owned joint venture Namoi Cotton Alliance (NCA).
"Again, severe drought conditions saw NCA's total cotton lint marketing volumes fall by 57% in 2019 to just 350,000 bales."With continued market shocks being felt from COVID-19, we've recognised NCA's losses from shipping delays, contract renegotiations and a decline in cotton futures, in this year's results," he said.
"As part of a potential broader restructure of the NCA joint venture, we are in discussions with our partner around the best form of funding for NCA beyond 29 May 2020." .