After copping a revenue caning late last year, farm services heavyweight, Elders, says business is already rebounding, despite lingering dry weather challenges in some states.
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The farm services company has reported one of its toughest starts to a trading year in a decade after revenue for the six months to March 30 slipped 19 per cent and statutory profit slumped 76pc.
It was also the first time in 10 years the agribusiness had not met its 15pc target for return on capital (falling from a forecast 17pc to 11.4pc).
However, Elders actually finished the period recording volume and market share growth across all its retail product sales categories.
The company has also spent the past six months strengthening its real estate footprint, paying fresh attention to the residential housing and rental management services market in regional centres while the broadacre property market softened.
Real estate represented about 60pc of the 11 additional farm services business added to the Elders camp since September 30, including five Knight Frank offices in Tasmania which joined at the start of May.
Elders had foreshadowed its disappointing half year profit results a month ago when it also revised full year earnings before interest and tax guidance to between $120 million and $140m - or as much as 30pc below its earlier forecasts.
A dry 2023 winter and spring which provoked extreme volatility in livestock markets, a slump in farm input sales and widespread drought nervousness among farmer clients fearing a blistering El Nino summer had set the scene for a $37m slide first half net profit slide to $11.4m.
Revenue fell $315.6m to $1.34 billion, particularly impacted by a lower crop protection and fertiliser sales compared to the prior year, and lower prices for fertiliser and farm chemicals.
However, trading in the second quarter revived with an uplift in client sentiment in the wake of unexpected widespread rain in much of eastern and southern Australia.
Momentum returns
Managing director, Mark Allison, said trading conditions had continued their post-Christmas momentum into April and May.
Despite frustrations with ongoing dry conditions in Western Australia and South Australia he anticipated an "about average" cropping season nationally.
Regardless of WA's much-publicised big dry, about half the state's crop was already dry-sown and despite missing out on sales of pre-sowing chemical products, Elders expected robust demand for post-emergent herbicides when rain eventually arrived.
Livestock prices continued a steady recovery on the back of improved seasonal conditions and soil moisture levels in much of eastern Australia where the winter crop outlook also looked optimistic for Elders' second half results.
Cattle and sheep prices had risen 61pc and 42pc respectively since the end of September.
Elders' agency network's contribution to revenue had subsequently improved significantly in the second quarter and this business was forecast to remain positive as stock prices stabilised on the back of strong international markets and an average season.
We expect fluctuations in our operating environment
- Mark Allison, Elders
Significant cost outlays on Elders' new wool handling facilities in Perth and Melbourne would be repaid into the next financial year and beyond with a big volume uplift and operating efficiencies expected to emerge in the coming six months.
Broadacre property market conditions were also expected to improve in line with the healthier livestock market.
"As a leading agribusiness we expect fluctuations in our operating environment," Mr Allison said.
"Our response remains to focus on the controllable, including our commitment to a tightly managed cost base and a geographically diverse multi-product portfolio."
Elders was looking at another 15 business acquisitions, many of which were involved in the regional real estate market.
Given the company's acquisition trend in recent years had been weighted towards product-related opportunities, real estate was providing some balance to its business portfolio, with rentals delivering important cash flow.
He said Elders was confident its overall focus on strong earnings and value for shareholders through seasonal and market cycles would generate 5pc to 10pc growth in earnings before interest and tax and earnings per share during its current 2024-26 eight point plan period, and exceed its 15pc return on capital goal.
Elders share price responded positively to the company's results and forecasts, initially lifting above $8.50/share before ending Monday at $8.30.
Shareholders will receive a 50pc franked first half dividend of 18 cents a share.
Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
