Few days ago, the biggest Australian cotton grower announced its interim results for the drought stricken 2007 season. And even though from the long term investing prospective any isolated mid-year results are of little importance I could not help to stop and notice the numbers presented by Namoi Cotton and their impact on its share price.

To put the bellow reproduced figures in context, be advised that for a cotton grower such as Namoi Cotton, the first half of the year is the time of the crop hence the “moneymaking” one. From my understanding, during the second half of the year, major task in hand is keeping the ongoing cost low and preserve as much of the profits made previously as possible.

Should you be interested in some more background on this company have a look at my previous sum up of Namoi Cotton’s 2006 full year results. But now to the interim numbers:

Results for the half year ended 31 August 2007

• Revenue down 41% to $141.9 million
• Profit down 46% to $12.9 million (EPS 12c/share vs. 21.6c/share in 2006 half)
• For the first time in decades no interim dividend will be paid out (last year interim divided 3.5c)
• Balance sheet: Working capital of $21.4mil versus total debt of $143.3mil ($33.9mil increase in total debt)

Explanations given by the management

1. Prevailing severe drought conditions in all the major Australian cotton growing areas
2. From historical prospective the world cotton prices are still on the low side, an impact further magnified by weak US currency

PROS AND CONS
+++ Long established business further strengthening its grip on Aus cotton production during these very difficult times (Namoi Cotton is now marketing 34% of the total Australian cotton production; year ago it was about 27%)
+++ Balance sheet remains strong
+++ Continuous deployment of conservative financial management strategies incl. share buybacks at very favorable market prices, reducing the overhead costs etc.
— Prevailing very unfavorable climate conditions severely effecting the cotton production
— Exposure to volatile cotton markets with its current lower than average cotton prices and weak US dollar

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This entry was posted on Saturday, November 3rd, 2007 at 7:39 am and is filed under Australian stock. You can follow any responses to this entry through the RSS feed. You can leave a response, or trackback from your own site.