Elders has decided to sell its beef feedlot and processing assets in Indonesia, and has confirmed more deals that will deepen its investment more in its Australian agricultural chemicals business and livestock agency operations. The news saw Elders shares jump more than 3.6%% to $7.99.
Elders Indonesia operates a feedlot with a capacity of about 8,200 head, as well as an abattoir.
Elders told the ASX yesterday that it decided to sell the assets, following a performance review which showed that they were performing below the required return on capital.
“High cattle costs and changing Indonesian governmental policies have adversely affected the performance of our Indonesian business, making it appropriate to divest these assets" Elders chief executive Mark Allison.
Mr Allison said Elders will still have a presence in Indonesia as well as as in China and Vietnam – through its retail meat distribution businesses in those countries.
Mr Allison said selling the Indonesia feedlot and processing facilities will allow Elders to redirect capital to the retail meat distribution business in Indonesia, and in ideas closer to its ongoing acquisition strategy.
Elders hopes to complete the sale of the Indonesian assets to PT Pramana Austindo Mahardika by the end of June. Elders also said on Monday that it has agreed to acquire Titan Ag, an Australian-based producer and supplier of crop protection and animal health chemicals and fertiliser, which has been selling its products in Australia through Elders.
Elders is also set to complete its purchase of Kerr & Co Livestock, the largest privately owned independent livestock business in south-west Victoria, by the end of next month. Kerr & Co which handled about 416,000 sheep and 16,000 cattle last financial year.
Mr Allison said the acquisition of Kerr & Co Livestock will enable Elders to increase its agency business in a highly valuable livestock region of Australia.
Mr Allison said Titan represents an attractive opportunity to extend Elders’ supply chain for agricultural chemicals.
"Titan is a quality brand that has the potential to significantly grow sales of its product range," he said. Titan is expected to generate earnings of $6.5 million to $7.5 million in its first full year under Elders’ ownership (in the year to September 30, 2019).
The purchase price of around $35 million will be paid from existing cash and bank facilities and is payable in three tranches, 70% on completion, 10% on the first anniversary of completion and a final tranche of 20% on the second anniversary of completion, which is subject to an earn out hurdle based on financial year ending 30 September 2020. The key personnel of Titan, including the founders Andrew Ericsson and Martin Cayzer, will be employed by Elders on and from completion.
Mr Allison, said Titan represents an attractive opportunity to extend Elders’ participation in the supply chain for quality agricultural chemicals. “Titan is a quality brand that has the potential to significantly grow sales of its product range. Many Australian primary producers have already identified Titan products as effective and reliable and we look forward to growing what is already a very successful business.”
