In anticipation of an early start to the 2023 harvest, cotton processing company Namoi Cotton (ASX: NAM) has undertaken a series of activities to ensure smooth operations and maximise yields. The favourable weather conditions experienced across its network of growers prompted the Company to commence preparations earlier than usual, setting the stage for a promising Q1 FY24. These proactive measures include maintenance, procurement of consumables, and staffing arrangements to gear up for the ginning season.

For the 3 months ended 31 May 2023 (Q1 FY24), Namoi experienced a net cash outflow of $3.5 million from operating activities. However, it received $111.7 million from customers, exceeding the operating costs of $106 million during the same period. This financial performance showcases a strong start to the fiscal year, indicating healthy customer demand and efficient cost management.

In terms of expenditure, Namoi allocated $8.8 million toward staff, administration, and corporate costs in Q4 FY23. Noteworthy payments to related parties included a strategic investment in the cotton gin operated by the Kimberly Cotton Company amounting to $7 million.

The Company’s diligent efforts in cultivating a successful harvest have borne fruit, with approximately 250,000 bales already ginned as of the end of May 2023, surpassing the previous season’s figure of 190,000 bales. Moreover, the overall quality of the cotton received thus far has been exceptional, leading to improved ginning productivity and reduced energy costs compared to the 2022 season.

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) predicts a total cotton production of 5.5 million bales for the 2023 season, slightly lower than the 5.6 million bales harvested in 2022. Queensland anticipates a substantial 21% increase in production, offset by a 13% decrease in New South Wales.

In Q4 FY23, the Company’s net cash inflows from operating activities amounted to $4.3 million, which is a significant improvement compared to the net cash outflows of $800k in Q4 FY22. It received $72.6 million from customers, whereas in Q4 FY22, the amount was $15.5 million. However, the operating costs for the same period increased to $62.6 million, compared to $11.2 million in Q4 FY22.

Due to the rainy season causing delays in ginning, the ginning volume for 2022 and the procurement of cottonseed from growers for marketing extended into Q4 FY23. Typically, these activities would have peaked in the second quarter itself. As a result, the sale of cottonseed and mote will be realised in FY24 instead of FY23. Plus, the delayed execution of cottonseed sales, particularly in the export market, led to increased transport and storage costs in Q4 FY23.

Looking ahead, Namoi expects a harvesting volume of 1 to 1.1 million bales, slightly lower than the 1.18 million bales ginned in the previous season. This projection aligns with the Company’s previously communicated forecast. With early preparations, strong financial performance, and a positive outlook for the 2023 cotton season, Namoi is well-positioned to capitalise on market opportunities and deliver favourable results in Q1 FY24.