ANNUAL REPORT 2023 OUR EXPERIENCE. OUR FUTURE. WWW.NAMOICOTTON.COM.AU ANNUAL REPORT 2023 | 3 2 | NAMOI COTTON Contents NAMOI COTTON LIMITED ABN 76 010 485 588 10 Letter from our Chair and CEO 18 Our Stakeholders 20 Our Results 20 Review and Results of Operations 23 Safety Performance 23 Workforce Diversity 23 Environment, Social and Governance 24 Our Team 24 Executive Leadership Team 26 Governance and Risk 26 Board of Directors 28 Governance 30 Board Composition 30 Managing risk 31 Risk appetite framework 32 Directors’ Report 36 Remuneration Report 61 Financial Statements 04 Who we are & how we operate 06 About this Report 07 FY2023 highlights 08 Results For Announcement to the Market ANNUAL REPORT 2023 | 5 4 | NAMOI COTTON SAFETY We place safety and health first. INTEGRITY We build strong partnerships with our customers and each other. EXCELLENCE We deliver on our promises. TEAMWORK We are efficient and effective and get the job done. Namoi Cotton is Australia’s largest cotton ginner and marketer of cotton seed. Our business spans fibre, feed, supply chain and marketing, with ginning being at the core. Namoi Cotton has built its capability and history as a grower owned co- operative, as well as our future as an innovator in sustainable agriculture. Our purpose is to provide cotton growers an independent pathway to market whilst adding value along the supply chain. Our culture is based on a shared group of values which guide how we operate with each other, our growers, our customers, and the communities that we work within. Our Vision and Mission is to be the leading Australian cotton agribusiness by independently linking growers to global markets. Our network of 10 cotton gins across 9 locations in NSW and southern QLD is supported by warehousing and packing, connected by rail and road to container ports. We partner with growers to maximise the value of their cotton, connecting them to domestic and global marketplaces through our facilities and supply chain. We also provide innovative solutions to create high quality and sustainable commodities into the fibre and feed markets. We manage the seed cotton picked and delivered from growers as cotton modules, separating cotton fibre, classing the cotton quality, provide storage and manage outbound logistics (through Namoi Cotton Alliance ‘NCA’), marketing and supplying cotton lint to merchants and overseas spinning mills (through Namoi Cotton Marketing Alliance ‘NCMA’). We also produce and manage co-products from ginning comprising cottonseed, process moss (from mote) and compost cotton trash. We market and supply cottonseed to domestic and overseas livestock feed markets. We market and supply moss to overseas spinning mills. To support our business, we have two joint arrangements with Louis Dreyfus Company. Our supply chain joint venture (NCA – 51% owned by Namoi Cotton) stores and exports cotton lint bales and co-products through its warehouse facilities. NCA also stores and packs grains for growers. Our marketing joint arrangement (NCMA – 15% owned by Namoi Cotton) purchases cotton lint bales from growers through Namoi Cotton’s grower services team for trading into overseas markets. Who we are & how we operate QLD NSW VIC ACT Port of Botany Port of Brisbane Port of Melbourne MacIntyre (1 & 2) Mungindi Wathagar Moomin North Bourke Warren Trangle Merah North Hillston Wee Waa Toowoomba (HO) Namoi Cotton is the leading Australian cotton agribusiness with ginning being at our core GINNING COTTONSEED AND CO-PRODUCT MARKETING LINT MARKETING SUPPLY CHAIN Cotton Ginning • Network of 10 gins at 9 sites serving ~200 growers • ~1.5 million bale capacity • In-house engineering Co-products • Network of 10 sheds marketing cottonseed to local and overseas livestock feed markets • Process and marketing cotton mote and trash Supply Chain 1 • 3 warehouses & terminals • 2 grain & packing facilities • Rail and road transport Cotton Marketing 2 • Cotton lint origination • Exporting to 8+ countries • In-house cotton classing 3 1. NCA JV with LDC - Namoi Cotton has 51% interest 2. NCMA JV with LDC - Namoi has 15% interest 3. Australian Classing Services - wholly owned by Namoi Cotton Gin Cottonseed Shed NCA Warehouse & IMEX terminal NCA Grain Storage Australian Classing Services & Engineering Services Namoi Head Office Boggabri ANNUAL REPORT 2023 | 7 6 | NAMOI COTTON FY2023 highlights About this report Welcome to our FY2023 Annual Report, which forms part of our corporate reporting suite for the 2023 financial year. STRUCTURE AND CONTENT The elements of the Directors’ Report, required by Australian Securities and Investments Commission (ASIC) Regulatory Guide 247, are covered on pages 28 to 50. This includes the Review and Results of Operations which is presented on pages 20 to 23. The basis of preparation of our financial statements is outlined on page 66. This report covers all Namoi Cotton operations over which, unless otherwise stated, we have control for the financial year ending 28 February 2023 (collectively ‘the Namoi Cotton Group’, or ‘the Group’). Monetary amounts in this document are subject to rounding and are reported in Australian dollars, unless otherwise stated. VERIFICATION AND ASSURANCE The Remuneration Report (pages 38 to 50) and Financial Statements (pages 62 to 109) have been independently audited by KPMG. Detailed information on the audit process and opinion is provided in the Audit Report on pages 52 to 56. All unaudited information contained in this report has been subject to an internal review and approval process. FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements, including statements of current intention, opinion and predictions regarding the Namoi Cotton Group’s present and future operations, possible future events, and future financial prospects. While these statements reflect expectations at the date of this report, they are, by their nature, not certain and are susceptible to change. Namoi Cotton makes no representation, assurance or guarantee as to the accuracy of or likelihood of fulfilling any such forward-looking statements (whether express or implied) and, except as required by applicable law or the ASX Listing Rules, disclaims any obligation or undertaking to publicly update such forward-looking statements. Notes: 1 ’000 bales. Bales ginned is 100% of JV gins. 2 ’000 metric tonnes. 3 EBITDA – Non-IFRS and unaudited measure defined as earnings before interest, tax, depreciation and amortization (including share of EBITDA from NCA and share of profit from NCMA and NCPS excluding impairments and revaluation decrements on property, plant and equipment held at fair value). 4 Net profit before tax. 5 Gearing Ratio – Net Debt / (Net Debt plus Equity). 6 Core Debt – Net Debt (interest bearing liabilities less cash) less cottonseed inventory for marketing. 7 Number of lost time injuries occurring per 1 million hours worked across the Group. Excellent operational performance, executing record volumes, with most gins operating 24 hours per day for an extended ginning period to manage wet weather challenges. Return to positive earnings after three years of drought with a strengthened balance sheet, in the face of wet weather and inflationary challenges that impacted productivity and operating costs. Improved safety performance with reduced incidents and their impact on our people and business with increased operating shifts while maintaining productivity. SIGNIFICANT ENVIRONMENTAL INCIDENTS $18.3 m EBITDA3 FROM $2.6m 7.48 LTIFR7 FROM 14.61 $4.0 m FROM $(6.7)m NPBT4 5 LOST TIME INJURIES FROM 7 26% FROM 29% GEARING5 NIL 2,403 GIN SHIFTS WORKED FROM 1,044 $33.7 m FROM $43.3m CORE DEBT6 1,173 kb 1 BALES GINNED FROM 493 kb HIGHEST VOLUME SINCE FY2019 360 kmt 2 COTTONSEED DELIVERED FROM 113 kmt RECORD VOLUME 830 kb 1 LINT BALES WAREHOUSED FROM 677 kb RECORD VOLUME 158 kmt 2 COMMODITIES PACKED FROM 124 kmt HIGHEST VOLUME SINCE FY2018 ANNUAL REPORT 2023 | 9 8 | NAMOI COTTON Results for announcement to the market Provided below are the results for announcement to the market in accordance with Australian Securities Exchange (ASX) Listing Rule 4.3A and Appendix 4E for the consolidated entity Namoi Cotton Limited (‘Namoi Cotton or ‘Company’) and its controlled entities (‘Namoi Cotton Group or Group or Consolidated Group’), for the year ended 28 February 2023 (‘FY2023 or FY23’) and the previous corresponding period, 28 February 2022 (‘FY2022 or FY22’). Financial results and key financial items from continuing operations are included in the following table. The FY2022 comparable financials have been restated in accordance with the change in accounting policies in FY2023. For further explanation of the change in accounting policies refer to the Significant accounting policies note in the FY2023 Consolidated financial report. For further explanation of the annual financial results refer to the FY2023 Annual Report. FOR THE YEARS ENDED 28 FEBRUARY FY2023 FY2022 Movement PRODUCTION NSW and QLD Cotton Production 000’ bales 5.6 2.7 2.9 Namoi Cotton Catchment Area Production 000’ bales 3.6 1.3 2.3 VOLUMES Ginned cotton 000’ bales 1,173 493 680 Cottonseed delivered 000’ tonnes 360 113 247 EARNINGS & CASHFLOW Revenue, Income & Profit Share 1 $m 258.5 98.2 160.3 EBITDA 2 $m 18.3 2.6 15.7 Net profit (Loss) after tax 3 $m 4.0 (5.4) 9.4 Net cash (outflow)/inflow from operating activities 4 $m (2.4) 14.4 (16.8) BALANCE SHEET Net Assets $m 133.7 113.2 20.5 Net Debt 5 $m 47.2 46.8 0.4 Core Debt 6 $m 33.7 44.6 (10.9) ANALYSIS Gearing ratio 7 % 26% 29% -3% Diluted earnings per share cents 2.1 (3.3) 5.4 Net tangible asset value per share cents 65.2 65.8 (0.6) Shares on issue 8 million 204.9 172.1 32.8 Notes: 1 Revenue plus Other income/(loss) plus Share of profit/(loss) from investments and joint ventures. 2 EBITDA – Non-IFRS and unaudited measure defined as earnings before interest, tax, depreciation and amortization (including share of EBITDA from NCA and share of profit from NCMA and NCPS excluding impairments and revaluation decrements on property, plant and equipment held at fair value). 3 NPAT (Net Profit After Tax) – Profit (Loss) attributable to the members of Namoi Cotton Limited. 4 Net cash inflow/(outflow) from operating activities in FY2023 includes the purchase of cottonseed inventory ($13.4m) which is expected to be realised in Q1 FY2024. The net cash inflow/(outflow) from operating activities in FY2022 includes the operating cashflow impact from the restructure of the NCA joint venture involving the transfer of lint trading and associated assets and liabilities (estimated $18.3m) from NCA to NCMA. NCA’s FY2023 operating cashflow does not include any impact from the restructure. 5 Net Debt – Current plus non-current interest bearing liabilities plus lease liabilities and equipment loans less cash and cash equivalents. 6 Core Debt – Net Debt less cottonseed inventory held for marketing. (More relevant debt metric for agribusinesses given the marketable and liquid characteristics of traded cottonseed). 7 Net Debt divided by Net Debt plus Total Equity. 8 Shares on issue at balance date. Dividends Namoi Cotton will not pay any dividends in respect of the year ended 28 February 2023 (FY2022: nil). Audit Status This Appendix 4E is based on the Consolidated Financial Statements which have been audited and should be read in conjunction with the complete final report. ANNUAL REPORT 2023 | 11 10 | NAMOI COTTON Letter from our Chair and CEO We managed record volumes in the 2022 season which led to an improved financial result with an EBITDA of $18.3 million (FY2022 – $2.6 million) and NPAT of $4.0m (FY2022 – $5.4 million loss) after losses from three years of drought (FY2020 to FY2022). However, our financial results were negatively impacted by one-off weather events and a cost inflationary environment. The extended ginning season delayed the execution of co-product sales, and hence some of our FY2023 earnings and cashflow has been deferred into FY2024, which adds to our positive outlook for FY2024. Our focus is to demonstrate the value of our services to growers and the benefits of an independent pathway to market that we offer. We continue to build our capability to benefit from the positive short-term volume outlook, as well as strengthening our balance sheet to manage future seasonal conditions. Our gearing and core debt levels are now back to pre-drought levels. Our 4PP strategic initiatives are gaining traction, with operational benefits realised in FY2023 and are on track to increase our sustainable through the cycle earnings. SAFETY AND OUR SUSTAINABILITY STRATEGY We are committed to a safe workplace and engaged culture for all employees, contractors and customers and are pleased to report continual improvement in our safety lag metrics. Last year we implemented a new safety management system and invested in setting up a focused and accountable framework where safety is a priority topic from our Board right down to the front line. We worked 2.3 times more ginning shifts in FY2023 compared to last year. We incurred 5 lost time injuries down from 7 last year, and our LTIFR was cut in half to 7.48 from 14.61 last year. We benchmark ourselves on total reportable incidents not just lost time and are focused on forward looking measures such as hazard and incident reporting to focus our attention in the priority areas with a goal of preventing incidents from becoming injuries. We are proud to publish our inaugural stand-alone 2022 Season Sustainability Report which builds upon years of sustainability-related disclosure integrated within our annual reporting. This report forms part of our corporate reporting suite for the 2023 financial year. Namoi Cotton has been practicing aspects of sustainability best-practice for decades which we are now formalising around an Environmental, Social, and Governance (ESG) strategy. Last year we conducted an ESG materiality assessment to identify our main areas of opportunity and improvement and we are now building an action plan to track and improve upon our most important sustainability issues. We are committed to transparency and will regularly report on our sustainability-related impacts and progress towards achieving our sustainability goals. EXCELLENCE IN EXECUTION – 2022 SEASON – RECORD VOLUMES At the conclusion of FY2022 we reported that execution excellence was our immediate focus. We are proud to report that we managed record volumes in FY2023 more safely and effectively than in the past. The 2022 season was wetter than average with unprecedented floods. Rainfall was above average for Australia as a whole, and NSW had one of its wettest years on record. Our major growing and ginning areas in NSW and to the QLD border received between 125% to 200% of their average annual rainfall. While this rain is expected to support above average cotton production in the 2023 and 2024 seasons, it had a negative impact on our ginning and logistics operations in 2022. Wet weather increased cotton moisture which delayed the start of ginning and extended our ginning season by 6 weeks, increasing our labour and energy costs. For the 2022 season, which is reported within FY2023, we ginned 1,172,687 bales of cotton lint across our 10 gins. This represents around 33% market share in our catchment valleys and is 41% above our 10-year average annual ginning volume of 830,000 bales. Our gins and other facilities operated at full capacity, although wet weather and higher cotton moisture resulted in unplanned shutdowns and reduced speed with higher operating costs. Ginning is at the core of our business, and the increased volume flowed through our co-product, warehousing and marketing businesses. We marketed a record 360,000 tonnes of cottonseed, and NCA warehoused a record 836,000 bales of cotton. ANNUAL REPORT 2023 | 13 12 | NAMOI COTTON FINANCIAL PERFORMANCE The combination of higher volume, partly offset by wet weather impacts and increased costs, resulted in an EBITDA of $18.3 million (FY2022 – $2.6 million) and NPAT of $4.0m (FY2022 – $5.4 million loss). This is our first positive NPAT result since FY2018. For more detail, refer to the Review and Results of Operations, from page 20 of the Annual Report. The contribution from the Ginning Services segment in FY2023 has been negatively impacted compared to FY2019 with a similar volume. This decrease reflects the one-off impact of wet weather in 2022, cumulative impact of cost inflation on energy and labour, and reduced contribution from co-products (discussed below). While revenue per bale increased in FY2023, partly offsetting increased costs, ginning revenue has not kept pace with inflation. Supply Chain and Marketing earnings contributed $4.5 million (FY2022 – $2.1 million) to Group earnings, their highest contribution since FY2015, following a restructure of our NCA and NCMA joint ventures in 2020. It should be noted that our share of FY2023 earnings from NCMA were capped at $1.5 million which was a term of the 2020 joint venture restructure in return for Namoi Cotton’s modified obligations regarding debt funding for NCMA. CO-PRODUCT EARNINGS AND CASHFLOW DEFERRED INTO FY2024 We were disappointed to announce a downgrade in our forecast FY2023 earnings due to the delayed execution of co-product sales and a sharp increase in distribution costs. In an average season, we market and deliver all or most cottonseed volumes by February year end. Ginning and weather delays this season meant that we were holding increased levels of inventory and debtors at year end that will be converted into cash in FY2024. Our cottonseed inventory balance at the end of FY2023 was $13.4 million, being $11.3 million higher than the prior year (FY2022 – $2.2 million). Cottonseed marketing contribution was also impacted by higher distribution costs. Ocean container rates more than quadrupled during the year. For the most part, we pass on these increased costs as a logistics provider however, in the case of cottonseed we are exposed to a portion of these costs. In an average season, we also process cotton mote into moss which we export overseas by our February year end. Ginning delay and wet weather resulted in reduced quality turnout and delayed processing, leaving mote on hand at the end of FY2023 that will be processed into cotton moss bales for sale in FY2024. CAPITAL ALLOCATION After a prolonged drought affected period (FY2020 – FY2022), it was important to re- build our core strength and hence our capital allocation has been weighted to reducing our core debt and catching up on deferred capital expenditure, before investing in strategic growth programs in FY2023. We raised $13.2 million in proceeds from a renounceable pro-rata entitlement offer in November 2022 which, along with operating cashflow, funded a $9.9 million reduction in Term Debt facilities and a capital expenditure program including the investment in Kimberley Cotton Company totalling $11.2 million in FY2023. The $9.9 million reduction in Term Debt included $3.5 million paid in advance of its February 2024 due date and leaves us with a core debt of $33.7 million as at FY2023 (FY2022 – $44.6 million), the lowest since FY2010. Our FY2023 gearing ratio of 26% (FY2022 – 29%) is down to pre-drought levels. TANGIBLE COST SAVINGS FROM 4PP STRATEGY PROJECTS IN FY2023 Our 4PP Strategy program involves investments and initiatives, leveraging our capability and network of facilities, to deliver cost saving and new revenue streams and as well as expand our footprint. This will defend and grow sustainable earnings and reduce variability. LEADING SERVICE & COST POSITION Partner growers with a superior network and service Empower growers with differentiated products Geographically diversify network and grow the core Attract and retain talented staff INNOVATIVE & SUSTAINABLE SOLUTIONS BROADEN REVENUE BASE GREAT PLACE TO WORK O N E T W O T H R E E F O U R Safe and engaged workforce Reduce ginning period and cost Strong customer relationships Established network of ginning facilities Synergies between our network of gins Value-add from processed lint and co-products from ginning End-to-end capability and systems 60 years of ginning and engineering experience Grow value from co-products Digital platform Ginning talent pipeline Optimise cotton quality and outurn Diversify network into new production valleys New grower products Re-shape and optimise supply chain Transformation readiness Variable cost structure 4PP STRATEGY LEVERAGES OUR: After reporting our first positive NPAT result in 5 years, our aim is to commence paying dividends to shareholders in average and above average seasons starting from FY2024. We have commenced work on $3.8 million of projects in FY2024, including an upgrade in equipment at our Trangie gin and installation of mote recovery equipment at our Boggabri gin. The upgraded gin equipment at Trangie will be ready for the 2023 season. We delivered $4.9 million of projects in FY2023, including an upgrade in equipment at Merah North and new cottonseed shed at Boggabri. The upgraded gin equipment at Merah North was ready for the 2022 season and achieved a 10% increase in ginning productivity with improvement in outturn cotton quality. The new cottonseed shed at Boggabri will reduce our external storage and logistics costs from the 2023 season. ANNUAL REPORT 2023 | 15 14 | NAMOI COTTON LABOUR IS A CHALLENGE, BUT NAMOI IS A GREAT PLACE TO WORK Labour availability has been extremely restricted across Australia, but particularly so in rural and regional areas in which we operate, which has led to wage inflation. We have continued to develop our technical apprenticeship program whilst partnering with TAFE NSW to develop formal training and a recognised qualification for cotton ginning. This is attracting new people to the industry, with 5 new apprentices employed across the Group in recent seasons. Due to a shortage of experienced ginning staff in Australia, we have expanded our search for experienced labour into overseas markets. Last year we contracted 14 international staff for the ginning season and have successfully retained a majority for the 2023 season with plans in place to expand this program. We are also increasing our training and leadership programs, whilst promoting our mid-level staff and providing them with more on the job experience. On top of our full-time workforce, we employ between 300 – 500 casual employees during a season. The impact of Covid-19 has severely restricted the availability of casual workers leading to wage inflation. As we head into the 2023 season, the availability of casual labour is improving although, it is too early to definitively state that has or will lead to wage stability and improved productivity. At the same time, we are increasing our internal people and culture capabilities to be able to plan for and mitigate the material labour risks our business and the industry faces. Namoi Cotton is a great place to work because we are committed to creating a workplace and culture where our people are energised by the work they do, empowered to achieve their full potential, and inspired to have a positive impact on others. MANAGING VOLATILITY During the 2019 – 2021 drought impacted seasons our ginning volumes averaged compared to the 1,172,687 BALES WE GINNED IN THE 2022 SEASON Managing this variability in volume has involved simplifying and de-risking the business that included, restructuring our joint ventures, reducing our debt commitments, and developing a variable cost base. We commenced re-building our execution capacity in late 2021 in preparation for the 2022 season and beyond. We are re-building smarter, focussing on core with flex-labour requirements matched with improved systems. Across the Group, 35% of our fulltime positions comprised contract roles at the end of FY2023 compared to 20% last year, helping us to manage volume variability. NORTHERN AUSTRALIA HAS REAL POTENTIAL FOR GROWTH We are pursuing opportunities in northern Australia to grow and diversify our footprint and earnings. We have funded our 20% share in Kimberley Cotton Company Limited, a joint venture with local Ord River growers to build a new cotton gin at Kununurra. We are also engaged as the project manager and have completed design and selected contractors. Development approvals have been obtained and site clearing has commenced. However, construction has been delayed as a new round of additional funding is currently in process to meet increased construction costs arising from a change in scope to meet approval conditions. Both projects have significant support from the federal and state governments, and we believe they can be completed ready for the 2026 ginning season. Flinders River (Cloncurry/Julia Creek) Ord River (Kununurra) NORTH QUEENSLAND KIMBERLEY Townsville Darwin The Ord River region produced around 20,000 bales of cotton lint in the 2022 season and, with the construction of a new gin providing confidence to increase cotton production, we are expecting future cotton production to grow to 75,000 – 150,000 bales per season. We are leveraging off our knowledge gained with the Kununurra gin to promote to local stakeholders the construction of a new cotton gin in North Queensland. We are focussing on the Flinders River catchment area which produced around 15,000 bales of cotton lint in the 2022 season and, with the attraction of a new gin, we are expecting future production to grow to 75,000 – 150,000 bales per season. 