Elders says many of its farmer customers are enduring tough drought conditions, but the rural services business has managed to survive 2018-19 with only a $2.7 million drop in statutory profit after tax to $68.9m.
However, managing director, Mark Allison, is watching rising bad debt levels "like a hawk", especially in northern NSW and southern Queensland where crop earnings have evaporated and repayment delays on big accounts are "stretching out".
A shocker cropping and pastoral year across much of NSW and Queensland and shrinking wool volumes cut Elders' net profit by almost four per cent, but its diverse national portfolio still delivered its forecast underlying profit of $63.8m, similar to last year's best result in a decade.
Solid livestock sale earnings and cash flow from recent acquisitions, notably the Titan crop and stock chemical business and Livestock in Transit insurance, offset the impact of the poor summer crop season and lower wool volumes.
Revenue for the year was actually up 4pc to $1.67 billion as earnings from acquisitions made up for a 4pc downturn in farm input sales across all states.
Largely drought-free Western Australia was the only geographic region to deliver positive agency earnings, although its rural products earnings softened later in the cropping season, too.
Northern Australia's financial performance was down $9.1m and southern Australia by $7.2m.
Mr Allison said the company's performance in difficult times reflected the rule that "in agriculture if you fail to plan, you're planning to fail".
The AIRR acquisition has the potential to add 20 to 25pc growth to Elders at the earnings before interest and tax level on a full-year basis
After a year of buying activity, including this week's conclusion to the $469m Australian Independent Rural Retailer merchandise business acquisition, the year ahead would one of consolidation and careful attention to cost savings.
However, more acquisitions would be considered in specific geographic areas if the recent Landmark-Ruralco merger were to prompt some breakaway groups to align with Elders or its AIRR subsidiary.
Synergies and extra income associated with having the AIRR business in the Elders' camp were expected to be worth an extra $3m in the next 10 months.
"The AIRR acquisition has the potential to add 20 to 25pc growth to Elders at the earnings before interest and tax level on a full-year basis," Mr Allison said.
"Our results in FY19 showed the benefits of pursuing acquisitions that meet our strict investment criteria.
"A new Rural Bank distribution agreement will also generate a stable income stream exceeding $10m a year during its term, while enhancing our ability to provide customers with high-quality banking services."
The specialist independent consulting arm, Thomas Elder Consulting, was helping the business broaden its services, providing expertise in whole farm management across all areas of clients' business operations.
Elders was also investing in innovation and technology, while private and public research collaborations helped ensure the benefits of research and development reached the farm gate.
Tough summer ahead
Although the current summer crop outlook remained particularly problematic in northern NSW, and down about 30pc overall, Elders anticipated an average winter crop next year which would provide a "solid platform for the business".
The AIRR acquisition had added about 344 stores to Elders' business, including the new Tuckers category servicing lifestyle farmers, making it "an excellent strategic fit".
"It provides Elders with additional growth channels through entry into the wholesale rural services market and the produce and hobby farmer services market," Mr Allison said
It's very important we remain committed to rural and regional areas - they're core to our business and they are what we're are about
Although some drought-ravaged areas had branches with "significantly impacted earnings", he said had no intention of closing stores.
Committed to the bush
"We want to make sure the integrity of those local communities is maintained," he said.
"It's very important we remain committed to rural and regional areas - they're core to our business and they are what we're are about."
Although provision for bad debts had been almost doubled to $3m in recognition of the rising repayment risk in drought areas, he said the company was not taking a casual approach to its debtors.
"The health of our debtor book is under constant scrutiny - we're watching them like a hawk," he said, noting in some of the most difficult areas clients were asset rich, but cash poor at the moment.
It was very unlikely the company or customers bankers would have to make a move on these landholders to call in their debts.
Elders decision to announce a fully franked final dividend of nine cents a share, taking its total for the year to 18c, helped push its share price up about 30c to $6.35 early this week.
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The story Elders makes the most of dry times with $69m profit first appeared on Farm Online.