It is significant that in yesterday’s very weak market, investors found time to read and appreciate the signs that the embattled Elders seems to be making its way out of the mire.
The company’s shares were firmer after it reported another loss for another six month period and they ended up 4.8%, or 5c at $1.09, in a market that was down almost 3% for the day.
At one stage in trading. Elders’ shares were up more than 10% at $1.15.
That was after Elders reported a $165 million first half loss, but that in turn was better than its previous first half.
The latest first half net loss compares well with the huge $328.8 million loss in the previous corresponding period.
And the company’s board and managers were confident enough to forecast a continuing improvement in earnings in the second half.
Elders is now down to being a rural services and automotive interiors manufacturer. It has reduced the importance of the troublesome managed investment scheme business and wound reduced its investment in the timber sector at the same time.
It said yesterday that it saw an improved performance across its operations in the six months to March 31, and there was a "very real sense" its turnaround plans were gaining traction.
Included in the latest first half result is $167 million in non-recurring items, mainly related to asset reviews and write-downs in its forestry operations (mostly Forestry Enterprises Australia which collapsed last month) which were signalled a month or so ago.
Underlying net profit, which excludes those impacts, was $1.1 million, up from the $21.8 million loss in the previous corresponding period.
Underlying earnings before interest and tax (EBIT) were $21.3 million, up from $1.6 million in the previous corresponding period.
No interim dividend will be paid.
The company said it anticipated further improvement in the second half of the financial year.
Season-breaking rain is yet to fall in Western Australia, but conditions elsewhere in Australia are "distinctly positive", the company said.
"Accordingly, the company anticipates a substantial lift in its earnings in the second half, given suitable rainfall in Western Australia and suitable market conditions," Elders said in a statement.
"This is expected to be sufficient to support the achievement of the prospectus forecasts… for underlying earnings and profit to shareholders."
The company said it saw a recovery in grower confidence and demand volumes in its rural services operations in the first half, but that was more than offset by lower prices for chemicals and fertilizer products.
Improvements on margins and a reduction in costs had allowed the rural services business to absorb the impact of those lower prices, Elders said.
Meat and livestock trading operations were impacted by reduced ship availability and the closure of the Indonesian market during the first half.
There was a rebound in income from this division in the second quarter and further improvement is forecast for the six months to September.
The forestry division saw a fall in earnings due to the asset write-downs, but underlying EBIT more than doubled from the previous corresponding period.
"We look forward to growing cash flows from our forestry operations over the next five years as sales rise from the current level of approximately 400,000 tonnes per annum to over 2.5 million tonnes per annum," chief executive Malcolm Jackman said in yesterday’s statement.
Automotive operations were a major contributor to the group’s underlying EBIT growth in the period, as new contracts and higher income began to flow through following the very severe slump that cut demand starting 18 months ago.
Following extensive refinancing and recapitalisation activities in the first half net debt fell to $378.7 million at March 31, down from $900.7 million at the beginning of the fiscal year last October.
Gearing was down to 36% at March 31 from the dangerously high 128% six months earlier.