350,000 BALES per year with a low of 124,215 BALES ginned in the 2020 season ANNUAL REPORT 2023 | 17 16 | NAMOI COTTON CHANGE OF EXTERNAL AUDITOR AND APPOINTMENT OF INTERNAL AUDITOR The Company announced on the 23 September 2022 a notice of change of auditor, with the resignation of Ernst & Young, ASIC’s consent to that resignation and the appointment of KPMG. This appointment will continue until the next annual general meeting where the Company will propose that KPMG be appointed as auditors of the Company thereafter. As part of our focus on continuous improvement, the Company appointed BDO as the Company’s internal auditor on 31 May 2022. THE NAMOI COTTON BRAND IS STRONG Coming out of a difficult drought period from 2019 to 2021, the Board and Executive’s focus has been on simplifying and strengthening our business whilst pursuing a strategy to create premium value for growers and returns to shareholders through the cycle. Now in 2023, the Namoi Cotton Group is well positioned to handle the above average volumes forecast for the short to medium term and is expanding its footprint and touch points, as well as our service offerings along the supply chain that will generate higher revenue. The Namoi Cotton brand is strong and reflects our 60 years’ experience that we are leveraging off to create a future resilient business model that will grow our sustainable earnings into new territories and products. But we will never forget that our business is built on the strong relationship we have with our growers and the expectation of delivering a premium service in good times and bad. On behalf of our Board and the Executive Team, thank you to the entire Namoi Cotton team who continue to demonstrate our values despite the challenges. Also, thank you to the Namoi Cotton Directors who continue to guide and support the business. Importantly, we thank you, our shareholders, for your continued support and investment in Namoi Cotton. POSITIVE COTTON PRODUCTION OUTLOOK FOR THE 2023 AND 2024 SEASONS The wet period across most of Australia up until 2023 has led to historically high dam water storage levels which will support irrigated crops for the 2023 and 2024 seasons. Industry participants are forecasting the Australian 2023 season cotton production to be between 4.9 million to 5.3 million bales which we expect will translate into ginning volumes of between 0.9 million to 1.1 million bales for FY2024. We have currently contracted over 85% of our expected FY2024 ginning volume and will commence receiving cotton modules late in April 2023 and May 2023. Despite the high level of water currently stored, the 2023 season production is forecast to be below the 2022 season due to wet weather experienced at planting, as well as spray drift herbicide damage, which combined resulted in reduced production in some areas. Early forecasts for the Australian 2024 season cotton production are for 4.7 million bales (Cotton Compass – March 2023). JOHN STEVENSON CEO TIM WATSON Chair Regional dam water and ginned bales FY12 0% 33% 67% 100% 0.0 Mb 0.5 Mb 1.0 Mb 1.5 Mb Dam water capacity Namoi ginned bales FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 Namoi Cotton bales (million) Public dam water volume (% capacity) Source: Bureau of Meteorology (BOM) – weighted average water capacity in rural system public dams. ANNUAL REPORT 2023 | 19 18 | NAMOI COTTON To build shareholder value over the long-term we interact with a diverse range of stakeholders with a varied range of interests in our business. We work to build strong relationships with stakeholders through regular and meaningful engagement and open and transparent communication. Our Stakeholders Stakeholder What issues are important? How we respond to create value Customers/ Growers • Superior service, reliability, and safety • Price representing value for service • Added value through product innovation • Delivering on our customer promise to provide the highest standards of safety, service, quality, and value • Leveraging our capability and investment in solutions to improve productivity and quality Employees and contractors • Safety, health, and wellbeing • Skills and capability development to meet future of work • Career and progression opportunities • Leadership • Diversity and inclusion • Developing a culture of safety, and providing safe systems of work • Growing our focus on mental health and wellbeing • Enabling continuous learning opportunities, with a focus on skills for the future • Providing performance-driven rewards and advancement opportunities • Building leadership focused on developing trust and empowering their teams • Growing our commercial and operational female talent pipeline Stakeholder What issues are important? How we respond to create value Shareholders, lenders and analysts • Company performance and growing shareholder value • Company strategy and business model • Management of variability through the cycle • Management of short, medium, and long-term risks • Corporate governance • Adapting to a variable and changing environment • Disclosure and transparency of financial and non-financial performance Suppliers and business partners • Business resilience and continuity • Security of supply • Managing supply chain risks, including ESG risks • Partner key suppliers to supply reliable and quality inputs • Providing clear guidance to suppliers on our safety and ESG requirements • Working with suppliers to address legislative requirements and societal expectations on ethical supply chains Local communities • Product safety and security • Local operational impacts including water, air, and noise • Economic opportunities including employment and procurement • Investment in communities • Ethical business conduct and transparent communication • Strong partnerships • Engaging our communities and other stakeholders on our safety approach • Working to improve environmental outcomes • Supporting our communities impacted by crises including COVID-19 and extreme weather events • Increasing our financial contribution and developing a more targeted community investment approach Government and regulators • Regulatory compliance, good governance, and ethical business conduct • Socio-economic contribution • Community contribution and impacts • Innovation, research, and development • Complying with all relevant legislation and regulation • Actively engaging and participating with government and industry on policy matters • Providing insight to support evolving policy frameworks • Fostering innovation, research and development Industry associations • Industry specific issues and strategy • Engaging openly and transparently to identify opportunities for collaboration • Advocating responsibly and consistently in line with our policy commitments, including opportunities to raise industry performance to meet our standards • Providing input into industry responses to government consultations ANNUAL REPORT 2023 | 21 20 | NAMOI COTTON REVIEW AND RESULTS OF OPERATIONS Volume and Operations FOR THE YEARS ENDED 28 FEBRUARY FY2023 FY2022 Movement COTTON PRODUCTION Australian cotton production 1 million bales 5.6 2.7 2.1x Namoi Cotton catchment area 2 million bales 3.6 1.3 2.8x NAMOI COTTON VOLUME Ginned cotton (100% JV gins) 3 thousand bales 1,173 493 2.4x Cottonseed delivered thousand tonnes 360 113 3.2x Warehouse received 4 thousand bales 836 677 1.2x Packing (grain & cottonseed) 4 thousand tonnes 159 124 1.3x Notes: 1 ABARES – March 2023. 2 Cotton Compass – November 2022. 3 Ginned cotton (share of JV gins) is 1,084,000 bales in FY2023. 4 NCA – 51% owned by Namoi Cotton. Our Results Segment earnings FOR THE YEARS ENDED 28 FEBRUARY FY2023 FY2022 Movement EBITDA RECONCILIATION ($M) Profit (Loss) before tax 4.0 (6.7) 10.7 Add back: Depreciation 11.1 6.5 Finance costs 3.2 2.8 EBITDA 1 18.3 2.6 15.7 SPLIT PER SEGMENT ($M) Ginning Services 21.3 8.7 12.6 Supply Chain & Marketing 4.5 2.1 2.4 Corporate (net costs) (7.5) (8.2) 0.7 EBITDA 18.3 2.6 15.7 Notes: 1 EBITDA – Non-IFRS and unaudited measure defined as earnings before interest, tax, depreciation and amortization (including share of EBITDA from NCA and share of profit from NCMA and NCPS excluding impairments and revaluation decrements on property, plant and equipment held at fair value). Namoi Cotton generated an EBITDA of $18.3 million [FY2022: EBITDA $2.6 million] that includes Namoi Cotton’s share of NCA EBITDA and share of NCMA profit. Good performance achieved from the restructured joint ventures with: • Increased warehousing volume and cost discipline in NCA. • Increased lint volume and trading margins in NCMA. SUPPLY CHAIN AND MARKETING $4.5 million EBITDA contribution, $2.4 million increase from FY2022 [FY2022: $2.1 million] from our share of joint ventures and other operations. GINNING SERVICES Ginning contribution increased with ginning volume, however margin was negatively impacted by: • Higher operating costs with the delayed ginning season and high moisture cotton. • Lower margin from cottonseed marketing with increased distribution cost and delayed delivery into FY2024. • Lower margin from moss sales with delayed processing and delayed delivery into FY2024. $21.3 million EBITDA contribution, $12.6 million increase from FY2022 [FY2022: $8.7 million], from ginning that include the marketing of co-products. Good discipline in managing fixed costs and other expenses. CORPORATE (NET COSTS) ($7.5) million EBITDA contribution, $0.7 million reduction from FY2022, [FY2022: $(8.2) million]. In addition to ginning, the volume of our other products also increased: CO-PRODUCTS In FY2023 we delivered 360,000 tonnes of cottonseed [FY2022: 113,000 tonnes] into local and overseas markets and delivered moss into overseas markets. SUPPLY CHAIN AND MARKETING In FY2023 NCA received 836,000 bales through its warehouses and supply chain [FY2022: 677,000 bales]. NCA also packed 159,000 tonnes of grain and cottonseed product in FY2023 [FY2022: 124,000 tonnes]. This is 41% above our average ginning volume of 830,000 bales and represents a 33% market share in our catchment area. Namoi Cotton operated all 10 gins, with all gins operating 24 hours. (except North Bourke) Australian cotton crop production for the 2022 season was 5.6 million bales [2021: 2.7 million bales] of which an estimated 3.6 million bales were grown in Namoi Cotton’s catchment area. Namoi Cotton’s ginning volume, on the back of increased cotton production, increased more than two-fold to 1.17 million bales in FY2023 [FY2022: 0.49 million bales]. ANNUAL REPORT 2023 | 23 22 | NAMOI COTTON Balance Sheet, Cashflow and Debt FOR THE YEARS ENDED 28 FEBRUARY FY2023 FY2022 Movement EBITDA RECONCILIATION ($M) Net Assets 133.7 113.2 20.5 Net cash (outflow)/inflow from operating activities (2.4) 14.4 (16.8) Add back cottonseed inventory 4 13.4 2.2 Exclude restructure of NCA/NCMA joint ventures 1 (18.3) Adjusted operating cashflow 6 11.1 (1.8) 12.9 Capital expenditure and investments 11.2 5.1 6.1 Net Debt 2 47.2 46.8 0.4 Gearing 3 26.4% 29.1% -2.7% Less Cottonseed inventory 4 13.4 2.2 11.2 Core Debt 5 33.7 44.6 (10.9) Notes: 1 Estimated FY2022 operating cashflow impact from the restructure of the NCA joint venture involving the transfer of lint trading and associated assets and liabilities from NCA to NCMA. NCA’s FY2023 operating cashflow does not include any impact from the restructure. 2 Net debt – is a non-IFRS and unaudited measure representing interest bearing liabilities and equipment loans less cash and cash equivalents. 3 Gearing Ratio – is a non-IFRS and unaudited measure representing Net Debt divided by Net Debt plus Total Equity. 4 Cottonseed inventory is carried at the lower of cost and net realisable value. 5 Core debt – is a non-IFRS and unaudited measure representing Net Debt less cottonseed inventory. (More relevant debt metric for agribusinesses given the marketable and liquid characteristics of traded cottonseed). 6 Adjusted operating cashflow – is a non-IFRS unaudited measure. Net Assets Net Assets were $133.7 million at FY2023 year end, a $20.5 million increase on the prior year [FY2022: $113.2 million]. Net Assets are underpinned by $158.2 million in property, plant and equipment. Cashflow Adjusted operating cash inflow in FY2023 was $11.1 million excluding $13.4 million cottonseed inventory held for marketing [FY2022: $2.2 million]. This funded $11.2 million in growth (including the investment in Kimberley Cotton Company) and stay in business capital expenditure [FY2022: $5.1 million]. Debt Cashflow from increased volume together with proceeds from the capital raising enabled Term Debt to be reduced by $9.9 million from $42.5 million to $32.6 million. Net Debt was $47.2 million [FY2022: $46.8 million] with gearing reduced to 26% at FY2023 year end from 29% in FY2022. Core Debt (excluding cottonseed inventory held for marketing) was $33.7 million, a reduction of $10.9 million [FY2022: $44.6 million], the lowest since FY2010. SAFETY PERFORMANCE Safety is our number one priority, always. We pride ourselves on conducting our business safely and responsibly. Supporting safety initiatives implemented in FY2023 included: • DoneSafe providing staff a user-friendly platform to report hazards and incidents and manage controls, • Namoi Cotton Induction and Working Safely at Namoi Cotton to provide online induction and training courses for new and existing staff, and • Early Intervention Program to support injured staff through their rehabilitation and return to work. We incurred five injuries resulting in lost time (LTI) from ~700,000 hours worked during FY2023, leading to a Lost Time Injury Frequency Rate (LTIFR) of 7.48 (FY2022: LTIFR 14.61 from 7 LTI’s from ~500,000 hours worked). WORKFORCE DIVERSITY Attracting a diverse workforce is a key component of our strategic direction. At the end of FY2023, 27% of the Group workforce comprised females which represents a 12.5% increase on last year. In our executive leadership team (ELT), in terms of representation we have two female members out of eight people, and in terms of remuneration we have a negative gender pay gap ratio. Meaning the average earnings of women in the ELT is 8% higher by median pay versus men. The term “gender pay gap” refers to the difference in average earnings of men and women in comparable roles in the same organisation as a ratio. ENVIRONMENT, SOCIAL AND GOVERNANCE (ESG) Refer to our separate stand-alone 2022 Season Sustainability Report which was completed in reference to the Global Reporting Standard (GRI) and drew upon the Sustainability Accounting Standards Board (SASB) and the United Nations Sustainable Development Goals (UNSDGs). The report provides further detail on our management of climate related risks and discloses our ten most relevant ESG indicators, base year metrics (where available) and targets (where available) across the near term (1-3 years) and long-term (to 2040). We envision expanding reporting and disclosures across our other material topics in subsequent reporting years. Safety Lag Indicators FY17 FY18 FY19 FY20 FY21 FY22 FY23 0 9 18 27 LTIFR LTIs 27 15 23 15 15 10 10 9 7 7 5 15 2 4 ANNUAL REPORT 2023 | 25 24 | NAMOI COTTON EXECUTIVE LEADERSHIP TEAM Our Executive Leadership Team (ELT) supports the CEO to run our day-to-day operations based on authority delegated by the Board. The ELT is responsible for executing our strategy, driving financial performance, and enabling an engaging and inclusive culture. Our Team John commenced in March 2020 as CFO before being appointed CEO on 7 June 2021. John has over 30 years’ experience across a range of sectors as CEO, CFO and Director with significant expertise in Agribusiness. Appointed in October 2021, Milena has more than 25 years of extensive experience across numerous industries in Human Resources specialising in culture and organisational change. Sonya was appointed in January 2022 and has a wealth of Financial and Risk Management experience gained from working across national and international companies. Grant was appointed Engineering Manager in 2021. He has 17 years of experience in the cotton industry with Namoi Cotton in roles such as electrical services, maintenance and trades manager and project manager. Shane has thirty years of experience in the cotton industry ranging from export logistics and warehousing, cotton lint classification and marketing, cottonseed trading and cotton ginning operations. Ross joined Namoi Cotton in 2021 bringing with him extensive experience in Food, FMCG and Chemical Manufacturing. His background in Development of People, Plant and Processes supports Namoi Cotton’s Operational Excellence. Neil commenced in 2020 and has more than 30 years of agribusiness and supply chain experience in strategy, business development, M&A and operations. Henry joined Namoi Cotton in October 2022 and has extensive experience in Sales, Agri-Tech, and Commodity Trading, both domestically and internationally. JOHN STEVENSON Chief Executive Officer FCA, GAICD, FGIA, B.Bus MILENA MCKENZIE Executive General Manager, People, Safety & Culture BBus, Accredited Executive Coach SHANE MCGREGOR Executive General Manager Operations – Warehousing & Supply Chain MBA, MPM, USDA Accredited Cotton Classifier ROSS KEALY Operations Manager BEng (Chem), MBA SONYA RYAN Chief Financial Officer Grad. Dip. Adv. Accounting, CPA, B.Bus major Accountancy, AICD GRANT AMBROSE Engineering Manager Adv. Dip. Electrical Engineering NEIL JOHNS Executive General Manager Strategy & Business Development BCom, MCom, MBus HENRY MCKAY Executive General Manager Customer Engagement B.Ag.Ec. ANNUAL REPORT 2023 | 27 26 | NAMOI COTTON BOARD OF DIRECTORS The names, qualifications and experience of the company’s Directors that held office throughout the financial year and up to the date of this report, unless otherwise indicated, are as follows. COMPANY SECRETARIES Sonya Ryan GradDip Adv Accounting, CPA, B.Bus major Accountancy, AICD John Stevenson FCA, GAICD, FGIA, B.Bus. Governance and Risk Mr Watson was appointed to the Board on 18 December 2014 and appointed as Chair for Namoi Cotton Limited from 29 August 2018. He is a member of the People, Culture and Nominations Committee. Until early 2022, Mr Watson grew cotton in the Hillston Region and has been involved in the cotton industry since 2000 and as a member of the Hillston District Irrigators Association, the Lachlan River Customer Service Committee and the Lachlan Valley Water Users Association. Mr Watson was re-elected as a Non-Executive Director at the 2022 annual general meeting. He brings with him extensive industry and commercial expertise in the cotton and general agricultural industry. He was also recognised by the cotton industry by being the recipient of the 2014 Australian Cotton Grower of the Year Award. TIM WATSON Chair, Independent Non-executive Director GAICD Mr Davies was appointed to the Board on 28 November 2022. Mr Davies has over 35 years’ experience in investment management across timberland, economic infrastructure, real estate, and private equity. Mr Davies is a member of the People, Culture, Nomination Committee and the Safety, Health and Environment Committee. He holds a Bachelor of Computer Science from the University of New England, a Master of Business Administration from the London Business School and is a Graduate of the Australian Institute of Company Directors. Mr Davies is also Chair of the boards of Kiland Limited, Eildon Capital Limited, New Energy Solar Limited, and Nobrac Limited. JAMES DAVIES Independent Non-executive Director BCompSc, MBA, GAICD Mrs Hamparsum was appointed to the Board on 7 June 2018 to fill a casual vacancy and was elected at the 2018 general meeting. She is Chair of the Audit, Risk and Compliance Committee and a member of the Safety Committee. Mrs Hamparsum grows cotton and grains in the Upper Namoi region and has been involved in the cotton industry since 1998. Mrs Hamparsum has extensive financial, agricultural and natural resource management experience. She is a chartered accountant and currently a Director and Chair of the audit committee of Cotton Seed Distributors Ltd. JUANITA HAMPARSUM Independent Non-executive Director B.Bus. (UTS), CA, FPCT, GAICD Mr Wilton was appointed to the Board on 17 June 2020 to fill a casual vacancy and was elected at the 2020 annual general meeting. He is currently Chair of the People, Culture and Nomination Committee. Mr Wilton is an experienced Non-Executive Director, having served on the boards of both listed and unlisted companies. He also has significant executive experience in the agribusiness sector. Mr Wilton is currently Chair of the Board of Elders Limited. IAN WILTON Independent Non-executive Director MSc, FCCA, FCPA, FAICD, CA Mr Green joined the Namoi Cotton Board in May 2013. He is Chair of the Safety, Health and Environment Committee and a member of the Audit, Risk and Compliance Committee. Mr Green has considerable board relevant experience working as a Senior Executive and General Manager in the Australian and International agricultural industry over many years. Key areas of experience include Business Management, Operations Management and Business Development. Mr Green is also a Non- Executive Director of Lindsay Australia Limited and Chair of the Board of Boomaroo Nurseries Pty Ltd. ROBERT GREEN Independent Non-executive Director B.Bus. (QAC) MAICD ANNUAL REPORT 2023 | 29 28 | NAMOI COTTON Board Committees Committees assist the Board in fulfilling its statutory and regulatory responsibilities. Committees have the authority and power to exercise their role and responsibilities as set out in their Charter and granted to them under any separate resolutions of the Board from time to time. Committees are empowered to investigate any matter necessary to carry out their duties. The Committee’s functions do not relieve the Board from any of its responsibilities. Audit, Risk and Compliance The role and responsibility of the Audit, Risk and Compliance Committee is to assist and advise the Board on matters relating to: • Corporate Reporting • External Audit • Internal Audit • Risk Management, fraud and internal control • Compliance and ethics • Trading Risk • Any other matters as the Board may refer to it from time to time People, Culture and Nomination The role and responsibility of the People, Culture and Nomination Committee is to assist and advise the Board on matters relating to: • Organisation Structure, Remuneration and Benefits • People and Culture Generally • Board Selection, Appointment and Review • CEO Selection, Appointment, Review and Succession Planning • Succession planning for the Executive Leadership Team • Remuneration Report • Related disclosures matters • Any other matters as the Board may refer to it from time to time Safety, Health and Environment The role and responsibility of the Safety, Health and Environment Committee is to assist and advise the Board on matters relating to: • Healthy and safe working environment and culture for all employees, contractors, clients and other visitors to the Group’s work premises • Safety, Health and Environment Strategy and Framework and all associated policies and initiatives • External safety, health and environment auditing • Serious incidents and reportable environmental matters • Any other matters as the Board may refer to it from time to time Committee Membership Members acting on the committees of the Board during the year were: GOVERNANCE Our Board is committed to conducting business ethically and to the highest standards of corporate governance. This is a pre-requisite to maintaining stakeholder confidence. Good corporate governance creates value by ensuring the interests of management are aligned with our stakeholders, cultivating a company culture of integrity, and facilitating better decision- making through clearly defined roles and responsibilities, and robust processes. To align our approach with best practice, we periodically review and update our corporate governance documents and practices. Our FY2023 governance arrangements comply with the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (4th Edition) (ASX Principles and