Elders is promising there will be no “fire sale” of the company’s live export operations, despite this week deciding to quit its risky livestock shipping business to avoid a cost blowout hurting shareholders.
Sliding profit margins in the once thriving live cattle export trade have convinced the farm services business to end the lease on one of its two remaining livestock ships and halt long haul activities immediately.
Elders will also sell its North Australian Cattle Company (NACC) which ships live slaughter and feeder cattle on short haul routes to Indonesia, Vietnam and Malaysia.
Also for sale is its air freight service which delivered Australia’s first live shipment of beef cattle for the Chinese processing market last October.
That flight was expected to open up a rush of new orders by air and sea to service a hungry Chinese market capable of absorbing up to a million cattle annually, but regulatory delays have since limited the trade to just two trial flights.
Widely respected live exports general manager, Cameron Hall, who has driven Elders’ recent live export growth agenda, becomes a redundancy casualty of the company’s decision and leaves this week.
Elders has been a 15-year player in the air and sea shipment of feeder cattle to Asia and dairy and beef breeding cattle and stud sheep as far away as Russia and the Middle East.
Managing director, Mark Allison, said the NACC sale process would “take some time to find a natural owner” and the deal would be conditional on the buyer keeping feeder cattle supplies flowing to Elders’ 8000-head capacity feedlot and processing operation in Indonesia.
“NACC is a good business and we’ll be patient with the sale process - we have no burning desire to get rid of it in a hurry,” he said.
He also assured livestock producers who supplied the company’s various live trade businesses, Elders would continue finding markets for them, and its own Indonesian business would still be a cattle buyer.
While recent plans to establish another similar feedlot in Vietnam had been “put on hold” because the profitability of that idea had collapsed as Australian cattle sourcing costs soared, the company had no desire to pull the pin on its feedlotting activities in Indonesia, or at the 20,000-head capacity “Killara” on NSW’s Liverpool Plains.
He said cutting Elders’ ties to the shipping business was a “clinical” financial decision, but “we also want to continue supporting our producer clients” who supplied cattle to the trade and businesses serviced by the company’s trading division.
Elders reported a $2.9 million loss in its live export division in the first six months of 2015-16, primarily due to $3.8m lost by its long haul business.
Other key live export players including big cattle shipper Wellards, and farm services rival, Ruralco, have reported a dramatic drop in revenue from the trade, partly because of the soaring cost of sourcing livestock in Australia in the past year.
Last financial year Elders shipped about 144,000 cattle on short haul movements and 42,000 dairy and beef breeder cattle on 28-day long haul routes, mostly to China.
“That long haul business is not producing a return on capital or margins at levels that meet Elders’, or its shareholders’, expectations,” Mr Allison said.
The exit decision will cost about $6m in restructuring costs, but the company expects to gain about $25m in working capital it can later deploy elsewhere across its business when the process is finalised.
Elders has also tipped it will report an underlying pre-tax earnings for 2015-16 of $54-$57m after adjusting for non-recurring live export restructure and exit costs and accounting for current good seasonal conditions in its rural marketplace.
Last year’s pre tax earnings were $40.6m.