Shares in rural services group, Elders (ELD) rose nicely yesterday after the company confirmed it was prospering after years of near death experiences from crushing debt, inefficient businesses and a weak and unwieldy structure which took a long time to clean up.
Those shareholders who stuck with the company through thick and thin are now seeing some payback – the shares rose 5.6% to $3.36 yesterday (remember they were consolidated early this year to boost the share price, which has happened).
Elders yesterday reported a net profit after tax of $15.9 million for the six months ended March 31, 2015, a long way from the $10.2 million slump loss for the half year to March 2014.
Elders chief executive Mark Allison said the improvements had stemmed from a better performance by the Elders agency business, from live export of cattle, and the company’s feed and processing businesses. It also benefited from an overall lift in livestock prices across the industry.
Total revenues at Elders edged up 2% to $645.5 million in the half.
Net debt at Elders has been cut to just $87 million at March 31, from $138 million at September, 2014 and more than a billion dollars seven years ago as the company was hit by a combination of the GFC and drought, sluggish growth and then the impact of the high Australian dollar – a real litany of woes.
That forced Elders, under previous CEO Malcolm Jackman to gut the company of assets good and bad to try and preserve a core operation that was sustainable and could deliver growth.
So businesses in forestry, telecommunications, aquaculture, banking, insurance and automotive components were sold to contract the company (and the debt pile, with the continuing support of its banks) so that Elders returned to its roots as a rural focused company.
ELD 1Y – Reborn Elders shares surge as profits return
CEO Mark Allison, who became chief executive a year ago this month, replacing Mr Jackman after chairing Elders’ board, yesterday expressed confidence in the outlook for the remaining half.
"Cattle and sheep prices are expected to remain strong, and demand for feedlot and live export continues to grow," he said.
He said Elders had laid a solid foundation for achieving its goal of producing an annual $60 million in earnings before interest and tax by 2017, and a 20% return on capital. In the six months ended March 31, 2015, Elders generated underlying earnings before interest and tax (EBIT) of $21.9 million in its first half, up $8.4 million on a year earlier.
But there’s no resumption of dividend payouts to shareholders because Elders still has to fix up the $145 million of hybrid securities listed on the ASX, which are for all intents and purposes, debt. It will have to find a way of turning those into equity, to repaying them – which will take money that would normally flow to shareholders.
Looking to 2015-16 Mr Allison said Elders was achieving continual progress across safety performance, operational performance, key relationships and efficiency and growth.
“As a renewed agribusiness, we are making particular progress in reviewing and rebuilding our key relationships with clients, suppliers, investors, local communities and our employees,” he said.
“In the past six months we have conducted Australia-wide focus group research, engaged in ongoing investor briefings, rationalised key suppliers, and will soon launch a national TV campaign, relaunching the Elders brand.
“As a business we are driving efficiency and performance through a range of programs including a comprehensive branch benchmarking program, an agency remuneration program, and a safety engagement campaign.
“We are actively considering opportunities for growth across both domestic and international markets, including Indonesia, Vietnam and China,” he added.
But the big unknown is the El Nino weather event the Bureau of Meteorology warned of last week. If that turns into a big dry period, companies like Elders will eventually suffer. The timing of that is very much unknown and subject to events outside anyone’s control.
But companies like Elders can start preparing by cutting debt, talking to their banks (as GrainCorp said last week it had and extended its debt maturity) and building reserves. Expanding and taking on more debt would not be very clever.