Recommendations). The company’s corporate governance statement is to be submitted to the ASX and published prior to the issuance of the AGM notice in June. It will also be available on Namoi Cotton’s public website (www.namoicotton.com.au) at that time. Role of our Board The Board oversees the business and affairs of the Group. They set our strategic direction, oversee performance, and risk management, and provide leadership and direction on workforce culture and values. There are three Board Committees: The Board Audit, Risk and Compliance Committee, the People, Culture and Nomination Committee, and the Safety, Health and Environment Committee. Each Committee has its own Charter which sets out its roles and responsibilities. They are available in the Investors section of our website. Day- to-day responsibility for managing the Group is delegated to our CEO, who operates within delegated authority limits determined by our Board. Audit, Risk and Compliance J Hamparsum (Chair) R Green I Wilton (appointed 27th April, 2022) J Di Leo (resigned 27th April 2022) People, Culture and Nomination I Wilton (Chair) T Watson J Hamparsum (appointed 8th August 2022, resigned 12th December 2022) R Green (resigned 27th April 2022, re-appointed 8th August 2022, resigned 12th December 2022) J Davies (appointed 12th December 2022) J Di Leo (Chair 9 May – resigned 4th August 2022) Safety, Health and Environment R Green (Chair – appointed 27th April, 2022) J Hamparsum J Davies (appointed 12th December 2022) J Di Leo (resigned 4th August 2022) Corporate governance framework BOARD TO SHAREHOLDERS BOARD COMMITTEE Access to Independent assurance advice EXECUTIVE OUR PEOPLE GROUP POLICIES, STANDARDS AND PROCEDURES SHAREHOLDERS CEO Company Secretary Operating culture Delegated authority Accountable to Board Strategy, Performance, Risk Management, Culture Group Delegation of Authority Group Delegation of Authority Audit, Risk and Compliance People, Culture and Nomination Safety, Health and Environment Delegated authority (Terms of Reference) Accountable to Board Accountable to Shareholders ANNUAL REPORT 2023 | 31 30 | NAMOI COTTON BOARD COMPOSITION Delegated responsibility for Board composition and succession planning rests with our People, Culture and Nomination Committee. In considering potential candidates for appointment to the Board, the Committee complete a thorough review of the skills, experience, and competencies of candidates in relation to the Board’s current and future skill and experience requirements, as well as diversity considerations. A summary of the collective skills held by our Board include: • Leadership • Governance • Health and Safety • Financial And Business Acumen • Strategy • People And Culture • Risk Management • Capital Projects, Mergers and Acquisitions • Stakeholder Engagement • Digital Transformation • Industry Expertise MANAGING RISK Risk management is fundamental to informing and executing our strategic direction in support of value creation for our stakeholders. We take a proactive approach to identify and capitalise on opportunities, whilst managing risks appropriately, which goes hand in hand with operating a safe and responsible business. Our risk management approach is designed to focus on the key existing and emerging risks that could significantly impact the delivery of our strategy and vision. Board The Board has overall responsibility for making sure we manage risks in line with our approved risk appetite settings and are maintaining our internal control systems. It regularly reviews, either directly or through its committees, how our risk management processes are performing across the business. The Board Audit, Risk and Compliance Committee has oversight of the effectiveness of the Group’s risk management framework and processes. Executive Leadership Team The Executive Leadership Team owns our material risks and is responsible for interrogating the effectiveness of risk mitigation strategies and for monitoring our performance against the approved risk appetite settings. • RISK APPETITE FRAMEWORK Risk appetite statements, settings and risk limits are important to set the boundaries for the decisions we make, ensuring we understand how to remain within the risk appetite set by the Board, while establishing clear triggers for action in the event of change. Namoi Cotton manage risks against its defined risk appetite for key risk categories as outlined in the table below. We periodically review and confirm the risks currently faced by the business. Risk Appetite Statements and Settings Key Risk Indicators and Risk Limits A qualitative view on how willing the Board is to assume risk for each material risk category after considering our control environment, strategy, business environment and the risk/reward trade-off. A defined set of quantitative indicators and risk limits (guardrails) to execute decisions and manage business performance. Exceeding risk limits will act as a trigger for management and/or Board action. RISK ACTIVITIES Financial ✓ Financial reporting/transaction. ✓ Credit risk ✓ Commodity price risk ✓ Fraud People and Culture ✓ People selection and performance ✓ Ethics/corruption ✓ WH&S ✓ Change management Environmental ✓ Emissions and climate change ✓ Energy management ✓ Water management ✓ Waste management ✓ Product impact and sustainability Social ✓ People, diversity, and inclusion ✓ Social supply chain management ✓ Human rights and community relations Governance ✓ Management of sustainability risks ✓ Business ethics Operations ✓ Products and services ✓ Physical assets ✓ IT systems and cyber ✓ Change management Regulatory and Compliance ✓ Regulation ✓ Tax ✓ Legal Strategic ✓ Planning Agricultural experience Average tenure of Non-executive Directors <3 YEARS 3-4 YEARS 5-9 YEARS >9 YEARS 100% 40% 0% 20% 40% ANNUAL REPORT 2023 | 33 32 | NAMOI COTTON Your directors present their report on the consolidated entity consisting of Namoi Cotton Limited (‘the Company’ or ‘Namoi Cotton’) and the entities it controlled (collectively ‘the Group’) at the end of or during the year ended 28 February 2023 (‘FY2023’). DIRECTORS The directors that held office throughout the financial year and up to the date of this report, unless otherwise indicated, are as follows: Tim Watson, Chair Robert L Green Juanita Hamparsum Joseph Di Leo (resigned 4 August 2022) Ian Wilton James Davies (appointed 28 November 2022) Namoi Cotton would like to thank Mr Joseph Di Leo for his services to the company during his tenure as a Non-executive Director. Directors Meetings The number of Directors’ meetings (including meetings of Committees of Directors) held and attended by each of the directors (as a 'Member’ of the Committee) of the Company during the financial year are listed below: Directors’ interests in share capital The relevant interest of each Director in the share capital of the Company is disclosed in the Remuneration Report. Principal activities Namoi Cotton is an Australian domiciled public company listed on the Australian Stock Exchange. The principal activities of the entities in the Namoi Cotton consolidated group in FY2023 were the ginning and marketing of cotton including its by products such as cottonseed and moss/mote. Likely Developments Likely developments in the operations of the Group and the expected results of those operations are covered generally in the review of operations and financial performance of the Group in the Annual Report. Review And Results of Operations A review of the operations of the Group during the financial year and of the results of those operations is contained in the Review and Results of Operations together with the Letter from our Chair and CEO, pages 10 to 17 of the Annual Report. During 2023, the Group reassessed the accounting policies previously applied to revenue as well as our joint arrangements, NCA and NCMA. As a consequence of the reassessment, revenue from customers, trading margin gains, derivative assets and liabilities, and a number of other items have been restated. The Group’s FY2023 consolidated financial statements includes full details of the restatement and Note b) in the summary of significant accounting policies of the FY2023 consolidated financial statements summarises the impacts on the previously reported financial position. Changes In the State of Affairs There were no significant changes in the state of affairs of the Group during the year ended 28 February 2023 other than as disclosed elsewhere in this report. Dividends Dividends paid or declared since the end of the previous financial year were: $Nil. Since the end of the financial year, the Directors have declared that no dividend will be paid for FY2023. Directors’ Report DIRECTOR BOARD MEETINGS COMMITTEE MEETING Audit, Risk & Compliance COMMITTEE MEETING People, Culture & Nomination COMMITTEE MEETING Safety, Health & Environment CURRENT Attended Held 1 Attended Held Attended Held Attended Held Tim Watson 17 17 - - 8 8 - - Robert L Green 17 17 7 7 5 5 2 2 Juanita Hamparsum 17 17 7 7 2 2 2 2 Ian Wilton 17 17 4 5 7 8 1 1 James Davies 3 3 – – 2 2 - - FORMER Joseph Di Leo 2 9 9 2 2 5 5 1 1 1 ‘Held’ is noted as the number of meetings that were held at the time the Director was a Member of the Committee. 2 Joseph Di Leo resigned on 4 August 2022. All board members were available to attend Directors’ meetings and relevant committee meetings. The CEO and CFO are invited to attend all meetings. ANNUAL REPORT 2023 | 35 34 | NAMOI COTTON Events Subsequent to Balance Date The Directors have not become aware of any significant matter or circumstance that has arisen since 28 February 2023, that has affected or may affect the operations of the Group, the results of those operations, or the state of affairs of the Group in subsequent years, which has not been covered in this report. Environmental performance & regulation The Directors regularly review the business activities of the company to ensure it operates within the environmental laws established by regulatory authorities. Indemnification and insurance of Directors and officers Under the Constitution, every person who is or has been a Director of the company is indemnified, to the maximum extent permitted by law, out of the property of the company against any liability to another person (other than the company) as such a Director unless the liability arises out of conduct involving any negligence, default, breach of duty or breach of trust of which that person may be guilty in relation to the Company. During the financial year, Namoi Cotton has paid a premium in respect of a contract providing insurance for every person who is or has been a Director or officer against losses arising from any actual or alleged breach of duty, breach of trust, neglect, error, misstatement, misleading statement, omission, breach of warranty of authority, or other act done or wrongfully attempted, or any liability asserted against them solely because of their status as Directors or officers of the economic entity. Disclosure of the premium paid is not permitted under the terms of the insurance contract. Corporate governance In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of Namoi Cotton support and have complied with the principles of corporate governance. The company’s corporate governance statement is to be submitted to the ASX and published prior to the issuance of the AGM notice in June. It will also be available on Namoi Cotton’s public website (www.namoicotton.com.au) at that time. Non-audit services Any non-audit services provided by the entity’s auditor, KPMG, are described in Note 5.1 of the financial report. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Auditor’s independence declaration The auditor’s independence declaration is included on page 51 of the Annual Report. ANNUAL REPORT 2023 | 37 36 | NAMOI COTTON INTRODUCTION (UNAUDITED) Following is the Remuneration Report of the company for the year ended 28 February 2023. The report provides shareholders with details of our remuneration policies and how these link to the performance-based remuneration outcomes of our people, particularly Key Management Personnel (KMP). The Company has completed a review of which roles and people qualify as KMP in accordance with the requirements of the Corporations Act 2001 and its Regulations and have determined that our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), together with our Board of Directors qualify as KMP. The Company received a first strike against its Remuneration Report at the 2022 AGM held on 19 July 2022 with 55.87% votes against. The Board engaged with shareholders to understand their concerns and those concerns have been considered. Specifically, the feedback that non-executive Director’s remuneration should include performance rights which vest based on share price performance. The Board did not support this approach, in accordance with ASX Corporate Governance Principles and Recommendations, given that it may lead to bias in their decision-making and compromise their objectivity. The 2023 financial year has seen the Company register its first positive Net Profit after Tax since FY2019 on above average seasonal volumes within a high inflationary environment. The Company remains focused on improving the safety and wellbeing of our people, improving our engagement with stakeholders, and continuing to implement our 4PP strategic plan. Outcomes Under Namoi Cotton Incentive Plans The average Short Term Incentive (STI) scorecard outcome across the Group and for the Executive team for FY2023 was 40%. STI payments were awarded to all members of the Executive Team for FY2023, whilst 98% of all eligible staff received an STI payment in FY2023. Actual performance exceeded target in terms of volume, whilst margin performance was mixed given delayed earnings and higher than expected operating costs in some areas. Our safety performance exceeded target, whilst our strategic plans and projects were implemented at or above target. Our internal and external engagement scores were below target and this is a focus area for us going forward. We consider the non-financial components of the STI scorecards to be of the utmost importance to running a safe and successful business. In accordance with the Executive Long Term Incentive (LTI) program, performance rights were awarded to all Executive members for FY2023. Performance rights awarded in FY2021 to the CEO and one other Executive reached their vesting date on 28 February 2023. The performance hurdle rate for Total Shareholder Return (TSR) was not met and the CEO’s performance rights did not vest and hence lapsed. The Directors exercised their discretion to confirm that the FY2021 performance rights issued to the other Executive did vest on 28 February 2023, despite the performance hurdle rate not being met. These vested performance rights can be exercised by the Executive within a 1 year period from vesting. No vested rights have been exercised to date. The LTI’s awarded between FY2022 to FY2023 have not reached their vesting dates. Remuneration Report Remuneration Report Contents 38 Section 1. Key Management Personnel (KMP) 38 Section 2. Remuneration Framework 38 2.1 Principles of compensation 39 2.2 Compensation Structure 40 2.3 Split of Executive remuneration 40 2.4 Fixed remuneration 41 2.5 Short Term Incentive 42 2.6 Long Term Incentive – Namoi Equity Plan 44 2.7 Non-executive director compensation 44 2.8 Services of Remuneration consultants 44 2.9 Remuneration Governance 44 2.10 Consequences of performance on shareholder wealth 46 Section 3. Statutory Remuneration 46 3.1 KMP Remuneration Table 47 3.2 Analysis of bonuses included in remuneration 48 3.3 Rights over equity instruments 49 3.4 KMP Equity Holdings 50 Section 4. Transactions with Key Management Personnel ANNUAL REPORT 2023 | 39 38 | NAMOI COTTON REMUNERATION REPORT (AUDITED) This remuneration report outlines the non-executive director and executive KMP remuneration arrangements of the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, Key Management Personnel (KMP) of the Group are defined as those having the authority and responsibility either directly or indirectly for planning, directing, and controlling the major activities of the Group, including any Director of the Company. 1. Key Management Personnel (KMP) A review of KMP’s reported in previous years was conducted and in accordance with the Australian Accounting Standards the table below lists the Executives of the Company who, together with the Non‑Executive Directors, were defined as KMP for FY2023. Changes to KMP in FY2023 included the resignation of non-executive Director, Joseph Di Leo, on 4 August 2022 and the appointment of James Davies as a non-executive Director on 28 November 2022. 2. Remuneration Framework 2.1 Principles of compensation Our remuneration policy considers the Company’s overall business plan, external market conditions, individual employee performance and industry benchmark data and is designed to align individual and department/ site accountabilities with the Company’s key objectives and strategy. In structuring remuneration, the Board aims to find an appropriate balance between fixed and variable remuneration (i.e. performance linked and at-risk), the way it’s delivered (cash versus deferred), and balanced deferral time- frames (short, medium and long-term). Total remuneration is designed to be fair, reasonable, responsible, transparent, consistent, and competitive for each level of our workforce. The remuneration elements offered include fixed remuneration, which consists of a base salary plus superannuation, a variable “at risk” remuneration component provided through a short-term incentive (STI) program, plus a long- term incentive (LTI) program for Executives. 2.2 Compensation Structure Fixed remuneration Short Term Incentive (STI) Long Term Incentive (LTI) EXECUTIVE PURPOSE Attract and retain high quality executives through market competitive and fair remuneration Ensure a portion of remuneration is variable, at- risk, and linked to the delivery of agreed targets for financial and non-financial measures that support Namoi Cotton’s strategic priorities. The STI outcome can range from 0% to 100% of payout, ranging from 25% to 44% of base salary depending on performance relative to agreed targets. Align executive accountability and remuneration with the long-term interests of shareholders by rewarding the delivery of sustained Group performance and the creation of shareholder value over the long term. DELIVERY Comprises cash salary, salary sacrificed items and superannuation contributions Awarded in cash based on an assessment of performance over the preceding year. Awarded in performance rights which vest after 3 years subject to the achievement of TSR and workplace safety hurdles. ALIGNMENT TO PERFORMANCE Set with reference to market benchmarks in the agricultural and processing industries in Australia as well as the size, responsibilities and complexity of the role, and the skills and experience of the executive. Individual performance impacts fixed remuneration adjustments. Performance is assessed using a scorecard comprising a mix of financial and non-financial targets, varied across roles and levels including, but not limited to: • Safety outcomes and environment • Financial results • Strategic plans • Customer & Employee engagement • Personal development Performance is assessed based on TSR relative to an absolute hurdle equal to a set compound annual growth rate (CAGR) in the value of Namoi Cotton shares over the 3-year performance period. Performance rights will not vest if a workplace fatality has occurred during the performance period. ALIGNMENT TO SHAREHOLDERS & OTHER STAKEHOLDERS • Drives maximum financial returns. • Encourages equitable allocation of capital amongst all stakeholders. • Promotes engagement with customers and employees. • Develops employee skills and experience. • Promotes growth in TSR based on market price. • Encourages a safe workplace environment. DIRECTORS ALIGNMENT TO SHAREHOLDERS The Company’s Minimum Shareholding Policy requires Directors to own a minimum number of Namoi Cotton shares equivalent to the value of their annual Director base fee which must be acquired within 3 years after the date of the Director’s first appointment. STI’s are not payable to Directors. LTI’s are not payable to Directors. Name Role in FY2023 Commencement date in role EXECUTIVE KMP John Stevenson 1 CEO & Company Secretary 7 June 2021 Sonya Ryan 2 CFO & Company Secretary 7 January 2022 CURRENT DIRECTORS T J Watson Chair, non-executive 18 December 2014 R Green Director, non-executive 27 May 2013 J Hamparsum Director, non-executive 7 June 2018 I Wilton Director, non-executive 17 June 2020 J Davies Director, non-executive 28 November 2022 FORMER J Di Leo Director, non-executive 7 June 2018 (resigned 4 August 2022) 1 Permanent position and period of notice to be given by employee or employer – 6 months. 2 Permanent position and period of notice to be given by the employee or employer – 3 months. ANNUAL REPORT 2023 | 41 40 | NAMOI COTTON 2.3 Split of Executive KMP remuneration The table below represents the remuneration mix, guaranteed up to a potential maximum, for executive KMP in the current year. The STI is quoted at the maximum potential level and the LTI is quoted on the value awarded, not vested, in the current year. 2.4 Fixed remuneration Fixed remuneration is reviewed periodically to ensure it is market competitive, reflecting the required responsibilities, performance, qualifications, and experience of the individual. The process consists of a review of company-wide, business unit and individual performance, relevant internal and market comparative compensation and, where appropriate, independent external remuneration data of equivalent industry sectors. There are no guaranteed increases as these are assessed based on the overall Company and individual performance for the year as well as the external environment and are at the absolute discretion of management and the Board. Remuneration Fixed At Risk Total Entitlement Remuneration 1 STI 2 LTI 3 Guaranteed Potential 4 CEO 100% 44% 44% 100% 188% CFO 100% 25% 25% 100% 150% 1 Base salary plus superannuation. 2 % of the fixed remuneration paid annually in cash on a sliding scale from 0% up to the noted maximum. 3 Rights (non-cash) awarded annually equal to the noted % of the fixed remuneration, paid in shares and/or cash 3 years after award subject to absolute performance hurdles. 4 Potential maximum entitlement comprising cash and non-cash elements. 