Rain adds vigour to Elders' $52m half-year profit

Elders profit up 90pc to $52m as rain fuels farm revival

Agribusiness
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An $52m after tax result prompts a 10 per cent jump in Elders' share price to $8.33

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Rain and surging livestock prices have helped propel half-year statutory profits to a new $52 million high for the farm services business, Elders.

The after tax result was up 90 per cent on $26.4m performance posted for the same period last year, prompting an 60 cent jump in the company's share price to more than $10.30 after the details were announced.

The big agribusiness, which has rebuilt profits from a meagre $3m six years ago - and huge losses prior to that - has also lured about 260 new farmer customers and 18 staff from rival player Nutrien Ag Solutions which is bedding down its Landmark-Ruralco merger of six months ago.

Managing director Mark Allison estimated at least another 200 customers had indicated they were likely to jump ship to Elders this year, while eight wholesale businesses have also broken away from the Nutrien-Combined Rural Traders business model to join the Elders-Australian Independent Rural Retailers (AIRR) network.

Although the first two thirds of the reporting period to March 31 were plagued by drought, heatwaves and widespread bushfires in eastern Australia, Elders saw sales leap almost $100m in February and March as farmers responded to a sudden U-turn in seasonal conditions., particularly in eastern Australia.

Underlying earnings before interest and tax leapt from $34m a year ago to $52.8m as gross margins were boosted by strong winter crop confidence, high prices for cattle and sheep and busy trading volumes.

Despite some initial hiccups in the live export trade to Indonesia as the coronavirus emergency set in, demand continued to be strong from export markets.

AIRR, which joined Elders after a $187m buyout in November, contributed $8.6m to EBIT.

Elders' total operating cash flow for the period turned around from negative $13m to $27.4m and return on capital continued to beat the company's goal of 15pc, at 17.7pc for the half.

Net debt levels had reduced to $3.1m, and leverage and interest cover ratios continued to improve with increased earnings and the benefit of the $137m capital raising in 2019.

Mr Allison said the bullish results also reflected a major difference between the business mood in the city and the bush after coronavirus hit.

The company was prospering in a volatile market thanks to its strict strategy of financial discipline and building on its product and service offering.

"The first half of the 2019-20 financial year has been tumultuous, with devastating bushfires across large parts of Australia, the COVID-19 pandemic, and conversely, drought-breaking rain across many parts of Australia," he said.

"While difficult, these events have proved yet again the resilience of our people and our industry, and our ability to rise to the challenge."

He said COVID-19 had not had a significant financial impact on demand for Elders' products and services or supply chains, although the fine wool market had "dropped like a stone, reflecting a sudden contraction in demand from textile and garment producers overseas.

Noticeable volumes of wool had subsequently been withdrawn from auction in response to the market slide.

While the overall wool export market to China was "operationally sound" the impact of reduced end-market demand in Europe and North America was expected to keep downward pressure on prices and volumes in demand.

However, successive rainfall events across major cropping areas on the east coast lifted farmer confidence and driving strong demand for crop inputs and cattle and sheep prices were forecast to remain high.

Livestock supply chains continued to operate without major disruption from COVID-19 thanks to digital solutions in place to facilitate transactions.

Elders' residential real estate and property management activities were expected to decline in line with the wider real estate market due to COVID-19 related restrictions and broader economic impacts.

Metropolitan franchises had been "hammered", however rural property sales continued to "tick along", partly because of a number of listings already in the supply chain and confidence in the the beef sector.

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The story Rain adds vigour to Elders' $52m half-year profit first appeared on Farm Online.

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