Agribusiness group Futuris is changing its name, revamping its business to generate more cash; but will incur more losses in doing so.
The company said in an update to the market and a letter to shareholders that the underlying loss may be about $9 million in the six months to December 31.
The company indicated that a net topline loss of net loss of $176.3 million for the December half, compared with net income of $27.5 million a year earlier.
It may have a full-year net loss of $110.1 million, compared with net income of $36.4 million in fiscal 2008, which was a depressed year with poor sales from its forestry managed investment business, OTC.
It cut its full-year forecast for underlying profit after tax to $60 million.
The changes follow a change of CEO earlier in the year with Malcolm Jackman taking over in September.
Futuris will also change the company’s name to Elders Ltd, as its rural unit, its biggest earner, is known.
It will take $204 million in one-time charges or write-downs, which is expected to be offset by asset sales of $350 million, including its stake in Australian Agricultural Co.
Those asset sales will happen, but given the state of credit and equity markets, it’s hard to see them happening quickly.
In the letter to shareholders, the company said:
"The Agenda for Change announced today incorporates one-off impairment charges or write-downs for 8 non-core businesses or assets as the Company implements its strategy of focusing on its core Elders agricultural services businesses," it said in an update statement to the ASX.
"Impairments and write-downs anticipated for the FY09 accounts and announced today total a net $204 million after tax.
"This is expected to be offset to a large degree by the gain realised on the sale of the company’s shareholding in Australian Agricultural Company which is currently the subject of an ongoing sales process. In addition, anticipated non- recurring items totalling a charge of $56.4 million after tax have been announced
"The revised earnings expectation takes into account the anticipated impact of market conditions on its Financial Services, Forestry and Automotive operations and a stronger projected uplift in performance from Elders Rural Services, which has just completed the second stage of its Business Transformation Project.
"Underlying (prior to non-recurring items and impairments) EBIT for the twelve months to 30 June 2009 (FY09) is now expected to approximate $136 million. FY09 underlying profit after tax to shareholders is forecast to approximate $60 million."
"The expectation of a lower full year contribution from Elders Financial Services, ITC and Futuris Automotive due to current and expected economic conditions.
"Futuris Automotive (which has been affected by reduced passenger vehicle production) and ITC (lower MIS sales and timber demand) are expected to account for most of the movement.
"Elders Rural Bank is anticipating a net profit after tax result in line with the $41 million recorded in FY08. Insurance operations are expecting to maintain gross written premium growth but be adversely affected by reduced interest income and tighter margins brought by recent financial market events.
"The strong improvement in the full year contribution anticipated from Elders Rural Services, driven by benefits from the Business Transformation project.
"Annualised cost savings of $30 million (10% of total Elders Rural Services costs) arising from the project were announced today in the Agenda for Change presentation.
"An EBIT contribution of approximately $86 million is anticipated from Elders Rural Services.
"However the company has identified that realisation of additional gains deliverable in the current year, which if realised, could see Elders Rural Services achieve an underlying EBIT contribution of up to $104 million for FY09.
"Net interest expense is expected to be approximately 5% lower than that recorded in the 2008 financial year."
Futuris shares eased 5 cents to 78 cents on the ASX.
Elders is Futuris’s biggest earner, has 400 stores across Australia selling insurance, fertilizer, livestock, wool, property, fertilizer and farm merchandise.
It also operates Elders Rural Bank Ltd., a joint venture with the Bendigo and Adelaide Bank Ltd.
The biggest asset for sale is its 43% stake in Aust Ag. It has been on the market for a while with no takers.
It’s worth around $160 million at the moment. Without a speedy sale of that holding, the rest of the revamp might become unbalanced. Futuris is looking for a $90 million profit on the sale.
After the sales, Elders will operate three units including rural services, financial services and forestry and timber.
The company also plans to change its financial year to end at September 30 instead of June 30.