2.5 Short Term Incentive The objective of the STI program is to link the achievement of the Company’s operational and financial targets with the compensation received by the executives charged with meeting those targets. STI’s have an appropriate mix of measurable, transparent, and achievable performance targets based on overall company and individual performance. STI’s are designed to motivate and incentivise the workforce for high performance and are subject to the relevant entity earning a positive EBITDA1 for the financial year in review. Executive KMP STI payments are an ‘at-risk’ bonus and ultimately are subject to the discretion of the Board after review of achievement and recommendation by the People, Culture and Nomination Committee (PCNC). The table below shows the breakdown of the STI scorecard for Executive KMP for the current year. Executive KMP/ Key Performance Category Weighting Performance vs Target = Payout Ratio CEO EBITDA Performance 1 60% 90% = 45% 100% = 50% 120% = 100% Strategic Plans 25% On Target = 50% Above Target = 100% na Stakeholder Engagement 5% On Target = 50% Above Target = 100% na Safety 10% On Target = 50% Above Target = 100% na CFO EBITDA Performance 1 50% 90% = 45% 100% = 50% 120% = 100% Strategic Plans 15% On Target = 50% Above Target = 100% na Stakeholder Engagement 15% On Target = 50% Above Target = 100% na Safety 10% On Target = 50% Above Target = 100% na Personal Development 10% On Target = 50% Above Target = 100% na 1 EBITDA is a non-IFRS and unaudited measure defined as earnings before interest, tax, depreciation and amortization (including share of EBITDA from NCA and share of profit from NCMA and NCPS excluding impairments and revaluation decrements on property, plant and equipment held at fair value). If EBITDA is below 90% of budget, then nil is payable on financial performance. ANNUAL REPORT 2023 | 43 42 | NAMOI COTTON 2.6 Long Term Incentive – Namoi Equity Plan The LTI program is designed to attract, motivate, and retain Executives aligning them to the interests of the Company. The objective of the LTI program is to link the achievement of the Company’s long-term performance targets with the compensation received by the executives charged with meeting those targets. LTI compensation under the Namoi Cotton Limited Equity Plan (the “Plan”), in the form of performance rights in Namoi Cotton Limited, was approved by the Board on 21 June 2020 and subsequently ratified at the Annual General Meeting on 29 September 2020. The purpose of the Plan is to enable the Board to issue rights, as part of the Company’s ‘at risk’ remuneration arrangements, to acquire shares in the Company. The granting of rights to employees of the Company is conditional upon the absolute discretion of the Board. All LTI’s provided to management and outlined in the remuneration report have been issued under this plan. Namoi Equity Plan – Key Terms & Conditions Plan structure LTI is awarded in performance rights which vest after a three year period subject to the achievement of performance hurdles and continued service. One performance right entitles the holder to one ordinary share in Namoi Cotton Limited at the time of vesting with no exercise cost. Dividends are not accumulated on performance rights. Award opportunity The value of LTI awarded to the CEO and Group executives is expressed as a percentage of fixed remuneration. The value of the LTI is set by the Board following a recommendation from the Board PCNC which considers a range of factors including market competitiveness and the nature of the role. The total opportunity of the LTI at the time of the granting for FY2023 was 44% of fixed remuneration for the CEO and 25% of fixed remuneration for the Group executives, including the CFO. Allocation methodology The number of performance rights each executive receives will be determined by dividing the dollar value of the total opportunity of the LTI award by the six-month Volume Weighted Average Performance (VWAP) of Namoi Cotton Limited shares up to commencement of the performance period. Plan structure LTI is awarded in performance rights which vest after a three year period subject to the achievement of performance hurdles and continued service. One performance right entitles the holder to one ordinary share in Namoi Cotton Limited at the time of vesting with no exercise cost. Dividends are not accumulated on performance rights. Performance hurdles LTI is subject to a relative TSR hurdle that aims to achieve long term growth in shareholder value and support alignment between reward and shareholder interests. Relative TSR is a measure of the total return delivered to shareholders over the performance period assuming dividends are reinvested. The performance hurdle measures Namoi Cotton’s TSR performance using a percentile ranking vesting schedule as outlined below. Namoi’s TSR performance Indicative vesting percentage Less than 15% CAGR 0% 15% CAGR or More 100% The LTI’s are also subject to a workplace fatality performance hurdle. Should a workplace fatality occur, all performance rights granted and vesting for the related period lapse. Namoi Equity Plan – Key Terms & Conditions Assessment of performance outcomes The relative TSR result is calculated independently to ensure external objectivity before being provided to the Board to determine the vesting outcome. The Board may exercise discretion in determining the final vesting outcome. Re-testing There is no-retesting. Awards that have not vested after the measurement period lapse immediately. Early vesting The Board may, in its discretion, determine that a Right vests prior to the date specified to the executive. Delayed vesting The Board’s decision as to any condition may be made in the Board’s absolute discretion. Treatment of awards on cessation of employment The Board has the discretion to determine the treatment of unvested rights where the CEO or a Group executive resigns, retires, or otherwise leaves the Group before vesting occurs. The Board may choose to accelerate the vesting of performance rights or leave the awards on foot for the remainder of the performance period. In exercising its discretion, the Board will consider relevant circumstances including those relating to the departure. The Board also can adjust the number of performance rights downwards (including to zero) in the event of misconduct resulting in significant financial and/or reputational impact to the Group and in other circumstances considered appropriate. Where an executive acts fraudulently or dishonestly or is in material breach of the obligations under the equity plan, unexercised performance rights (whether vested or unvested) will be forfeited unless the Board determines otherwise. Remuneration adjustments for prior period matters The Board has discretion to adjust the LTI which is awarded on a prospective basis. The Board may adjust unvested LTI downwards, including to zero, if circumstances or information come to light which mean that in the Board’s view all or part of the award was not appropriate. The Board will typically apply the adjustment to unvested LTI where an adjustment to current and deferred STI’s is considered insufficient or unavailable. The Board may also determine to apply clawback to LTI which has previously vested. Clawback applies, to the extent legally permissible and practicable. Clawback may occur in circumstances of serious or gross misconduct, fraud, bribery, severe reputational damage, and any other deliberate, reckless or unlawful conduct that may have a serious adverse impact on Namoi Cotton, its customers or its people which has resulted in dismissal, or the Board considers at its discretion would have justified the dismissal of the relevant executive or where otherwise required by law. Changes for 2024 There are no changes to the Plan for 2024. ANNUAL REPORT 2023 | 45 44 | NAMOI COTTON 2.7 Non-executive director compensation The Board seeks to set aggregate compensation at a level that provides the Company with the ability to attract and retain Directors with the appropriate qualifications, experience and skills and compensate Directors for the time required to exercise their duties as a Director. The Constitution of the Company provides for aggregate Directors’ fees of up to $850,000 per annum to be paid to Directors. For FY2023 the aggregate Directors’ fees paid was $445,365. The amount of compensation and the manner in which it is apportioned amongst Directors is reviewed annually. The board may consider advice from external consultants as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process. Non-executive directors do not receive performance-related compensation and are not provided with retirement benefits apart from statutory superannuation. The compensation of non-executive Directors for the period ending 28 February 2023 is detailed on page 46 of this report. 2.8 Services of Remuneration consultants The Board engaged Guerdon Associates to conduct a market review of non-executive director (NED) fees as well as a remuneration review of the Chief Executive Officer. As remuneration experts, Guerdon Associates were engaged to conduct this external independent review and provide comparator data. Guerdon Associates were engaged to facilitate the research, benchmarking to comparator groups and demonstrate market positioning, receiving a fee of $22,071 for their services. The engagement of Guerdon Associates and work carried out was free from undue influence by members of KMP and non-executive Directors about whom the recommendations may relate. 2.9 Remuneration Governance The role and responsibility of the PCNC of the Board of Directors of Namoi Cotton is to assist and advise the Board to fulfil its responsibilities to shareholders of the company on matters relating to: • the composition, structure, and operation of the Board; • senior executive selection and performance; • the compensation, bonuses incentives and remuneration issues of the CEO and executives; • policies relating to remuneration, incentives, superannuation, evaluation, and termination, affecting all staff; • remuneration of the Directors of the Board and Chair of the Board. Activities of the PCNC are governed by its Terms of Reference, which is available in the Investor section of our website. 2.10 Consequences of performance on shareholder wealth As highlighted above, when determining variable remuneration outcomes for the Executive KMP, a range of financial and non- financial indicators are considered. The Group uses EBITDA1 as a measure of performance for the Group’s ongoing business activities, as this provides a basis to assess Group and Divisional performance against prior periods. The table below provides Namoi Cotton Limited’s financial performance, including EBITDA, for the current year and preceding 5 financial years. 2023 2022 2021 2020 2019 EBITDA 1 18.3m 2.6m (11.6m) (8.0m) 11.6m Earnings per Ordinary Share (diluted) (cents) 2.1 (3.3) (10.3) (7.8) (0.4) Dividend per Ordinary Share (cents/share) 2 - - - - 1.9 Share price at year end (cents) 47.9 43.5 35.5 30.0 40.0 1 EBITDA is a non-IFRS and unaudited measure defined as earnings before interest, tax, depreciation and amortization (including share of EBITDA from NCA and share of profit from NCMA and NCPS excluding impairments and revaluation decrements on property, plant and equipment held at fair value). 2 Represents amounts paid during the financial year. Refer to the Review and Results of Operations section of the Directors’ Report for a reconciliation of EBITDA to net profit after tax. ANNUAL REPORT 2023 | 47 46 | NAMOI COTTON The table below sets out the remuneration paid or payable to the KMP for the financial year ended 28 February 2022. Year Ended 28 February 2022 Short-term Employee Benefits Post- Employment Benefits Long-term Benefits Salary & Fees 1 STI Bonus 7 Superannuation LTI – Performance Rights 2 Long Service Leave 3 Termination Benefits Total % At Risk 4 DIRECTORS T Watson 110,000 - 10,831 - - - 120,831 0% R Green 70,000 - 6,892 - - - 76,892 0% J Hamparsum 70,000 - 6,892 - - - 76,892 0% J Di Leo 70,000 - 6,892 - - - 76,892 0% I Wilton 70,000 - 6,892 - - - 76,892 0% EXECUTIVES J Stevenson 5 398,231 100,313 27,184 16,158 649 - 542,535 21.5% S Ryan 6 20,342 - 3,779 - - - 44,886 0% 829,338 100,313 69,362 16,158 649 - 1,015,820 1 Salary & Fees plus expense associated with accrued annual leave for the period. 2 Long Term Incentive (LTI) Share Based Payment – Value of Rights to take up shares under the Namoi Cotton Limited Equity Plan as at issue date amortised equally over a three year performance period. 3 Expense associated with long service leave entitlement accrued during the period. 4 The proportion of remuneration that is performance based at-risk including STI’s and LTI’s. 5 Appointed as Acting Interim CEO effective 10 February 2021. Appointed CEO effective 7 June 2021. 6 Appointed as CFO effective 7 January 2022. 7 The short-term incentive bonus is for performance during the respective financial year using the criteria set out on page 41. 3.2 Analysis of bonuses included in remuneration Details of the vesting profile of the FY2023 short-term incentive cash bonuses awarded as remuneration to each executive KMP are detailed below. No short-term incentive cash bonuses were awarded to directors of the Company in FY2023. SHORT-TERM INCENTIVE BONUS FY2023 Included in remuneration 1 % vested in year % forfeited in year 2 EXECUTIVE KMP J Stevenson 88,000 44% 56% S Ryan 20,250 27% 73% 1 Amounts included in remuneration for FY2023 represent the amount related to the financial year based on achievement of personal goals and satisfaction of specified performance criteria. The PCNC and the Board approved these amounts on 27 March 2023. 2 The amounts forfeited are due to the financial performance and specific performance criteria not being fully met in relation to the current financial year. 3. Statutory Remuneration 3.1 KMP Remuneration Table The following table outlines the statutory remuneration disclosed in accordance with Australian Accounting Standards. While it shows the fixed remuneration awarded (cash and superannuation contributions) and the cash component of the 2023 short term incentive (STI), it does not show the actual variable long term incentive (LTI) remuneration awarded or received in 2023, but instead shows the amortised accounting value of long term deferred remuneration for this financial year. The table below sets out the remuneration paid or payable to the KMP for the financial year ended 28 February 2023. Year Ended 28 February 2023 Short-term Employee Benefits Post- Employment Benefits Long-term Benefits Salary & Fees 1 STI Bonus 6 Superannuation LTI – Performance Rights 2 Long Service Leave 3 Termination Benefits Total % At Risk 4 DIRECTORS T Watson 128,731 - 13,326 - - - 142,057 0% R Green 74,846 - 7,746 - - - 82,592 0% J Hamparsum 74,846 - 7,746 - - - 82,592 0% J Di Leo 5 32,154 - 3,263 - - - 35,417 0% I Wilton 74,846 - 7,746 - - - 82,592 0% J Davies 7 19,327 - 788 - - - 20,115 0% EXECUTIVES J Stevenson 432,749 88,000 31,587 37,368 262 - 589,966 21.3% S Ryan 287,991 20,250 30,927 10,304 - - 349,472 8.7% 1,125,490 108,250 103,129 47,672 262 - 1,384,803 1 Salary & Fees plus expense associated with accrued annual leave for the period. 2 Long Term Incentive (LTI) Share Based Payment – Value of Rights to take up shares under the Namoi Cotton Limited Equity Plan date amortised equally over a three year performance period. 3 Expense associated with long service leave entitlement accrued during the period. 4 The proportion of remuneration that is performance based at-risk including STI’s and LTI’s. 5 Resigned 4 August 2022. 6 The short-term incentive bonus is for performance during the respective financial year using the criteria set out on page 41. The amount was approved on 27 March 2023 after performance reviews were completed and approved by the PCNC and the Board. 7 J Davies was appointed on 28 November 2022. ANNUAL REPORT 2023 | 49 48 | NAMOI COTTON 3.3 Rights over equity instruments The table below sets out the details of the long-term incentive performance rights that were granted to the KMP. • During FY2023 relating to 2023 performance and remuneration outcomes; or • In prior years which have now vested, were exercised/sold or which lapsed or were forfeited during FY2023. No long-term incentive performance rights were granted to directors of the Company in FY2023. Equity granted, vested, exercised, lapsed, or Forfeited – KMP LTI is awarded in performance rights which vest after a three-year period subject to the achievement of performance hurdles, continued service and adjustment. One performance right entitles the holder to one ordinary share at the time of vesting with no exercise cost. Dividends are not accumulated on performance rights. Performance Rights Balance held Granted as Vested during the Year Vested and exercised during the year Balance held 28-Feb-23 Vested and exercisable at 28-Feb- 23 1 March 2022 Remuneration Exercised Lapsed1 Forfeited EXECUTIVES J Stevenson 782,516 457,472 - 224,551 - - - 1,015,437 - S Ryan - 155,957 - - - - - 155,957 - 782,516 613,429 - 224,551 - - - 1,171,394 - 1 The TSR performance hurdle was not met i.e. the share price hurdle of $0.508 compared to the share price at date of vesting of $0.430. Performance Rights Granted to KMP in FY2023 Number of rights granted during FY2023 Vesting conditions Grant date Fair value at Grant date Expiry date J Stevenson 457,472 TSR & Workplace fatalities 5 August 2022 $0.1982 28 February 2026 S Ryan 155,957 TSR & Workplace fatalities 5 August 2022 $0.1982 28 February 2026 All performance rights expire on the earlier of their expiry date or termination of the individual’s employment. The performance rights vest and are exercisable three years from the commencement of the performance period. In addition to a continuing employment service condition, vesting is conditional on the Group achieving certain performance hurdles. Details of the performance criteria are included in the long-term incentive discussion in section 2.6 of this report. For rights granted in the current year, the earliest vesting date is 28 February 2025. Details of equity incentives affecting current and future remuneration Details of vesting profiles of the performance rights held by each KMP of Namoi Cotton Limited are detailed below. No performance rights are held by directors of the Company. Instrument Number of instruments Grant Date % vested in year % lapsed in year 1 % forfeited in year Financial years in which grant vests Maximum value yet to vest 2 J Stevenson Performance rights 224,551 1 March 2020 -% 100% -% 28 February 2023 - Performance rights 557,965 1 March 2020 -% -% -% 28 February 2024 6,696 Performance rights 457,472 5 August 2022 -% -% -% 28 February 2025 60,447 S Ryan Performance rights 155,957 5 August 2022 -% -% -% 28 February 2025 20,607 1 The percentage lapsed in the year represents the reduction from the maximum number of instruments available to vest due to performance criteria not being achieved. 2 The maximum value of performance rights yet to vest is determined based on the amount of the grant date fair value that is yet to be expensed. The minimum value of performance rights yet to vest is nil since the shares will be forfeited if the vesting conditions are not met. 3.4 KMP Equity Holdings The table below sets out details of equity held directly, indirectly, or beneficially held by each KMP, including their related parties. Balance held 1 1 March 2022 On Exercise of Rights Net Change Other 2 Balance held 3 28 February 2023 FY2023 Ordinary Shares Ordinary Shares Ordinary Shares Ordinary Shares DIRECTORS T Watson (Chairman) 2,663,864 - 507,368 3,171,232 R Green 149,868 - 28,547 178,415 J Hamparsum 411,615 - 78,403 490,018 I Wilton 861,733 - 164,140 1,025,873 J Di Leo 4 75,000 - -75,000 - J Davies - - - - EXECUTIVES J Stevenson - - - - S Ryan - - - - 4,162,080 - 703,458 4,865,538 1 Includes ordinary shares that are held directly, indirectly, and beneficially by KMP. 2 Net Change Other includes shares held at appointment and retirement as well as on and off market shares purchased. 3 Note that there were no movements in shareholdings between year end and the date the Directors Report was signed. 4 Net change at 4 August 2022 (date of resignation), the date J Di Leo ceased to be a KMP. All shares above are held in the parent entity, Namoi Cotton Limited. All ordinary share transactions by the company with KMP are made through the ASX on normal commercial terms. ANNUAL REPORT 2023 | 51 50 | NAMOI COTTON 4. Transactions with Key Management Personnel A number of KMP, or their related parties, hold positions in other entities that result in them having control, or joint control, over the financial or operating policies of those entities. A number of these entities transacted with the Group during the year. The terms and conditions of the transactions with KMP and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis. No loans are provided to KMP. End of Remuneration Report Rounding The amounts contained in this report and in the financial statements have been rounded to the nearest thousand dollars (where rounding is applicable) in accordance with ASIC Corporations (Rounding in Financial Directors Reports) Instrument 2016/191. The company is an entity to which this legislative instrument applies. Signed in accordance with a resolution of the Directors on behalf of the board. On behalf of the board. TIM WATSON Director, Toowoomba 28 April 2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Namoi Cotton Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Namoi Cotton Limited for the financial year ended 28 February 2023 there have been: i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii. no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Simon Crane Partner Brisbane 28 April 2023 ANNUAL REPORT 2023 | 53 52 | NAMOI COTTON Independent Auditor’s Report KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. Independent Auditor’s Report To the shareholders of Namoi Cotton Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Namoi Cotton Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Group’s financial position as at 28 February 2023 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated statement of financial position as at 28 February 2023; • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity and Consolidated statement of cash flows for the year then ended; • Notes including a summary of significant accounting policies; and • Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with these requirements. Key Audit Matters The Key Audit Matters we identified are: • Valuation of gin assets; • Accounting for investments and joint arrangements; and • Change in revenue accounting treatment. Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Valuation of gin assets $122.7 million Refer to Note 3.3 to the Financial Report The key audit matter How the matter was addressed in our audit The valuation of gin assets is considered a key audit matter due to: • the size of the balance, being 60.3% of total assets; and • the level of judgement required by us in evaluating the Group’s assessment of the fair value of gin assets. The Group’s valuation method and assessment of the fair value of gin assets involves significant judgement for key valuation assumptions as there is inherent estimation uncertainty. We focused on the significant forward-looking assumptions the Group applied, in particular: • forecast sustainable ginning bales, revenues and expenses due to seasonality in the cotton industry driven by changing climate patterns; • the discount rate given the Group’s modelling is highly sensitivity to small changes in this assumption. In assessing this key audit matter, in particular the complex inputs involved, we involved senior audit team members, including valuation specialists. Our procedures included: • working with our valuation specialists we: - considered the appropriateness of the valuation methodology applied against our understanding of the Group’s gin assets and the requirements of the accounting standards; - considered the sensitivity of the model by varying key assumptions, such as sustainable ginning bales, forecast revenue, forecast expenses and the discount rate. We did this to identify those assumptions at higher risk of bias or inconsistency in application and to focus our further procedures; - assessed the discount rate applied in the discounted cash flow model against publicly available market data of a group of comparable entities; - challenged the Group’s assumptions of forecast sustainable ginning bales, ginning revenues and expenses against average production and earnings over an extended historical period. We did this to understand the Group’s consideration of seasonal variations in the cotton industry. We used our knowledge of the Group, their past performance and our industry understanding in assessing the assumptions; • comparing forecast assumptions adopted in the discounted cash flows to those assumptions in the external experts valuation in the prior year, and considered changes in these key assumptions against our understanding of the Group’s operations and the cotton industry; • assessing the adequacy of associated disclosures in the financial report using our understanding obtained from our testing, against the requirements of the accounting standard. ANNUAL REPORT 2023 | 55 54 | NAMOI COTTON Accounting for investments and joint arrangements Refer to part b) of the Significant accounting policies note and note 4.2 to the Financial Report The key audit matter How the matter was addressed in our audit Accounting for investments and joint arrangements is considered a key audit matter due to the level of judgement required by us in evaluating the Group’s assessment of these arrangements as joint ventures, joint operations or other investments and the associated accounting. The accounting standards use an assessment of the rights and obligations of each party to the arrangement, which requires interpretation of legal agreements and their commercial application. The accounting outcomes of each, and how they present themselves in the financial position and performance are different, therefore the decision is critical to financial reporting. This led to increased audit effort due to the complexity of the terms of the relevant constituting documents. In assessing this key audit matter, we involved senior audit team members. Our procedures included: • working with our technical accounting specialists we: - evaluated the key terms and conditions of constituting documents associated with investments and joint arrangements against our understanding of the Group’s operations and the requirements of the accounting standards; - compared the Group’s financial reporting consolidation process against the outcome of the Group’s assessment of investments and joint arrangements for consistency with the requirements of the relevant accounting standards; - assessed the adequacy of associated disclosures in the financial report against the requirements of the relevant accounting standards, including AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors for the restatement of prior year amounts. Change in revenue accounting treatment Refer to part b) of the Significant accounting policies note and note 1.2 to the Financial Report The key audit matter How the matter was addressed in our audit The changes made by the Group to the accounting treatment associated with the sale of cotton lint, cotton seed and ginning services provided to customers was a key audit matter due to: • the level of judgement required in assessing the nature of the Group’s operations and transactions with customers, against the requirements of several alternate accounting standards; and • the significant impact on revising the presentation of these transactions in the financial report, including the restatement of prior year amounts using AASB 108 Accounting Policies, Changes to Estimates and Errors which we consider to be fundamental to users understanding of the financial report. In assessing this key audit matter, we involved senior audit team members. Our procedures included: • assessing the changes in accounting policy through evaluating the accounting papers prepared by the Group on key areas of judgement, and against the requirements of the alternate accounting standards; • for a sample of contracts with customers, comparing the key terms to the criteria in the accounting standards and those in the Group’s policy; • evaluating the accounting treatment applied by the Group for cotton lint, cotton seed and ginning services against our understanding of the Group’s operations, and the requirements of the accounting standards; • assessing the adequacy of associated disclosures in the financial report against the requirements of the accounting standards, including the restatement of prior year amounts. Other Matter The financial report of Namoi Cotton Limited for the year ended 28 February 2022 was audited by another auditor who issued an unmodified opinion on that financial report on 26 April 2022. Other Information Other Information is financial and non-financial information in Namoi Cotton Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Independent Auditor’s Report ANNUAL REPORT 2023 | 57 56 | NAMOI COTTON Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and • assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and • to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of Namoi Cotton Limited for the year ended 28 February 2023, complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 38 to 50 of the Directors’ Report for the year ended 28 February 2023. