No Australian Agricultural Co contributions (for what they were worth), the bush is not as vibrant as previously thought; the car parts business is a disaster and the managed investment scheme business is under renewed pressure; so in a way it’s no wonder Elders Ltd has revised down its earnings guidance for the second half and full year.
As we have seen from the results earlier this month from Incitec Pivot, fertiliser and chemical prices are weak as well, even though companies like GrainCorp say their earnings will be higher because of the improved grain crops.
The company, formerly known as Futuris, says it now expects to report an underlying net loss for 2008-09.
It’s the second time in as many years (last year it was in its previous Futuris guise) that the company has issued a downgrade in May.
Elders says it is now expecting a full year loss of between $5 million and $15 million, after an underlying net profit of $7 million to $17 million in the second half.
The shares tumbled as a result, closing down 9.6% at 33c, a fall of 3.5c on the day.
Chief executive Malcolm Jackman said in a statement the revised guidance was due to a "very challenging business climate brought by the drop in fertiliser and chemicals prices and the general uncertainty in rural service markets since December".
"Across the rural services sector we have seen the effect of a double whammy of reduced demand and falling prices in the period," he said in yesterday’s statement to the ASX.
"The scale of these movements and the financial impact has been substantial.
"Elders is not totally immune to market events and we have been hit during our peak earnings period."
"Forecasts for the period to 30 June are conditional, given the variability that can occur in Rural Services’ earnings until a seasonal break is fully established and as the large majority of MIS sales occur in the two weeks to 30 June.
"The forecasts have been subject to an independent external review conducted as part of the refinancing process," the company said.
Managed Investment Schemes (MIS) were hammered a year ago by the slump in stockmarkets and fears about financial problems, plus huge losses among investors and others who would normally look to shelter profits in MIS type schemes.
This year it’s the collapse of Timbercorp last month and Southern Plantations at the weekend, with debts between them of over $1.4 billion, and plenty of bad publicity, that will hurt Elders’ MIS business this year.
"Results for the year to date reflect prior year MIS sales and lower earnings from timber operations due to reduced demand in domestic and international markets.
"Underlying results for the 12 months to June will be materially influenced by the level of MIS sales achieved and equity accounted income arising from the Company’s shareholding in Forest Enterprises Australia.
"As MIS sales are overwhelmingly concentrated in the month of June, it is too early to predict the ITC result with confidence. MIS sales to date are running ahead of that recorded at this time in 2008.
“ITC’s conservative approach may have cost it market share in 2008 but ITC is going into the 2009 MIS sales season whilst others have had to withdraw – and it will do so with a product that has the alignment with grower interests that investors are now seeking.”
But not a mention of the failures of Southern and Timbercorp and the potential that has to damage ITC’s business as the end of the tax year approaches.
However, the company expects to see a rebound in earnings in fiscal 2010, and further growth in the subsequent financial years and added that that that outlook was backed up by independent analysis.
Elders said it was comfortable with the current range of market expectations for an underlying net profit of $43 million to $73 million and earnings before interest and tax of $97 million to $135 million in fiscal 2010.
Mr Jackman said that the outlook for fiscal 2010 onwards was "very positive".
"The analysis has affirmed our expectation of a good rebound in 2010 and that ongoing growth can be anticipated as the agenda for change and Elders transformation project are advanced," he said.
Elders said its cash position was strong, at more than $300 million, including unrestricted cash exceeding $100 million, as of Monday.
Its cash position is expected to strengthen in the period to year end, following the receipt of $33 million from settlement of the recent sale of a 10% stake in Elders Rural Bank.
Net debt at June 30 this year is forecast at about $800 million.
"The Company’s net debt outlook is subject to seasonal conditions and cropping expenditure and MIS sales in the period to 30 June.
"Results to 30 April suggest that, subject to these qualifications, that net debt at 30 June will be approximately $800 million compared with $959 million as at 31 December.
"The net debt estimates includes anticipated total cash of approximately $350 million, including restricted cash of approximately $200 million.
"The cash forecast includes a total of $120 million from the release of capital through the divestment of the Company’s final 19.9% stake in AAco and the reduction in its shareholding in Elders Rural Bank to 40%," Elders said in its statement.
Elders also said it plans to refinance existing multi-opti