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Simon Crane Partner Brisbane 28 April 2023 Independent Auditor’s Report Page left intentionally blank ANNUAL REPORT 2023 | 59 58 | NAMOI COTTON In accordance with a resolution of the directors of Namoi Cotton Limited, I state that: In the opinion of the directors: a) the consolidated financial statement, notes and the additional disclosures included in the directors’ report designated as audited, of the company and of the consolidated entity are in accordance with the Corporations Act 2001, including: i) giving a true and fair view of the Group’s and consolidated entity’s financial position as at 28 February 2022 and of its performance for the year ended on that date; and ii) complying with Accounting Standards and Corporations Regulations 2001; b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1(a); c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 28 February 2023. On behalf of the board. TIM WATSON Director, Toowoomba 28 April 2023 Directors’ Declaration ANNUAL REPORT 2023 | 61 60 | NAMOI COTTON Financial Statements Consolidated financial report For the year ended 28 February 2023 62 Financial Statements 73 1. Group financial performance 73 1.1 Segment results 76 1.2 Revenue and other income 78 1.3 Expenses 79 1.4 Taxation 81 1.5 Earnings per share 81 2. Capital management 82 2.1 Borrowings 84 2.2 Cash and cash equivalents 87 2.3 Contributed equity 88 2.4 Commitments and contingencies 89 2.5 Financial risk management 95 3. Operating assets and liabilities 95 3.1 Trade and other receivables 96 3.2 Inventories 97 3.3 Property, plant and equipment 100 3.4 Trade and other payables 100 3.5 Provisions 101 4. Group 101 4.1 Information relating to Namoi Cotton limited (the parent) 101 4.2 Investments in Namoi Cotton Marketing Alliance 103 4.3 Investment in associates and joint ventures using the equity method 105 4.4 Interest in joint operations 105 4.5 Interest in jointly controlled assets 105 4.6 Related party transactions 108 5. Additional notes 108 5.1 Remuneration of auditors 108 5.2 Share based payments 109 5.3 Significant events after balance date 110 Additional information ANNUAL REPORT 2023 | 63 62 | NAMOI COTTON STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2023 Consolidated $’000 Note 28 Feb 2023 Restated 1 28 Feb 2022 Revenue from Customers 1.2 256,947 97,049 Other income 1.2 110 314 Share of profit/(loss) from investment in Namoi Cotton Marketing Alliance 4.2 1,488 414 Share of profit/(loss) of associates and joint ventures 4.3 (1) 381 Cottonseed and other goods purchased for resale (122,948) (36,773) Raw materials and consumables used (19,938) (7,971) Distribution costs (47,921) (17,571) Employee benefit expenses 1.3 (34,700) (21,444) Repairs and maintenance (5,661) (4,454) Depreciation (11,094) (6,462) Fair value increment – ginning assets - 181 Finance costs 1.3 (3,230) (2,840) Other expenses 1.3 (9,079) (7,540) Profit /(loss) before income tax 3,973 (6,716) Income tax (expense)/benefit 1.4 (10) 1,276 Profit/(loss) attributable to the shareholders 3,963 (5,440) Other comprehensive income items that will not be reclassified subsequently to profit and loss: Increment/(decrement) to asset revaluation reserve (net of tax) 3.3 3,287 2,888 Profit/(loss) and other comprehensive income attributable to Shareholders of Namoi Cotton Limited 7,250 (2,552) Cents Note 28 Feb 2023 Restated 1 28 Feb 2022 EARNINGS PER ORDINARY SHARE Basic earnings per share 1.5 2.2 (3.3) Diluted earnings per share 1.5 2.1 (3.3) 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. The above statement of profit and loss and other comprehensive income should be read in conjunction with the accompanying notes. STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2023 Consolidated $’000 Note 28 Feb 2023 Restated 1 28 Feb 2022 CURRENT ASSETS Cash and cash equivalents 2.2 4,877 2,856 Trade and other receivables 3.1 14,296 6,365 Inventories 3.2 24,304 9,670 Prepayments 1,044 614 Derivative financial instruments 277 67 Total current assets 44,798 19,572 NON-CURRENT ASSETS Investment in Namoi Cotton Marketing Alliance 4.2 255 248 Investments in associates and joint ventures 4.3 101 (1,312) Property, plant and equipment 3.3 158,151 153,080 Total non-current assets 158,507 152,016 Total assets 203,305 171,588 CURRENT LIABILITIES Trade and other payables 3.4 13,077 6,083 Interest bearing liabilities 2.1 13,717 3,659 Provisions 3.5 2,523 2,450 Derivative financial instruments 2.5 405 52 Total current liabilities 29,722 12,244 NON-CURRENT LIABILITIES Interest bearing liabilities 2.1 38,326 45,964 Provisions 3.5 167 177 Deferred tax liabilities (net) 1.4 1,419 - Total non-current liabilities 39,912 46,141 Total liabilities 69,634 58,385 NET ASSETS 133,671 113,203 EQUITY Contributed equity 2.3 61,142 47,984 Reserves 76,338 72,991 Retained earnings / (deficit) (3,809) (7,772) Total equity 133,671 113,203 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. The above statement of financial position should be read in conjunction with the accompanying notes. ANNUAL REPORT 2023 | 65 64 | NAMOI COTTON STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 28 FEBRUARY 2023 Consolidated $’000 Note 28 Feb 2023 Restated 1 28 Feb 2022 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 2 817,258 310,430 Realised gains/(losses) on derivatives (3,208) (584) Payments to suppliers and employees (194,073) (77,822) Payments to growers 2 (619,272) (215,702) Interest received 36 7 Interest paid (3,108) (1,941) Net cash (outflow)/inflow from operating activities (2,367) 14,388 CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment (9,823) (5,067) Proceeds from sale of property, plant and equipment 62 426 Investment in Kimberley Cotton Company Limited (KCC) (1,414) - Distributions from NCMA 1,385 790 Net cash (outflow)/inflow from investing activities (9,790) (3,851) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuing of ordinary shares 13,158 10,345 Proceeds from borrowings 30,000 30,967 Repayment of borrowings (27,175) (52,469) Proceeds from equipment loans 2,211 573 Repayment of equipment loans (812) (736) Repayment of other loans (426) (316) Payment of principal portion of lease liabilities (416) (445) Net cash (outflow)/inflow from financing activities 16,540 (12,081) Net increase/(decrease) in cash 4,383 (1,544) Add cash at the beginning of the financial year 494 2,038 Cash at end of the financial year 4,877 494 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. 2 Includes cash inflows and outflows associated with the purchase and sale of lint cotton where Namoi Cotton Limited acts as marketing agent. The above cash flow statement should be read in conjunction with the accompanying notes. STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 FEBRUARY 2023 Consolidated $’000 Issued Capital Asset Revaluation Reserve Performance Rights Reserve Retained Earnings Total Equity Total equity at 1 March 2022 47,984 72,954 37 (7,772) 113,203 Ordinary shares issued 13,158 - - - 13,158 Net profit for the period - - - 3,963 3,963 Share based payment transactions - - 60 - 60 Other comprehensive income/(loss) - 3,287 - - 3,287 Equity dividends - - - - - Total equity at 28 February 2023 61,142 76,241 97 (3,809) 133,671 Consolidated $’000 Issued Capital Asset Revaluation Reserve Performance Rights Reserve Restated 1 Retained Earnings Restated 1 Total Equity Total equity at 1 March 2021 37,639 70,066 9 (958) 106,756 Impact of restatement 1 - - - (1,374) (1,374) Restated 1 total equity at 1 March 2021 37,639 70,066 9 (2,332) 105,382 Ordinary shares issued 10,345 - - - 10,345 Restated 1 Net loss for the period - - - (5,440) (5,440) Share based payment transactions - - 28 - 28 Other comprehensive income/(loss) - 2,888 - - 2,888 Equity dividends - - - - - Restated 1 total equity at 28 February 2022 47,984 72,954 37 (7,772) 113,203 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. The above statement of changes in equity should be read in conjunction with the accompanying notes. ANNUAL REPORT 2023 | 67 66 | NAMOI COTTON NOTES TO THE FINANCIAL STATEMENTS About our Financial Statements These are the financial statements for Namoi Cotton Limited (the Company) and its controlled entities (together, the Group), and its interests in associates, joint ventures and other investments. The Company is a publicly listed company domiciled in Australia. The Group is a for profit entity primarily involved in the provision of Cotton ginning, warehousing and logistics services to cotton growers and cotton merchants in Australia and sells co and by-products from the ginning process to both domestic and international customers. On 28 April 2023, the Directors resolved to authorise the issue of these financial statements. Information in the financial statements is included only to the extent we consider it significant and relevant to the understanding of the financial statements. A disclosure is considered material and relevant if, for example: • the amount is significant in size (quantitative factor); • the information is significant by nature (qualitative factor); • the user cannot understand the Groups results without the specific disclosure (qualitative factor); • the information is critical to a user’s understanding of the impact of significant changes in the Group’s business during the period – for example, business acquisitions or disposals (qualitative factor); • the information relates to an aspect of the Group’s operations that is important to its future performance (qualitative factor); and • the information is required under legislative requirements of the Corporations Act 2001 or by the Group’s principal regulators including the Australian Securities and Investments Commission (ASIC). This section of the financial statements: • outlines the basis upon which the Group’s financial statements have been prepared; and • discusses any new accounting standards or regulations that directly impact the financial statements a) Basis of preparation The financial report is a general purpose (Tier 1) financial report prepared in accordance with Australian Accounting Standards (AASs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The financial statements comply with International Financial Reporting Standards adopted by the International Accounting Standards Board. We present the financial statements of the Group in Australian dollars, which is the Company’s functional and presentation currency. The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/ Director’s report) Instrument 2016/191 and in accordance with that instrument, amounts within the financial statements and directors’ report have been rounded to the nearest thousand dollars ($’000), unless otherwise stated. b) Basis of measurement and presentation We have prepared the financial statements on the historical cost basis – except the following assets and liabilities which we have stated at their fair value: • Ginning infrastructure held at fair value; and • Financial assets and liabilities designated at fair value through profit or loss. KEY JUDGEMENTS AND ESTIMATES In the process of applying the Group’s accounting policies, management has made a number of judgements and applied estimates and assumptions about past and future events over the following primary areas: • Fair value of ginning infrastructure – note 3.3 • Accounting for investment in Namoi Cotton Marketing Limited – note 4.2 Further information of the key judgements and estimates that we consider material to the financial statements are contained within each relevant note to the financial statements. SIGNIFICANT ACCOUNTING POLICIES The Group has consistently applied the following accounting policies to all periods presented in these consolidated financial statements, except if mentioned otherwise. Certain comparative amounts have been restated to reflect the Group’s revised accounting treatment of Ginning and Cottonseed revenue under AASB 15 Revenue from Contracts with Customers as well as accounting for joint arrangements. Refer to note b) below for further details. Seasonality of operations The Group’s Ginning segment, operates on a seasonal basis whereby ginning services normally occur during the first half of each financial year. Delivery of cottonseed from growers also aligns with the ginning season, largely occurring in the first half of the financial year with revenues from the sale of cottonseed being recognised throughout the financial year as cottonseed is sold to customers. Accordingly, the Ginning segment traditionally generates net income in the first half of the financial year and incurs net expenditure in the second half of the financial year during the ensuing maintenance period. a) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. b) Restatement to comparatives During FY23, the Group reassessed the accounting treatment applied to the following operating activities: • Provision of ginning services; • Marketing of cottonseed; and • Marketing of cotton lint. Historically, the Group has accounted for all contracts from these activities as at fair value through profit or loss under AASB 9 Financial Instruments and presented the net result as a Trading Margin in the consolidated statement of profit or loss and other comprehensive income. In 2021, the Group undertook a significant restructure of its lint marketing business, including the establishment of Namoi Cotton Marketing Alliance (NCMA), under a Joint Venture Agreement with Louis Dreyfus Company. As a consequence of the restructure, the contracts from the above activities no longer fall under the scope of AASB 9. The reassessment has resulted in the contracts in relation to the provision of ginning services and sale of cottonseed being accounted for in accordance with AASB 15 Revenue from Contracts with Customers. Cottonseed inventory, which has previously been recognised at fair value less costs to sell, is now recognised at the lower of cost and net realisable value and the costs of cottonseed sold is now separately recognised on the statement of profit or loss and other comprehensive income. Under the restructured lint marketing activities, contracts to buy lint from growers and contracts to sell lint to NCMA are not in the scope of AASB 9. It was concluded that the Group acts as an agent in purchasing lint from growers on behalf of NCMA, so the Group should recognise their services to NCMA as revenue under AASB 15. In addition to the above restatements, the Group has also reassessed the accounting treatment for its interest in the Namoi Cotton Alliance (NCA) joint arrangement. Historically, this interest has been equity accounted in accordance with AASB 128 Investments in Associates and Joint Ventures. Based on a reassessment of the terms of the NCA joint arrangement in the current year, it has been determined that the arrangement is a Joint Operation and the Group should account for its rights and obligations in NCA's assets, liabilities, revenues and expenses. ANNUAL REPORT 2023 | 69 68 | NAMOI COTTON The following tables summarise the impacts on the Group’s consolidated financial statements. Consolidated statement of financial position As at 1 March 2021 As previously reported 1 March 2021 Adjustments 1 Adjustments 2 As restated 1 March 2021 Cash and cash equivalents 497 1,768 - 2,265 Trade and other receivables 2,196 13,921 - 16,117 Inventories 7,445 9,392 (93) 16,744 Assets held for sale 837 - - 837 Prepayments 767 2,785 - 3,552 Derivative financial instruments 7,481 652 (7,155) 978 Total current assets 19,223 28,518 (7,248) 40,493 Investment in Namoi Cotton Marketing Alliance (49) - - (49) Investments in associates and joint ventures 21,349 (23,043) - (1,694) Property, plant and equipment 129,703 20,102 - 149,805 Total non-current assets 151,003 (2,941) - 148,062 Total assets 170,226 25,577 (7,248) 188,555 Trade and other payables 4,315 4,549 - 8,864 Interest bearing liabilities 5,664 19,035 - 24,699 Provisions 1,671 172 - 1,843 Derivative financial instruments 5,996 1,216 (5,874) 1,338 Total current liabilities 17,646 24,972 (5,874) 36,744 Interest bearing liabilities 45,639 587 - 46,226 Provisions 185 18 - 203 Total non-current liabilities 45,824 605 - 46,429 Total liabilities 63,470 25,577 (5,874) 83,173 Net assets 106,756 - (1,374) 105,382 Contributed equity 37,639 - - 37,639 Reserves 70,075 - - 70,075 Retained earnings/(deficit) (958) - (1,374) (2,332) Total equity 106,756 - (1,374) 105,382 1 Adjustments relating to the change in accounting treatment of Namoi Cotton Alliance. 2 Adjustments relating to the change in accounting treatment in relation to the provision of ginning services, marketing of cottonseed and marketing of cotton lint. Consolidated statement of financial position As at 28 February 2022 As previously reported 28 February 2022 Adjustments 1 Adjustments 2 As restated 28 February 2022 Cash and cash equivalents 367 2,489 - 2,856 Trade and other receivables 4,202 2,163 - 6,365 Inventories 11,020 - (1,350) 9,670 Prepayments 557 57 - 614 Derivative financial instruments 62,142 - (62,075) 67 Total current assets 78,288 4,709 (63,425) 19,572 Investment in Namoi Cotton Marketing Alliance 248 - - 248 Investments in associates and joint ventures 21,250 (22,562) - (1,312) Property, plant and equipment 134,019 19,061 - 153,080 Total non-current assets 155,517 (3,501) - 152,016 Total assets 233,805 1,208 (63,425) 171,588 Trade and other payables 5,657 451 (25) 6,083 Interest bearing liabilities 3,593 66 - 3,659 Provisions 2,309 149 (8) 2,450 Derivative financial instruments 61,063 - (61,011) 52 Total current liabilities 72,622 666 (61,044) 12,244 Interest bearing liabilities 45,422 542 - 45,964 Provisions 172 - 5 177 Total non-current liabilities 45,594 542 5 46,141 Total liabilities 118,216 1,208 (61,039) 58,385 Net assets 115,589 - (2,386) 113,203 Contributed equity 47,984 - - 47,984 Reserves 72,991 - - 72,991 Retained earnings/(deficit) (5,386) - (2,386) (7,772) Total equity 115,589 - (2,386) 113,203 1 Adjustments relating to the change in accounting treatment of Namoi Cotton Alliance. 2 Adjustments relating to the change in accounting treatment in relation to the provision of ginning services, marketing of cottonseed and marketing of cotton lint. ANNUAL REPORT 2023 | 71 70 | NAMOI COTTON Consolidated statement of cash flows For the year ended 28 February 2022 As previously reported 28 February 2022 Adjustments 1 Adjustments 2 As restated 28 February 2022 Net cash (outflow)/ inflow from operating activities (4,184) 18,572 - 14,388 Net Cash (outflow)/inflow from investing activities (3,294) (557) - (3,851) Net cash (outflow)/ inflow from financing activities 5,214 (17,295) - (12,081) Net increase/ (decrease) in cash (2,264) 720 - (1,544) Cash at the beginning of the financial year 270 1,768 - 2,038 Cash at the end of the financial year (1,994) 2,488 - 494 1 Adjustments relating to the change in accounting treatment of Namoi Cotton Alliance. 2 Adjustments relating to the change in accounting treatment in relation to the provision of ginning services, marketing of cottonseed and marketing of cotton lint. c) Foreign currency translation Transactions denominated in foreign currencies are initially recorded in the functional currency at the exchange rates prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of foreign currency denominated monetary assets and liabilities using rates of exchange applicable at balance date are recognised in the statement of comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. d) Going Concern The financial report has been prepared on the going concern basis that assumes the continuity of normal business activities and the realisation of assets and the discharge of liabilities as and when they fall due, in the ordinary course of business. e) Accounting standards adopted in the period There were no new accounting standards or interpretations adopted during the year that had a significant effect on the Group. f) Accounting standards issued but not yet effective A number of new standards, amendments to standards and interpretations have been published but are not mandatory for the financial statements for the year ended 28 February 2023 and have not been applied by the Group in preparing these financial statements. Further details of these are set out below: • Amendments to IAS 12 – Deferred Tax related to Assets and Liabilities arising from a Single Transaction • Amendments to IAS 1 – Classification of Liabilities as Current or Non-Current • IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts • Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) • Definition of Accounting Estimates (Amendments to IAS 8) Consolidated statement of profit or loss and OCI For the year ended 28 February 2022 As previously reported 28 February 2022 Adjustments 1 Adjustments 2 As restated 28 February 2022 Revenue from customers 3,366 14,330 79,353 97,049 Trading margin gains 43,454 - (43,454) - Other income 152 162 - 314 Share of profit/(loss) from investment in Namoi Cotton Marketing Alliance - 414 - 414 Share of profit / (loss) of associates and joint ventures 315 66 - 381 Processing and distribution costs (15,479) - 15,479 - Employee benefits expense (19,483) (1,961) - (21,444) Goods purchased for resale - 9 (36,782) (36,773) Raw materials and consumables used - (107) (7,864) (7,971) Distribution costs - (10,036) (7,535) (17,571) Repairs and maintenance (4,143) (311) - (4,454) Depreciation (5,097) (1,365) - (6,462) Fair value increment- ginning assets 181 - - 181 Finance costs (2,337) (112) (391) (2,840) Other expenses (6,605) (1,089) 154 (7,540) Loss before income tax (5,676) - (1,040) (6,716) Income tax (expense)/ benefit 1,276 - - 1,276 Loss attributable to shareholders (4,400) - (1,040) (5,440) Basic EPS (2.6) - (0.7) (3.3) Diluted EPS (2.6) - (0.7) (3.3) 1 Adjustments relating to the change in accounting treatment of Namoi Cotton Alliance. 2 Adjustments relating to the change in accounting treatment in relation to the provision of ginning services, marketing of cottonseed and marketing of cotton lint. ANNUAL REPORT 2023 | 73 72 | NAMOI COTTON g) Basis of consolidation Subsidiaries Subsidiaries are entities controlled by the Group. The Group ‘controls’ an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Loss of control The Group re-assesses whether or not it controls an entity if facts and circumstances indicate that there are changes to one or more of the elements of control. When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interests and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. Joint operations A joint operation is an arrangement in which the Group shares joint control, primarily via contractual arrangements with other parties. In a joint operation, the Group has rights to the underlying assets and obligations for the liabilities relating to the arrangement. In relation to the Group’s interest in a joint operation, the Group recognises: its share of any assets and liabilities held or incurred jointly; its share of any revenue generated from the sale of the output by the joint operation; and expenses its share of expenses incurred jointly. All such amounts are allocated in accordance with the terms of the arrangement, which is usually in proportion to the Group’s interest in the joint operation. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 1. GROUP FINANCIAL PERFORMANCE 1.1 Segment results a) Identification of reportable segments The Group has identified its operating segments based on the internal reports that are reviewed and used by the CEO (the chief operating decision maker) in assessing performance and in determining the allocation of resources. The operating segments are identified by management based on the nature of products and services provided. Discrete financial information about each of these operating businesses is reported to the CEO on at least a monthly basis. b) Performance of segments Operating Segment Products and services Ginning The ginning business operates 10 cotton gins (incorporating 2 joint venture gins, referred to in note 4.3) located in the key growing areas of NSW and Queensland. The ginning service provided to the growers during the production process includes the separation of lint cotton from seed and other co-products resulting in the conversion of cotton in module form to bale form. Grower customers are also able to sell the cotton seed co-product to Namoi Cotton or elect to retain their cotton seed. Namoi Cotton buys and sells cottonseed from and to third parties. The mechanical process of ginning produces a number of marketable co- products including cottonseed and moss. The costs to which are unable to be separated from the cost of ginning and as such are reported as part of the ginning segment. Supply Chain & Marketing The supply chain and marketing business involves warehousing and logistics services of cotton lint bales through Namoi Cotton Alliance, as well as the purchase and sale of lint cotton from Australian growers to Namoi Cotton Marketing Alliance. Bales procured by Namoi Cotton Limited as an agent for Namoi Cotton Marketing Alliance are all sold to export markets. This segment includes the results of Namoi Cotton’s Joint Ventures in NC Packing Services Pty Ltd and investment in Namoi Cotton Marketing Alliance. Corporate The following items (or a portion thereof) of income and expenditure are not allocated to operating segments as they are not considered part of the core operations of any segment: • Interest income; • Rental income; • Finance costs; • Corporate employee benefits expense; • Corporate depreciation; and • Other corporate administrative expenses. ANNUAL REPORT 2023 | 75 74 | NAMOI COTTON A segment balance sheet and cashflow is not reported to the chief operating decision makers and are, therefore, not disclosed as part of this report. Business Segments Ginning $’000 Supply Chain & Marketing $’000 Corporate $’000 Consolidated $’000 Year ended 28 February 2023 Ginning services 69,596 - - 69,596 Sales of cottonseed 160,823 - - 160,823 Sales of moss 2,542 - - 2,542 Classing services 1,382 - - 1,382 Warehousing and logistics services - 18,093 - 18,093 Lint handling 344 - - 344 Other service revenue 700 521 - 1,221 Management fees - 1,415 - 1,415 Other 91 1,440 - 1,531 Total consolidated revenue 235,478 21,469 - 256,947 Other income - - 110 110 Share of profit from Investment in NCMA, associates and joint ventures - 1,487 - 1,487 EBITDA 21,305 4,504 (7,512) 18,297 Depreciation (9,347) (1,443) (304) (11,094) Finance costs - - (3,230) (3,230) Net profit before tax 3,973 Income tax expense (10) Net profit after tax 3,963 Business Segments Ginning $’000 Supply Chain & Marketing $’000 Corporate $’000 Consolidated $’000 Year ended 28 February 2022 1 Ginning services 28,224 - - 28,224 Sales of cottonseed 49,258 - - 49,258 Sales of moss 1,991 - - 1,991 Classing services 688 - - 688 Warehousing and logistics services - 13,473 - 13,473 Lint handling 142 - - 142 Other service revenue 208 456 - 664 Management fees - 1,367 - 1,367 Other 491 751 - 1,242 Total consolidated revenue 81,002 16,047 - 97,049 Other income - - 314 314 Share of profit from Investment in NCMA, associates and joint ventures - 795 - 795 EBITDA 8,742 2,059 (8,215) 2,586 Depreciation (4,890) (1,382) (190) (6,462) Finance costs - - (2,840) (2,840) Net loss before tax (6,716) Income tax benefit 1,276 Net loss before tax (5,440) 1 This note has been restated to reflect presentation in the current period due to the restatement of comparatives outlined in note b) in the significant accounting policies. c) Geographical information The Group provides cotton ginning services to growers located solely within Australia. A portion of cottonseed and moss sales are made to a variety of countries in Asia, including China, Japan, South Korea, and Thailand. As such for the purposes of this note the Group’s geographic areas are considered to be Australia and China, Japan, South Korea and Thailand with consolidated revenues as follows: Geographic Areas Australia $’000 China $’000 Japan $’000 South Korea $’000 Thailand $’000 Consolidated $’000 Year ended 28 February 2023 Ginning services 69,596 - - - - 69,596 Sales of cottonseed 97,714 44,040 9,613 9,456 - 160,823 Sales of moss - - - - 2,542 2,542 Classing services 1,382 - - - - 1,382 Warehousing and logistics services 18,093 - - - - 18,093 Lint handling 344 - - - - 344 Other service revenue 1,221 - - - - 1,221 Management fees 1,415 - - - - 1,415 Other 1,531 - - - - 1,531 Total consolidated revenue 191,296 44,040 9,613 9,456 2,542 256,947 Restated 1 Geographic Areas Australia $’000 China $’000 Japan $’000 South Korea $’000 Thailand $’000 Consolidated $’000 Year ended 28 February 2022 Ginning services 28,224 - - - - 28,224 Sales of cottonseed 35,857 1,279 5,747 6,375 - 49,258 Sales of moss - - - - 1,991 1,991 Classing services 688 - - - - 688 Warehousing and logistics services 13,473 - - - - 13,473 Lint handling 142 - - - - 142 Other service revenue 664 - - - - 664 Management fees 1,367 - - - - 1,367 Other 1,242 - - - - 1,242 Total consolidated revenue 81,657 1,279 5,747 6,375 1,991 97,049 1 This note has been restated to reflect presentation in the current period due to the restatement of comparatives outlined in note b) in the significant accounting policies. ANNUAL REPORT 2023 | 77 76 | NAMOI COTTON 1.2 Revenue and other income Consolidated $’000 28 Feb 2023 Restated 1 28 Feb 2022 REVENUE FROM CUSTOMERS BY TYPE OF GOODS AND SERVICES Ginning services 69,596 28,224 Sales of cottonseed 160,823 49,258 Sales of moss 2,542 1,991 Classing services 1,382 688 Warehousing and logistics services 18,093 13,473 Lint handling 344 142 Other service revenue 1,221 664 Management fees 1,415 1,367 Other 1,531 1,242 256,947 97,049 OTHER INCOME Rental Income 107 133 Government grants - 265 Net gain/(loss) on disposal of property, plant and equipment 3 (84) 110 314 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. Accounting policy Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a good or service to a customer. The following table provides information about the nature and timing of the satisfaction of the performance obligations in contracts with customers, including significant payment terms, and related revenue recognition policies. The Group does not typically provide discounts or incorporate other forms of variable consideration in contracts with customers. The Group does not permit for the return of goods or provide warranties to customers. Type of product or service Nature and timing of satisfaction of performance obligations, including payment terms Revenue recognition policies Ginning services Ginning services incorporates the mechanical process of separating raw cotton into resultant lint cotton bales, cottonseed and mote. Invoices are issued upon completion of the service and are usually payable within 7 to 14 business days. Revenue from ginning services is recognised upon the completion of the performance obligation of processing cotton modules into the associated products. Sales of cottonseed and moss Customers obtain control of cottonseed when the goods have been delivered to the customer, subject to the conditions of the contract under which the goods were sold. These conditions differ between domestic sales and export sales based on associated shipping terms. Invoices are issued at that point in time and are usually payable within 7 to 14 business days. Domestic cottonseed sales are typically recognised upon dispatch from the Group’s warehouses where the customer arranges for transportation of the goods. Export cottonseed and moss sales are typically recognised upon delivery of the goods to either the port of departure or destination port, depending on the associated shipping terms. Classing revenue Classing is the process of mechanically and visually inspecting cotton to determine grade characteristics. Invoices are issued upon completion of the service and are usually payable within 7 to 14 business days. Revenue is recognised upon completion of the inspection process and provision of results to the lint marketer or customer. Warehousing and logistics Warehousing and logistics revenue is generated through the provision of storage, handling, logistics and other services. Invoices are issued as the services are performed and are usually payable within 7 days. Revenue is recognised over time as the services are performed. Given the nature of these services and associated contractual arrangements with customers, the timeframe over which these services is provided is typically short and no estimation or judgement is required to determine the stage of completion. Lint handling The Group acts as an agent in facilitating the sale of lint cotton between growers and a related party, NCMA. The Group receives a handling fee for facilitating this transaction, including processing the settlement of proceeds between each party. Revenue is recognised at a point in time, as the associated sale of cotton lint occurs. Accounting policy An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the CEO as the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. ANNUAL REPORT 2023 | 79 78 | NAMOI COTTON 1.3 Expenses Consolidated $’000 28 Feb 2023 Restated 1 28 Feb 2022 EMPLOYEE BENEFIT EXPENSES Salaries, wages, on-costs and other employee benefits 32,710 20,167 Contributions to defined contribution plans 1,931 1,249 Share based payments 59 28 34,700 21,444 FINANCE COSTS Interest on bank loans and overdrafts 2,672 2,282 Interest expense – leases 108 109 Finance charges payable under equipment loans 113 35 Interest rate derivatives recorded at fair value through profit or loss 3 17 Foreign currency derivatives recorded at fair value through profit or loss 3,277 418 Net foreign exchange (gains)/ losses (2,943) (21) 3,230 2,840 OTHER EXPENSES Audit fees and consulting 1,628 2,258 Business travel 758 438 Information technology 1,334 1,115 Insurance 1,734 1,376 Rental property expenses 458 146 Safety 662 460 Staff related costs 823 612 Other expenses 1,682 1,135 9,079 7,540 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. Accounting policy Employee benefits expense includes salaries and wages, superannuation contributions, share- based payments and other entitlements. The accounting policies for liabilities associated with employee benefits and share-based payments is contained in note 3.5 and 5.2 respectively. Finance costs comprise interest paid or payable on borrowings calculated using the effective interest method, amortisation of borrowing costs, losses arising on interest rate and foreign currency derivatives recognised at fair value through profit or loss, and the unwinding of the discount on provisions and other liabilities. 1.4 Taxation a) Income tax expense Consolidated $’000 28 Feb 2023 Restated 1 28 Feb 2022 Profit before income tax 3,973 (6,716) Income tax expense calculated at 30% (2022:30%) 1,192 (2,015) TAX EFFECT OF AMOUNTS WHICH ARE NOT DEDUCTIBLE/(TAXABLE) IN CALCULATING TAXABLE INCOME Non-deductible / non-assessable items (42) 363 Recognition of previously unrecognised tax losses (1,140) (30) Deferred tax assets not recognised - 406 Income tax expense/(benefit) 10 (1,276) REPRESENTED BY: Current tax 1,650 (1,555) Deferred tax: Temporary Differences (500) (127) Deferred tax: De-recognition/(recognition) of tax losses (1,140) 406 10 (1,276) 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. b) Deferred tax assets and liabilities Consolidated statement of financial position Consolidated statement of profit or loss or retained earnings Consolidated statement of profit or loss and other comprehensive income 28 Feb 2023 $’000 28 Feb 2022 $’000 28 Feb 2023 $’000 28 Feb 2022 $’000 28 Feb 2023 $’000 28 Feb 2022 $’000 DEFERRED TAX ASSETS Deferred costs 439 321 (118) (76) - - Provisions and accruals 781 819 38 (384) - - Tax losses carried forward 1 27,741 28,250 (1,140) 406 - - Total deferred tax assets 28,961 29,390 (1,220) (54) - - DEFERRED TAX LIABILITIES Property, plant and equipment (30,020) (29,163) (552) 55 1,409 1,276 Other assets (360) (227) 132 278 - - Total deferred tax liabilities (30,380) (29,390) (420) 333 1,409 1,276 Net deferred tax liability (1,419) - (1,640) 279 1,409 1,276 1 This excludes unrecognised deferred tax assets related to entities that sit outside of the tax consolidated group. These losses total $1,515,345 on a gross basis (2022: $1,636,537 gross). Australian tax losses do not expire, however, any losses carried forward to future years are subject to Australia’s loss integrity provisions. ANNUAL REPORT 2023 | 81 80 | NAMOI COTTON Tax consolidated group and tax sharing arrangements The Company and its wholly owned subsidiaries are part of a tax consolidated group (TCG) under Australian Taxation law. The Company is the head entity of the TCG. Each entity in the TCG measures its current and deferred taxes as if it is a standalone taxable entity. In addition to its own current and deferred tax amounts, the head entity in the tax consolidated group recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the TCG, subject to the satisfaction of the recognition requirements in AASB 112 Income Taxes. The Company and each of the subsidiaries in the TCG enter into tax funding and tax sharing arrangements. Under the terms of the agreement, the subsidiaries have agreed to pay (or receive) an amount to (or from) the head entity, based on the current tax liability or current tax asset of the relevant entity. Accounting policy Income Tax Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in OCI. Current Tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Deferred Tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future. Temporary differences in relation to a right- of-use asset and a lease liability for a specific lease are regarded as a net package (the lease) for the purpose of recognising deferred tax. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on the reversal of relevant taxable temporary differences. If the amount of taxable temporary differences is insufficient to recognise a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves. Deferred tax assets and deferred tax liabilities are offset only where such offset is enforceable and where the asset and liability relate to the same taxpaying entity and the same taxation authority. 1.5 Earnings per share Basic earnings per share is calculated by dividing the consolidated net profit after tax for the year by the number of ordinary shares at year end. The following reflects the income and equity data used in the basic and diluted earnings per share computations below the profit/(loss): Consolidated $’000 28 Feb 2023 Restated 1 28 Feb 2022 Consolidated profit/(loss) attributable to ordinary shares 3,963 (5,440) Earnings per share – basic (cents) 2.2 (3.3) Earnings per share – diluted (cents) 2 2.1 (3.3) Weighted average number of ordinary shares for basic EPS 182,524,724 166,467,933 Weighted number unconverted residual capital stock 1,841,273 1,843,037 Weighted average of performance rights on issue 2,047,423 595,060 Weighted average number of ordinary shares adjusted for the effect of dilution 186,413,420 168,906,030 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. 2 The impact of potential ordinary shares has not been included in the calculation of diluted earnings per share because they are antidilutive when losses are incurred. There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of authorisation of these financial statements. 2. CAPITAL MANAGEMENT The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Group manages capital through the payment of dividends and participation in the buy back or issuance of ordinary shares. Decisions on capital management are made having regard to: • the liquidity of the Group including total cash balances; • maturity of existing borrowings and future financing requirements; and • compliance with debt covenants. Accounting policy Basic earnings per share is determined by dividing the profit attributable to members, adjusted to exclude costs of servicing equity (other than distributions) by the weighted average number of shares. Diluted earnings per share is determined by dividing the profit attributable to members, adjusted to exclude costs of servicing equity (other than distributions) by the weighted average number of shares and potential dilutive shares but not including any antidilutive shares. ANNUAL REPORT 2023 | 83 82 | NAMOI COTTON 2.1 Borrowings Consolidated $’000 28 Feb 2023 Restated 1 28 Feb 2022 CURRENT Bank overdraft - 2,362 Working capital finance 2, 6 12,675 - Lease liabilities 180 411 Equipment loans 3 862 440 Cargill Australia Ltd 4 - 446 13,717 3,659 NON CURRENT Term debt 5, 6 32,602 42,453 Lease liabilities 3,403 2,196 Equipment loans 3 1,490 504 Cargill Australia Ltd 4 831 811 38,326 45,964 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. 2 Working capital facilities are both committed and uncommitted, non-amortising lines utilised to fund day to day expenses of the business including specific funding needs for cotton seed inventory and debtors, ginning consumables, and general working capital needs. 3 Equipment loans have an average term of 2.0 years (2022: 1.3) with the average interest rate implicit in the contracts of 5.01% (2022: 3.7%). These loans are secured against the value of associated property, plant and equipment with a carrying value of $2,604 thousand (2022: $1,819 thousand). 4 Cargill advance of $831,000 is the present value repayable by 31 August 2024 discounted at 6.5% pa. 5 Term debt facilities remained fully drawn as at 28 February 2023. Term debt facilities are committed, non-amortising lines utilised to fund capital projects relating to the plant, property and equipment of the business. Balance of $102,213 in 2023 ($442,658 in 2022) in excess of facility limit is due to a prior period fair value adjustment to the facility in accordance with the requirements of AASB 9 Financial Instruments. 6 In connection with the Working capital facility and Term debt, Namoi Cotton Limited’s assets and investments in joint ventures and associates are secured against these facilities. Facility Limit $’000 Consolidated Currency Nominal interest rate Financial year of maturity 28 Feb 2023 28 Feb 2022 AUD FACILITY LIMIT Bank overdraft AUD 6.88% - 5,000 5,000 Equipment finance AUD 5.01% - 2,352 944 Working capital finance 1 AUD 5.46% 2024 32,500 32,500 Term debt AUD 5.46% 2025 32,500 42,000 72,352 80,444 1 Working capital facilities are both committed and uncommitted, non-amortising lines utilised to fund day to day expenses of the business including specific funding needs for cotton seed inventory and debtors, ginning consumables, and general working capital needs. Namoi Cotton and CBA have agreed to certain financial covenants at what are considered appropriate levels to meet the needs of the business in relation to the Term debt and Working capital finance facilities. The Company forecasts the finance facilities outlined above will be sufficient to fund operations in FY24. Namoi Cotton was in compliance with all financial covenants during FY23. Details of interest rate risk, foreign exchange risk and liquidity risk are disclosed in Note 2.5. Accounting policy a) Interest bearing liabilities All interest-bearing liabilities are initially measured at fair value of the consideration received less attributable transaction costs and subsequently at amortised cost using the effective interest method. They are classified as current liabilities unless the Group has the unconditional right to defer settlement of the liability for at least twelve months after the balance date. b) Leases The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. ANNUAL REPORT 2023 | 85 84 | NAMOI COTTON 2.2 Cash and cash equivalents Consolidated $’000 28 Feb 2023 Restated 1 28 Feb 2022 Cash at bank 4,877 2,856 (a) Reconciliation to Statement of Cash Flows For the purposes of the Statement of Cash Flows, cash comprises the following items: Cash at bank and in hand 4,877 2,856 Bank Overdraft (Refer note 2.1) - (2,362) 4,877 494 (b) Reconciliation of net cash provided by operating activities to operating profit after income Operating profit/(loss) after income tax 3,963 (6,716) ADJUSTMENTS FOR: Depreciation 11,094 6,462 (Gain)/loss on sale of property, plant and equipment (3) 84 Foreign exchange (gain)/loss on equipment loans (8) 23 Share-based payments expense 59 28 Fair value increment on revaluation of ginning assets - (181) Share of (profits)/losses of associate, joint ventures and investment in NCMA (1,487) (796) 13,618 (1,096) CHANGES IN: (Increase)/decrease in trade and other receivables (7,931) 9,752 (Increase)/decrease in inventories (14,329) 6,947 (Increase)/decrease in other assets (640) 3,849 Increase/(decrease) in trade and other payables 7,917 (4,358) Increase/(decrease) in other liabilities 353 (1,286) Increase/(decrease) in provisions 64 580 Increase/(decrease) in deferred tax asset (1,419) - (15,985) 15,484 Net cash inflow/(outflow) from operating activities (2,367) 14,388 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. (c) Disclosure of non-cash financing activities Consolidated $’000 Liabilities Equity Bank overdrafts used for cash management purposes Other Loans and Borrowings Lease Liabilities Share capital Total Balance at 1 March 2022 2,361 44,654 2,608 47,984 97,607 Changes from Financing Cashflows Proceeds from loans, borrowings, and equipment finance - 32,211 - - 32,211 Proceeds from issue of share capital - - - 13,158 13,158 Repayment of loans, borrowings, and equipment finance - (28,413) - - (28,413) Payment of lease liabilities - - (416) - (416) Dividend paid - - - - - Total changes from financing cash flows - 3,798 (416) 13,158 16,540 The effect of changes in foreign exchange rates - 8 - - 8 Changes in fair value - - - - - OTHER CHANGES Change in bank overdraft (2,361) - - - (2,361) New Leases - - 1,391 - 1,391 Total liability-related other changes (2,361) 8 1,391 - (962) Total equity related other changes - - - - - Balance as 28 February 2023 - 48,460 3,583 61,142 113,185 ANNUAL REPORT 2023 | 87 86 | NAMOI COTTON Disclosure of non-cash financing activities Consolidated $’000 Liabilities Equity Bank overdrafts used for cash management purposes Restated 1 Other Loans and Borrowings Restated 1 Lease Liabilities Share capital Total Balance at 1 March 2021 227 66,159 3,053 37,639 107,078 Changes from Financing Cashflows Proceeds from loans, borrowings, and equipment finance - 31,540 - - 31,540 Proceeds from issue of share capital - - - 10,345 10,345 Repayment of loans, borrowings, and equipment finance - (53,521) - - (53,521) Payment of lease liabilities - - (445) - (445) Dividend paid - - - - - Total changes from financing cash flows - (21,981) (445) 10,345 (12,081) The effect of changes in foreign exchange rates - 23 - - 23 Changes in fair value - 453 - - 453 OTHER CHANGES Change in bank overdraft 2,135 - - - 2,135 New Leases - - - - - Total liability-related other changes 2,135 - - - 2,135 Total equity related other changes - - - - - Balance as 28 February 2022 2,362 44,654 2,608 47,984 97,607 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. Accounting policy Cash and cash equivalents includes cash on hand and in banks and investments in money market instruments readily convertible to cash within two working days, net of outstanding bank overdrafts. Bank overdrafts are carried at the principal amount. 2.3 Contributed equity Consolidated No. ’000 Consolidated $’000 28 Feb 2023 28 Feb 2022 28 Feb 2023 28 Feb 2022 1 CENT CAPITAL STOCK (FULLY PAID) 1 CENT RESIDUAL CAPITAL STOCK (FULLY PAID) Residual capital stock at the beginning of the financial year 1,843 2,098 18 21 Residual capital stock converted to ordinary shares (4) (255) - (3) Residual capital stock at the end of the financial year 1,839 1,843 18 18 ORDINARY SHARES (FULLY PAID) Ordinary Shares at the beginning of the financial year 172,105 140,556 47,984 37,639 Ordinary shares issued during the financial year 32,783 31,294 13,158 10,342 Residual capital stock converted to ordinary shares 4 255 - 3 Ordinary shares at the end of the financial year 204,892 172,105 61,142 47,984 ANNUAL REPORT 2023 | 89 88 | NAMOI COTTON At balance date, 1.8 million Residual Capital Stock had not been converted to ordinary shares. Under the terms of the Restructure in October 2017 and the Constitution of Namoi Cotton Limited the redemption of Residual Capital Stock is permitted. The conditions of such redemption include that redemption cannot occur until the earlier of a minimum of 90% of Residual Capital Stock have being converted to Ordinary Shares or the 30th June 2018. The number of residual capital stock available to redeem is expected to be immaterial given the redemption is at market price less a 10% discount, they are not entitled to any dividends, are non-transferrable and are not listed on the ASX. The Board has discretion in determining whether, and if so when, to redeem the outstanding residual capital stock. Capital stock terms and conditions (previously): • Capital stock holders are entitled to distributions as declared by the directors; • Capital stock holders have no right to vote at any general meeting of Namoi Cotton; • On winding up, capital stock holders are entitled to the proceeds from surplus assets after payment of grower paid up share capital. Ordinary shares terms and conditions: • Ordinary shareholders are entitled to dividends as declared by the directors; • Each ordinary shareholder is entitled to one vote per one share; • On winding up, ordinary shareholders are entitled to the proceeds from surplus assets. Issue of ordinary shares On 2 November 2022, 32,783,345 ordinary shares were issued at a price of $0.43 per share. Transaction costs relating to the capital raise have been directly recorded in equity and totalled $938,931. Nature and purpose of reserves Asset revaluation reserve The asset revaluation reserve is used to record increases in the fair value of ginning assets and decreases to the extent that such decreases relates to an increase on the same asset previously recognised in equity. Performance rights reserve The Group operates employee share based payment plans. The performance rights reserve is used to recognise the grant date fair value of equity-settled share-based payments provided to employees with a corresponding entry in profit or loss. Refer to note 5.2 for further information on share-based payments. 2.4 Commitments and contingencies Commitments for capital expenditure Consolidated $’000 28 Feb 2023 Restated 1 28 Feb 2022 PROPERTY, PLANT AND EQUIPMENT Estimated capital expenditure contracted for at balance date but not provided for: Payable within one year 2,114 3,677 Payable after one year but no more than five years - - 2,114 3,677 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. 2.5 Financial risk management Objectives and policies The nature of Namoi Cotton’s business involves the potential exposure to a number of risks, including: • Market risks, including fluctuation in cottonseed prices, foreign exchange rates and interest rates; • Credit risk; and • Liquidity risk. The Company’s board of directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations. The Group’s exposure to, and approach to managing, these risks is outlined below. Market Risks Market risk is the risk that changes in market prices – e.g. foreign exchange rates, interest rates and commodity prices – will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the Group’s return. Cottonseed price risk The Group is exposed to fluctuations in market prices for cottonseed. The Group manages this risk by entering into fixed price purchase and sale agreements ahead of the growing season and by adhering to physical limits in respect of its open cottonseed positions. Interest Rate Risk The Group monitors its interest rate exposure with regard to existing and forecast working capital and term debt requirements. At reporting date, the Group had the following financial assets and liabilities exposed to Australian variable and fixed interest rate risk. Consolidated $'000 28 Feb 2023 Restated 1 28 Feb 2022 FIXED-RATE INSTRUMENTS $ $ Financial Assets 122 139 Financial Liabilities (3,182) (2,202) Lease Liabilities (3,583) (2,607) (6,643) (4,670) VARIABLE-RATE INSTRUMENTS Financial Assets 5,038 2,937 Financial Liabilities (45,326) (44,814) (40,288) (41,877) 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. ANNUAL REPORT 2023 | 91 90 | NAMOI COTTON The following sensitivity analysis is based upon a reasonably possible change in variable interest rates at the reporting date, showing the resulting increase or decrease in equity or profit or loss, with all other variables held constant. The Group does not apply hedge accounting or participate in other transactions that may have an impact on equity. Therefore, there are no movements in financial assets or liabilities recorded directly through equity resulting in nil impact to the sensitivity analysis table below. Post Tax Profit Higher/(Lower) $’000 28 Feb 2023 Restated 1 28 Feb 2022 CONSOLIDATED +100 basis points (403) (419) -100 basis points 403 419 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. Foreign exchange risk Namoi Cotton has transactional currency exposures predominantly arising from some cottonseed sales being denominated in United States dollars (USD) as opposed to the Group’s functional, being Australian dollars (AUD). Foreign currency denominated financial assets and liabilities may be adversely affected by a change in foreign exchange rates. Namoi Cotton requires all net foreign exchange exposures to be managed with either forward currency contracts or foreign exchange options contracts. The Group’s policy is to enter into forward exchange contracts at the time it enters into a firm US dollar cottonseed sale commitment. At reporting date, the Group had the following financial assets and liabilities exposed to changes in the USD foreign exchange rate. Consolidated $'000 28 Feb 2023 Restated 1 28 Feb 2022 FINANCIAL ASSETS $ $ Cash and cash equivalents 1,020 1,367 Trade and other receivables 1,861 9 Derivatives 277 64 3,158 1,440 FINANCIAL LIABILITIES Trade and other payables (2,858) - Interest bearing loans and borrowings (51) (133) Derivatives (405) (52) (3,314) (185) Net Exposure (156) 1,255 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. The following significant exchanges rates have been applied. Year end spot rate Average exchange rate 28 Feb 2023 28 Feb 2022 28 Feb 2023 28 Feb 2022 USD 0.67 0.71 0.68 0.72 Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers. The carrying amounts of financial assets represent the maximum credit exposure. Refer to note 3.1 for details of the Group’s exposure to credit losses relating to receivables from customers, together with a Group’s policy in providing for expected credit losses. The Group sells a portion of its cottonseed to international counterparties. These export sales are concluded under contract and the potential risk exists for a counterparty to default on its contractual obligations and expose the Group to a financial loss. Trade receivables outstanding from international counterparties are in general settled through high-ranking credit instruments such as irrevocable letters of credit and cash against documents. In respect of its cottonseed sales to major domestic counterparties, Namoi Cotton has trade credit indemnity insurance policies for non-related parties. The Group is normally entitled to recover amounts owed by growers through an offset to cottonseed proceeds and other credits to a growers account (these amounts continue to be presented on a gross basis in the statement of financial position). The Group utilises only recognised and creditworthy third parties in respect to derivative transactions. These parties are regularly reviewed by the Board. Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s objective in managing liquidity is to maintain a balance between continuity of funding, competitive pricing and flexibility so as to ensure sufficient liquidity exists to meet all short, medium and long term financial obligations. This is achieved through the utilisation of working capital facilities, term debt and bank overdrafts. The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include contractual interest payments. Consolidated $'000 Year ended 28 February 2023 < 6 months 6-12 months 1-5 years >5 years Total Carrying Amount FINANCIAL ASSETS Cash and cash equivalents 4,877 - - - 4,877 4,877 Trade and other receivables 14,296 - - - 14,296 14,296 Derivatives 151 126 277 277 19,324 126 - - 19,450 19,450 FINANCIAL LIABILITIES Trade and other payables (13,077) - - - (13,077) (13,077) Interest bearing loans and borrowings (14,321) (4,560) (35,173) (3,179) (57,233) (52,043) Derivatives (392) (13) - - (405) (405) (27,790) (4,573) (35,173) (3,179) (70,715) (65,525) ANNUAL REPORT 2023 | 93 92 | NAMOI COTTON Consolidated $'000 Restated 1 Year ended 28 February 2022 < 6 months 6-12 months 1-5 years >5 years Total Carrying Amount FINANCIAL ASSETS Cash and cash equivalents 2,856 - - - 2,856 2,856 Trade and other receivables 6,365 - - - 6,365 6,365 Derivatives 64 3 - - 67 67 9,285 3 - - 9,288 9,288 FINANCIAL LIABILITIES Trade and other payables (6,083) - - - (6,083) (6,083) Interest bearing loans and borrowings (4,326) (11,017) (38,818) (2,547) (56,708) (49,623) Derivatives (26) (26) - - (52) (52) (10,435) (11,043) (38,818) (2,547) (62,843) (55,758) 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. Fair value hierarchy The following table shows the carrying amounts and fair value of financial assets and liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value, which includes cash and cash equivalents, trade and other receivables, trade and other payables and interest-bearing liabilities subject to variable rates. Consolidated $'000 Year ended 28 February 2023 Carrying Amount Level 1 Quoted market prices Level 2 Market observable inputs Level 3 Non-market observable CURRENT ASSETS Foreign exchange contracts 277 - 277 - Interest rate swap contracts - 277 - 277 - CURRENT LIABILITIES Foreign exchange contracts (405) - (405) - (405) - (405) - Consolidated $'000 Restated 1 Year ended 28 February 2022 Carrying Amount Level 1 Quoted market prices Level 2 Market observable inputs Level 3 Non-market observable CURRENT ASSETS Foreign exchange contracts 64 - 64 - Interest rate swap contracts 3 - 3 - 67 - 67 - CURRENT LIABILITIES Foreign exchange contracts (52) - (52) - (52) - (52) - 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. Accounting policy AASB 9 contains three principal classification categories for financial assets: Amortised Cost, Fair Value Through Other Comprehensive Income (FVOCI), and Fair Value Through Profit and Loss (FVTPL). The classification and measurement of the Group’s financial assets are as follows: • Debt instruments at amortised cost for financial assets that are held within a business model with the objective to hold financial assets to collect contractual cash flows that meet the SPPI criterion. This category includes the Group’s Cash and cash equivalents and Trade & other receivables. • Financial assets at FVTPL comprise derivative instruments. This category would also include debt instruments whose cash flow characteristics fail SPPI criterion or are not held within a business model whose objective is either to collect contractual cash flows, or to both collect contractual cash flows and sell. This category includes the Group’s Foreign exchange contracts, interest rate derivatives. At initial recognition, the Group measures a financial asset at its fair value. Measurement of cash and cash equivalents and trade and other receivables remain at amortised cost consistent with the comparative period. All loans and borrowings are initially recognised at fair value, being the amount received less attributable transaction costs. After initial recognition, interest bearing liabilities are stated at amortised cost with any difference between cost and redemption value being recognised in the statement of profit or loss over the period of the borrowings on an effective interest basis. The Group recognises gains or losses on financial liabilities, designated at inception to be measured at fair value, in profit or loss. The Group has had no material change in the credit risk of these financial liabilities during the period. Trade and other payables are recognised for amounts to be paid for goods or services received. Trade payables are settled on terms aligned with the normal commercial terms. ANNUAL REPORT 2023 | 95 94 | NAMOI COTTON Accounting policy A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non- financial assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When measuring the fair value of an asset or liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels of the fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities; • Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and • Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. Derivatives Foreign currency derivatives are classified by the Group as being measured at fair value through profit or loss (FVTPL) and are initially recognised at fair value. These assets and liabilities are subsequently remeasured at fair value with net gains and losses recognised in profit or loss within finance costs. Fair value is determined using quoted forward exchange rates at the reporting date and are classified as level 2 valuation techniques within the fair value hierarchy. Property, plant and equipment Certain classes of property, plant and equipment held by the Group are re- measured at fair value under the revaluation model in AASB 116 Property, plant and equipment. These fair value measurements use unobservable inputs and are classified within level 3 of the fair value hierarchy. Refer to note 3.3 for details of the valuation techniques applied and key assumptions used in the determination of fair value. 3. OPERATING ASSETS AND LIABILITIES 3.1 Trade and other receivables Consolidated $’000 28 Feb 2023 Restated 1 28 Feb 2022 CURRENT Trade receivables from contracts with customers 2 13,686 5,853 Less: allowance for impairment loss - - Other receivables 610 512 14,296 6,365 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. 2 Trade receivables from contracts with customers arise from sales of cottonseed, grain commodities, ginning co-products and cotton lint warehousing. These debtors are settled under a range of agreed payment terms. These debtors are non-interest bearing. The Group maintains trade credit insurance over non-related party domestic cottonseed debtors to minimise credit risk, whilst export debtors are secured through irrevocable letters of credit. Expected Credit Losses An impairment analysis is performed at each reporting date. The simplified method has been used to determine expected credit losses. In applying this method, the expected credit losses are calculated by reference to not only historical collection history but rely on forward estimations and the expected lifetime credit loss is recognised. Individual receivables are written off only upon exhaustion of all means of recovery and only with Board approval. Expected credit losses are immaterial for the Group. At balance date the ageing analysis of trade and other receivables is as follows: Consolidated $’000 28 Feb 2023 Restated 1 28 Feb 2022 UNIMPAIRED Within terms 11,317 5,403 Past Due 1 – 30 days 1,348 617 Past Due 31 – 60 days 1,030 36 Past Due 60+ days 601 309 IMPAIRED Past Due 60+ days - - Total outstanding 14,296 6,365 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. Details regarding foreign exchange and interest rate risk are disclosed in Note 2.5. The maximum exposure to credit risk is the carrying amount of the receivables less insurance recoverable. Accounting policy Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment for expected credit losses. Trade receivables are generally due for settlement within 30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. ANNUAL REPORT 2023 | 97 96 | NAMOI COTTON 3.2 Inventories Consolidated $’000 28 Feb 2023 Restated 1 28 Feb 2022 Seed cotton and moss (at cost) 222 32 Cottonseed (at cost) 13,447 2,150 Operating supplies and spares (at cost) 10,635 7,488 24,304 9,670 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. 2 Inventories expensed during the current financial year totalled $133,017 thousand (2022: $43,526 thousand). Accounting policy Inventory is carried at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. 3.3 Property plant and equipment Consolidated $’000 Ginning infrastructure Non-ginning infrastructure2 Warehouses Plant & equipment Capital works in progress Right of use assets Total Restated 1 28 February 2021 Fair value 122,358 - - - - - 122,358 Cost - 7,320 13,634 26,812 872 3,662 52,300 Accumulated depreciation and impairment - (1,440) (3,557) (18,223) - (734) (23,954) Net book value 122,358 5,880 10,077 8,589 872 2,928 150,704 MOVEMENT Transfer between asset categories 276 - - 998 (1,274) - - Additions - - - - 5,096 - 5,096 Depreciation (3,304) (195) (454) (2,078) - (431) (6,462) Disposals (414) - - (96) - (510) Revaluation Increment 4,252 - - - - - 4,252 Total Movement 810 (195) (454) (1,176) 3,822 (431) 2,376 Restated 1 28 February 2022 Fair value 123,170 - - - - - 123,170 Cost - 7,320 13,634 27,570 4,695 3,662 56,881 Accumulated depreciation and impairment - (1,635) (4,014) (20,157) - (1,165) (26,971) Net book value 123,170 5,685 9,620 7,413 4,695 2,497 153,080 MOVEMENT Transfer between asset categories 2,570 - - 3,954 (6,524) - - Additions - - - - 10,555 962 11,517 Depreciation (7,764) (195) (454) (2,273) - (408) (11,094) Disposals - - - (49) - - (49) Revaluation Increment 4,697 - - - - - 4,697 Total Movement (497) (195) (454) 1,632 4,031 554 5,071 28 February 2023 Fair value 122,673 - - - - - 122,673 Cost - 7,320 13,634 30,366 8,726 3,358 63,404 Accumulated depreciation and impairment - (1,830) (4,468) (21,321) - (307) (27,926) Net book value 122,673 5,490 9,166 9,045 8,726 3,051 158,151 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. 2 The carrying value of ginning infrastructure that would have been recognised had these assets been held under the cost model is $64,112 thousand (2022: $63,940 thousand). ANNUAL REPORT 2023 | 99 98 | NAMOI COTTON Measurement of fair values Revaluation of Ginning infrastructure Effective 29 February 2012, the Group changed its accounting policy for the measurement of ginning infrastructure from deemed cost to fair value. The methodology used in determining the fair value of the relevant ginning assets was the Discounted Cash Flow (DCF) approach. The DCF method provides a valuation based on the formulation of projected future cash flows over a ten-year period (plus a terminal value), which was then discounted at an appropriate independently assessed discount rate. Cash flows included in the DCF model are intended to represent a market participants long term view of the margin to be generated by the gin assets. Effective 28 February 2022 an independent valuation of the ginning assets was commissioned by the Group to provide external support for the Directors assessment of fair value for financial reporting purposes. CBRE Australia (“CBRE”) were engaged for this purpose. The methodology applied by CBRE to value the ginning assets was a discounted cash flow model that applied a pre-tax discount rate of 14.00% (implied multiple of 7). In compiling the Directors assessment of fair value for the period ended 28 February 2023, The Group engaged an independent expert to calculate the pre-tax discount rate to be used in the discounted cashflow model. A pre-tax discount rate of 14.64% has been adopted in 2023. The fair value measurement of ginning assets outlined above uses significant unobservable inputs and are classified as level 3 in the financial reporting fair value measurement hierarchy. Significant unobservable valuation inputs as at 28 February 2023 included: • Sustainable bales – 783,000 bales p.a. (2022: 793,500 bales p.a.). The annual sustainable ginning bales have been included following a gin by gin assessment of production areas, seasonal rotation, estimated yields and reliability of contracting and the impact of competition. The measure is inclusive of Namoi’s respective shares of throughputs of the joint venture cotton gins and forms the baseline of the discounted cashflow. The number approximates the average number of bales achieved over the last 10 years, noting that individual seasons can fluctuate significantly dependent upon water availability; • Growth rate (including terminal) – revenues 2% (2022 – 2.00%); • Growth rate (including terminal) – expenses 2% (2022 – 2.00%); • Pre-tax discount rate 14.64% (2022 – 14.00%). The nature of the model makes it highly sensitive to small changes in underlying assumptions. Increases/(decreases) in sustainable bales volumes, changes to EBITDA from ginning revenue per bale, or throughput rate (production cost impact) or changes to the discount rate, in isolation, would result in a significantly higher/(lower) fair value. Based on the above fair value methodology there were a number of increments and decrements (reversals of prior period increments) adjustments posted to the asset revaluation reserve at year end. In addition, where the reversal of a prior period decrement that impacted the profit or loss was identified the resulting reversal was posted to the profit and loss statement as a reversal of a prior period fair value decrement. Accounting policy Cost and valuation Ginning infrastructure Ginning infrastructure assets are measured at fair value less accumulated depreciation and any impairments recognised after the date of revaluation. Valuations are performed frequently to ensure that the fair value of revalued assets does not differ materially from its carrying value. Any revaluation surplus is recorded in other comprehensive income and hence, credited to the asset revaluation reserve in equity (less the income tax effect), except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the statement of comprehensive income, in which case, the increase is recognised in the statement of comprehensive income. A revaluation deficit is recognised in the statement of comprehensive income, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve. Upon disposal or derecognition, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Non-ginning infrastructure, Warehouses, Plant & equipment Other assets are carried at cost less accumulated depreciation and any accumulated impairment losses. Depreciation Ginning infrastructure assets Ginning infrastructure assets are depreciated on a units of production basis over their rolling estimated remaining useful lives of 20 years of sustainable bales (2022: 20 years). Non-ginning infrastructure, Warehouses, Plant & equipment All other property, plant and equipment, other than freehold land, is depreciated on a straight-line basis at rates calculated to allocate the cost less estimated residual value at the end of the useful lives of the assets against revenue over their estimated useful lives. Major depreciation rates are: Non-ginning infrastructure and warehouse assets • 20 years (2022: 20 years) Other assets • 3 to 44 years Right of use assets Right of use assets are recorded as part of property, plant and equipment. Refer to note 2.1 for details of the related accounting policy for Leases and related right of us assets. Impairment At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Disposal An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income in the year the asset is derecognised. ANNUAL REPORT 2023 | 101 100 | NAMOI COTTON 3.4 Trade and other payables Consolidated $’000 28 Feb 2023 Restated 1 28 Feb 2022 CURRENT Trade creditors and accruals 12,974 5,188 Customer deposits 103 895 13,077 6,083 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. 3.5 Provisions Consolidated $’000 28 Feb 2023 Restated 1 28 Feb 2022 CURRENT Employee leave entitlements 1,968 1,685 Employee variable compensation 555 500 Provision for redundancy - 265 2,523 2,450 NON-CURRENT Employee leave entitlements 167 177 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. Accounting policy Liabilities for trade creditors and accruals are non-interest bearing and are measured at amortised cost, using the effective interest method. Accounting policy Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include variable compensation arrangements, annual leave, sick leave and long service leave. Liabilities which are expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the interest rates attaching to high quality corporate bonds that have terms to maturity approximating the terms of the related liability are used. 4. GROUP 4.1 Information relating to Namoi Cotton Limited (the parent) Parent $'000 28 Feb 2023 28 Feb 2022 Current assets 76,495 52,356 Total assets 214,096 185,949 Current liabilities 26,977 9,512 Total liabilities 85,128 74,374 Issued capital 61,142 47,984 Retained losses (8,512) (9,400) Asset revaluation surplus 76,242 72,954 Share rights reserve 96 37 128,968 111,575 Profit/(loss) of the Parent entity 888 (5,801) Total comprehensive income of the Parent entity 3,287 2,888 4.2 Investment in Namoi Cotton Marketing Alliance Namoi Cotton Marketing Alliance “NCMA” is an unincorporated joint arrangement and its principal activities are the marketing and trading of lint cotton bales to both domestic and export markets. NCMA’s principal place of business is Suite 1, 13 Kitchener Street Toowoomba, QLD 4350. The Group has a 15% interest in NCMA through its subsidiary, Namcott Marketing Pty Ltd. NCMA is structured as a partnership and the participants to the Joint Venture Agreement (the Agreement) own the assets as tenants in common in proportion to their participating interest. However, in the event that NCMA requires additional funding, the Group’s liability is limited to the lesser of 15% of the required funding; and $1.5m, in any one financial year. The Group’s partner in NCMA has primary responsibility for ensuring NCMA’s operations are adequately funded and the Group has not provided any security, guarantee or indemnity for NCMA’s funding. In return for limiting the Group’s exposure to losses and funding in NCMA to $1.5m, the Group’s participation in the profits of NCMA are restricted to the lesser of 15% and $1.5m in any one financial year. In determining the accounting policy for the Group’s interest in NCMA, the following factors have been considered: • The Group has significant influence in the NCMA arrangement through its 33% voting rights on the governing committee and its relationship with the cotton growers (no joint control exists). • The effect of the capping mechanism in the Agreement that limits the Group’s rights to profits and exposure to losses to a maximum of $1.5m in any one financial year. This capping mechanism significantly restricts the Group’s right to participate in the trading profits of NCMA (and limits exposure to trading losses), notwithstanding their 15% participating interest. • In the event that NCMA’s assets are insufficient to meet NCMA’s obligations, the limitation of the Group’s exposure to any additional funding in any one financial year is $1.5m. • On wind up of NCMA’s operations, if there are assets remaining after satisfaction of all remaining liabilities, the Group has a right to its 15% participating interest in the remaining assets. ANNUAL REPORT 2023 | 103 102 | NAMOI COTTON $’000 28 Feb 2023 Restated 1 28 Feb 2022 Revenue 676,488 242,992 Depreciation and Amortisation - - Interest Expense (6,958) (1,946) Profit/(loss) before income tax expense 42,950 2,447 Income tax expense 2 - - Net profit/(loss) 42,950 2,447 Namoi Cotton limited share of net profit/(loss) from investment in NCMA 1,488 414 Distributions received from Namoi Cotton Marketing Alliance (1,481) (117) For the year ended 28 February 2023, the Group’s interest in the net profit of NCMA was capped at $1,500,000 (2022: 15% interest in net profit) CURRENT ASSETS Cash and cash equivalents 9,446 6,844 Financial assets (excl. trade receivables) 27,651 26,389 Inventory 29,084 2,792 Other assets 62,668 150,724 CURRENT LIABILITIES Financial liabilities (excl. trade payables and provisions) (63,009) (36,977) Other (15,895) (138,269) NON-CURRENT LIABILITIES Financial liabilities (excl. trade payables and provisions) (5,195) (9,053) Other (25) (20) Net assets 44,725 2,430 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. 2 The Joint arrangement is a partnership for tax purposes accordingly is not a taxable entity. The net assets of NCMA primarily represent undistributed profits due to the Group’s partner in NCMA. The NCMA distribution of profits is finalised subsequent to the preparation of audited financial statements by NCMA. NAMOI COTTON LIMITED INTEREST IN NCMA Balance at beginning of year 248 (49) Share of results in NCMA 1,488 414 Distribution received from NCMA (1,481) (117) Balance at end of year 255 248 4.3 Investments in associates and joint ventures using the equity method Consolidated $’000 28 Feb 2023 Restated 1 28 Feb 2022 Investment in joint ventures – NC Packing Services Pty Ltd (1,313) (1,312) Investment in associates – Kimberley Cotton Company Limited 1,414 - Net investment in associates and joint ventures 101 (1,312) (a) Ownership interest Balance Date % Ownership interest held by consolidated entity 28 Feb 2023 28 Feb 2022 Investments in associates and joint ventures NC Packing Services Pty Ltd (NCPS) 28 February 51% 51% Kimberley Cotton Company Limited (KCC) 28 February 20% - 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. NCPS is a joint venture in which the Group has a 51% ownership interest, however, the Group has joint control over NCPS due to the terms of the Joint Venture Agreement which requires joint approval of the annual operating plan. NCPS is one of the Group’s strategic supply chain managers and is principally engaged in containerised commodity packing of cottonseed, coarse grains and pulses. The NCPS joint venture participants have indemnified each other against any and all joint venture liabilities in proportions equal to their participating interest at the time they are incurred. KCC is an associate in which the Group holds a 20% ownership interest. The Group entered into agreement with KCC on 12 September 2022 to project manage construction and operate a new cotton gin at Kununurra, WA. The investment recorded represents the Group’s capital contribution as part of this agreement. The country of incorporation and principal place of business for all joint ventures and associates is Australia. Consolidated $’000 28 Feb 2023 Restated 1 28 Feb 2022 (b) Share of Investments in associates and joint venture entities: (i) Carrying amount of investments in joint ventures- NC Packing Services Pty Ltd: Balance at the beginning of the financial year (1,312) (1,693) Share of profits/(losses) of joint venture (1) 381 (ii) Carrying amount of investments in associates- Kimberley Cotton Company Limited: Balance at the beginning of the financial year - - Capital contribution 1,414 - Carrying amount of investments in associates and joint ventures at the end of financial year 101 (1,312) 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. Based on the above, the Group’s rights to the net profits/losses of NCMA are presented separately in the Statement of Profit or Loss and Other Comprehensive Income and the rights to net assets are presented separately on the Statement of Financial Position. The following table provides a summarised statement of profit and loss and statement of financial position for Namoi Cotton Marketing Alliance reconciled to the amounts recognised by the Group: ANNUAL REPORT 2023 | 105 104 | NAMOI COTTON Accounting policy Investment in associates and joint ventures An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Group’s investments in its associate and joint venture are accounted for using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The statement of profit or loss reflects the Group’s share of the results of operations of the associate or joint venture. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture. The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on the face of the statement of profit or loss within share of profit/(loss) of associates and joint ventures and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture. The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and it’s carrying value, then recognises the loss as Impairment – joint venture in the statement of profit or loss. Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. 4.4 Interest in joint operations (a) Ownership interest Balance Date % Ownership interest held by consolidated entity 28 Feb 2023 Restated 1 28 Feb 2022 Namoi Cotton Alliance (NCA) 28 February 51% 51% Wathagar Ginning Company (WGC) 30 June 50% 50% Moomin Ginning Company (MGC) 30 June 75% 75% 1 Refer to note b) in the significant accounting policies for an explanation of the restatement of comparatives. The Group has joint control over the above entities due to the requirement for unanimous decision making over the relevant activities of these operations under the terms of the respective joint venture agreements. (b) Principal activities The joint operations of WGC and MGC provide ginning services to cotton growers in their respective catchment areas. NCA provides warehousing and logistics services to support cotton lint marketing customers. The principal place of business for all joint operations is Australia. (c) Impairment No assets employed in the jointly controlled operation were impaired during the year (2022: $nil). 4.5 Interest in jointly controlled assets The Group holds a 40% joint ownership interest in the cottonseed handling and storage facilities at Mungindi, NSW with a book carrying value of $2.23m at 28 February 2023 (2022: $2.04m). The Group pays for its proportion of the operating costs of the facility. There were no material contingent liabilities or capital expenditure commitments in respect of jointly controlled assets at balance date. 4.6 Related party transactions The consolidated financial statements include the financial statements of Namoi Cotton Limited and the subsidiaries listed in the following table. All subsidiaries were incorporated in Australia. Namoi Cotton Limited is the ultimate parent entity of the Group. Accounting policy The Group consolidates its share of joint operations as disclosed in the consolidation accounting policy. Refer to the summary of significant accounting policies within this report. ANNUAL REPORT 2023 | 107 106 | NAMOI COTTON Ownership and investment Equity Interest % Name of entity 28 Feb 2023 28 Feb 2022 Australian Classing Services Pty Ltd 100% 100% Australian Raw Cotton Marketing Corp. Pty Ltd 100% 100% Namcott Investments Pty Limited 100% 100% Namcott Marketing Pty Ltd 100% 100% Namoi Cotton Commodities Pty Ltd 96% 96% Namoi Cotton Finance Pty Ltd 100% 100% Cotton Trading Corporation Pty Limited 100% 100% Principal activities: • Namcott Investments Pty Ltd, a subsidiary of Namoi Cotton, was the beneficial owner of the interests in previous partnerships. This entity is now non-trading. Namcott Investments Pty Ltd is incorporated in Australia. • Namcott Marketing Pty Ltd, a subsidiary of Namoi Cotton, is the beneficial owner of the interests in NCPS shares and the NCA and NCMA Partnerships. Namcott Marketing Pty Ltd is incorporated in Australia. • Namoi Cotton Finance Pty Ltd holds funding for the Group. Namcott Finance Pty Ltd is incorporated in Australia. • Namoi Cotton Commodities Pty Ltd is a dormant entity and, as a result, no non-controlling interests have been recognised. Namoi Cotton Commodities Pty Ltd is incorporated in Australia. • Cotton Trading Corporation Pty Limited is controlled by Namcott Investments Pty Ltd. Cotton Trading Corporation Pty Limited is incorporated in Australia. • Australian Raw Cotton Marketing Corp Pty Ltd is a non-trading company. Australian Raw Cotton Marketing Corp Pty Ltd is incorporated in Australia. • Australian Classing Services Pty Ltd trading activities are mainly the provision of classing services. Australian Classing Services Pty Ltd is incorporated in Australia. Related party transactions and balances Consolidated Name of entity 28 Feb 2023 $ 28 Feb 2022 $ a) Transactions with related parties Management fees received from NCMA inclusive of lint handling fees 1,092,573 961,597 Payments to NC Packing Services Pty Ltd in relation to cottonseed logistics services 8,602,010 2,186,462 Revenues derived by NCA in relation to cotton lint warehousing and logistics from NCMA 12,172,982 3,681,952 b) Balances outstanding from related parties Current receivables from NCMA 10,931 73,290 Current payables to NCMA 572,008 - Current payables to NC Packing Services Pty Ltd 105,322 - Current receivables owed to NCA from NCMA 614,093 124,465 Transactions with NCMA, NCPS and NCA are on a cost-plus margin basis and are subject to the Group’s normal credit terms. No provisions or expenses relating to doubtful debts have been recorded in relation to this related party. The Group has no commitments with this related party. Transactions with Key Management Personnel c) Key Management Personnel Compensation Consolidated Name of entity 28 Feb 2023 $ 28 Feb 2022 $ Short-term 1,233,740 1,840,266 Post employment 103,129 210,991 Other long-term benefits including share-based payments 47,934 33,744 Termination benefits - 54,119 1,384,803 2,139,120 Compensation of the Group’s Key Management Personnel includes salaries and non-cash benefits and contributions to the employee’s superannuation fund. Refer to note 5.2 for details of the treatment of these share-based payments. d) Marketing and ginning transactions and balances with Key Management Personnel A number of Key Management Personnel (KMP), or their related parties, hold positions in other entities that result in them having control, or joint control, over the financial or operating policies of those entities. A number of these entities transacted with the Group during the year. The terms and conditions of the transactions with KMP and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis. Amounts paid/received or payable/receivable from/to directors and their respective related parties were as follows: Consolidated Cotton Purchases (From) Other Services (to) Ginning Charges Levied (to) Seed sales (to) Grain & Seed Purchases (from) 28 Feb 2023 28 Feb 2022 28 Feb 2023 28 Feb 2022 28 Feb 2023 28 Feb 2022 28 Feb 2023 28 Feb 2022 28 Feb 2023 28 Feb 2022 $542,752 $3,540,970 $11,958 $59,842 $189,334 $578,234 $70,100 - $273,451 $593,210 There were no outstanding balances at the beginning or end of the period. No expense has been recognised in the current year or prior year for bad or doubtful debts in respect of amounts owed by related parties. ANNUAL REPORT 2023 | 109 108 | NAMOI COTTON 5. ADDITIONAL NOTES 5.1 Remuneration of auditors Consolidated $ 28 Feb 2023 28 Feb 2022 KPMG (2022: ERNST & YOUNG) $ $ Fees for auditing the statutory financial report of the Group 245,000 267,463 Fees for auditing the statutory financial report of joint operations 19,125 44,625 264,125 312,088 5.2 Share based payments Namoi Cotton Limited Equity Plan Under the Namoi Cotton Limited Equity Plan (“the Plan”), approved by the Board on 21 June 2020 and ratified at the 2020 AGM on 29 September 2020, performance rights of the parent can be granted to employees and non-executive directors of the parent company. The Board has resolved that non-executive Directors will not participate in the plan. The exercise price of the performance rights is a price determined by the directors in their absolute discretion. The performance rights vest if and when the conditions (market and non-market) set out at the time of granting are met and are within the rules of the Plan. Performance rights are considered to be equity-settled share based payments as the Group’s intention is to settle these arrangements through the issue of ordinary shares in the Company. Upon vesting, performance rights can be exercised on a one-for-one basis with ordinary shares. Performance rights were issued under the Plan during the 2021, 2022 and 2023 financial years. These rights issues were each subject to a three year service period as well as non-market vesting conditions associated with workplace related injuries and market vesting conditions based on achievement of Total Shareholder Return (TSR) against an absolute hurdle level determined by the Board. Market and non-market vesting conditions are tested over a specified performance period. Movements during the year The following table illustrates the number of, and movements in, performance rights during the year: 2023 Number 2022 Number Outstanding at 1 March 1,563,257 595,060 Granted during the year 853,247 968,467 Cancelled during the year - - Exercised during the year - - Lapsed during the year 1 (224,551) - Outstanding at 28 February 2,192,223 1,563,257 Vested and exercisable at 28 February 1 205,838 - 1 Performance rights awarded in FY2021 to the CEO and one other Executive reached their vesting date on 28 February 2023. The performance hurdle rate for Total Shareholder Return (TSR) was not met and the CEO’s performance rights did not vest and hence lapsed. The Directors exercised their discretion to confirm that the FY2021 performance rights issued to the other Executive did vest on 28 February 2023, despite the performance hurdle rate not being met The weighted average remaining contractual life for the performance rights outstanding as at 28 February 2023 was 1.5 years (2023: 3 years). The weighted average fair value of rights granted during the year was $0.1982 (2022: $0.036). The weighted average exercise price on vesting for rights outstanding at the end of the year was $nil (2022: nil). The following tables list the inputs to the models used for determining the fair value of performance rights issued during the current and prior financial years which are those that remain on issue at 28 February 2023: Performance rights issued FY2023 Performance rights issued FY2022 Performance rights issued FY2021 GRANT DATE 5 August 2022 28 February 2022 28 February 2021 Rights granted 853,247 968,467 1,493,263 Fair value at grant date $0.1982 $0.0360 $0.0060 Share price on grant date $0.4625 $0.3750 $0.3050 Dividend yield (%) 1.1% 0% 0% Annualised volatility (%) 47.5% 11% 24% Risk-free interest rate (%) 2.83% 2.94% 1.00% Expected life of performance rights (years) 2.57 3.00 2.21 TSR Hurdle (CAGR) 15% 15% 15% Conclusion of performance period 28 February 2025 28 February 2024 28 February 2023 Model used Monte Carlo Black Scholes Black Scholes The expected life of the performance rights is based on the time between the grant date and their vesting date and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the performance rights is indicative of future trends, which may not necessarily be the actual outcome. 5.3 Significant events after balance date No events of a material nature have occurred between balance date and the date of this report. Accounting policy The grant-date fair value of equity-settled share-based payment arrangements granted to employees is generally recognised as an expense, with a corresponding increase in the performance rights reserve, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with market performance conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true- up for differences between expected and actual outcomes. ANNUAL REPORT 2023 | 111 110 | NAMOI COTTON ADDITIONAL INFORMATION For the year ended 28 February 2023: The shareholder information set out below was applicable as at 6 April 2023. Distribution of Equitable Securities Analysis of number of equitable security holders by size of holding. Quoted Equity Securities Namoi Cotton Limited Range of Units as of 6/04/2023 Fully paid ordinary shares (Total) Range Total Holders Units % of Units 1-1000 313 67,687 0.03 1001-5000 364 1,022,672 0.50 5001-10000 184 1,450,547 0.71 10001-100000 452 16,635,161 8.12 100001 and over 345 185,718,454 90.64 Rounding - - - Total 1,658 204,894,521 100.00 Unmarketable parcels Minimum parcel size Holders Units 1,191 337 93,809 Unquoted Equity Securities Namoi Cotton Limited Range of Units as of 6/04/2023 Conversion Group – RCS and RCE Compositions: RCE, RCS Range Total Holders Units % of Units 1-1000 69 29,709 1.62 1001-5000 165 461,599 25.14 5001-10000 45 357,126 19.45 10001-100000 49 987,570 53.79 100001 and over - - - Rounding - - - Total 328 1,836,004 100.00 Unmarketable parcels Minimum parcel size Holders Units Minimum $500.00 parcel cannot be calculated due to no price attached to unquoted securities. Equity Security Holders Twenty largest quoted security holders as of 6/04/2023 The names of the twenty largest security holders of quoted equity securities are listed below: Namoi Cotton Limited Fully paid ordinary shares (Total) Top holders (Grouped) as of 06 April 2023 Composition: FP RANK NAME UNITS % UNITS 1 JP MORGAN NOMINEES AUSTRALIA LIMITED 32,983,769 16.10% 2 LOUIS DREYFUS COMPANY ASIA PTE LTD 20,277,438 9.90% 3 LOUIS DREYFUS COMPANY ASIA PTE LTD14,611,540 7.13% 4 SAMUEL TERRY ASSET MANGEMENT PTY LTD AS TRUSTEE FOR SAMUEL TERRY ABSOLUTE RETURN FUND 11,942,157 5.83% 5 JVH COTTON PTY LIMITED 5,068,087 2.47% 6 BNP PARIBAS NOMINEES PTY LTD 3,230,624 1.58% 7 RED PEPPERCORNS PTY LTD 2,100,485 1.03% 8 RATHVALE PTY LIMITED 1,734,719 0.85% 9 BOND STREET CUSTODIANS LIMITED 1,656,039 0.81% 10 G CHAN PENSION PTY LIMITED 1,482,634 0.72% 11 PRIME GRAIN PTY LTD 1,433,134 0.70% 12 MR ALBERT JOHN PANIZZA + MS KIM DIANNA BROADFOOT 1,335,350 0.65% 13 CITICORP NOMINEES PTY LIMITED 1,270,593 0.62% 14 RNT ENTERPRISES PTY LTD 1,260,244 0.62% 15 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 1,182,071 0.58% 16 AGRICO INVESTMENTS PTY LIMITED 1,167,565 0.57% 17 AGRICO PTY LTD 1,118,531 0.55% 18 MR IAN WILTON + MS SHARON LAWLER FROOME 1,025,873 0.50% 19 AVENUE 8 PTY LIMITED 1,022,148 0.50% 20 DR EWAN RODERICK NIXON 1,001,000 0.49% Totals: Top 20 holders of FULLY PAID ORDINARY SHARES (total) 106,904,001 52.20% Total remaining holders balance 97,987,487 47.82% The number of shares held by substantial shareholders in the Company, as disclosed in substantial holding notices given to the Company at 6 April 2023: Shareholder No. of shares Percentage of shares held at date of notice Date of notice Samuel Terry Asset Management Pty Ltd 44,272,250 21.6% 21 November 2022 Louis Dreyfus Company Asia Pte. Ltd 33,610,721 16.40% 2 February 2023 ANNUAL REPORT 2023 | 113 112 | NAMOI COTTON Voting Rights The voting rights attached to ordinary shares are set out below: Ordinary shares On a show of hands every member present at the meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Holders of unquoted equity securities do not hold voting rights. There are no other classes of equity securities. CORPORATE OFFICE 259 Ruthven Street Toowoomba QLD 4350 (07) 4631 6100 NAMOI COTTON GINS North Bourke Cotton Gin Wanaaring Road Bourke NSW 2380 (02) 6872 1453 Wathagar Cotton Gin (Namoi Cotton/Sundown Pastoral Co Pty Ltd Joint Venture) Collarenebri Road Moree NSW 2400 (02) 67 525 200 MacIntyre Cotton Gin Kildonan Road Goondiwindi QLD 4390 (07) 4671 2277 Mungindi Cotton Gin Bruxner Road Mungindi NSW 2406 (02) 6753 2145 Moomin Cotton Gin (Namoi Cotton/ Harris Joint Venture) Merrywinebone Via Rowena NSW 2387 (02) 6796 5102 Boggabri Cotton Gin Blairmore Road Boggabri NSW 2382 (02) 6743 4084 Merah North Cotton Gin Middle Route Merah North NSW 2385 (02) 67 955 124 Yarraman Cotton Gin Kamilaroi Highway Wee Waa NSW 2388 (02) 67955 196 Trangie Cotton Gin Old Warren Road Trangie NSW 2823 (02) 68 889 729 Hillston Cotton Gin Roto Road Hillston NSW 2675 (02)69 672 951 OTHER JOINT VENTURES Namoi Cotton Alliance MacIntyre Warehouse Kildonan Road Goondiwindi QLD 4390 (07) 46 711 449 Wee Waa Warehouse Pilliga Road Wee Waa NSW 2388 (02) 67 903 139 Namoi Cotton Marketing Alliance Corporate Office Suite 1 13 Kitchener Street Toowoomba QLD 4350 AU-NCMA-COTTON@ namoicma.com.au ANNUAL REPORT 2023 | 115 114 | NAMOI COTTON WWW.NAMOICOTTON.COM.AU namoi.cotton.ltd namoicottonlimited