On the back of a 56 per cent lift in statutory profit, Elders predicts a busy run of acquisitions will power almost half its agribusiness growth in the next few years.
Profits jumped to $38.3 million for the farm services company in the first half of 2016-17, thanks partly to the return of good summer cropping activity in NSW and Queensland, strong livestock market and real estate trends and revived finance and insurance earnings.
Elders forecasts steady progress to a full-year profit around the $60m mark this year and is targeting up to 10 per cent annual growth in earnings before interest and tax for the next three years.
It’s a big turnaround from the repeated losses and multi-million dollar debts which almost sank the old South Australian-based firm five years ago.
However, managing director, Mark Allison, acknowledged bullish livestock prices were likely to slip in coming months and the winter crop and seasonal outlook was uncertain, creating potential business headwinds.
The sheep market did, however, look to have better staying power than beef cattle.
Business acquisitions and selective staff recruitment initiatives currently contribute about 20pc to Elders business growth.
They are expected to double that contribution to about 40pc as the company embarks on its next expansion phase towards 2020.
Last month it signed on 60 new real estate staff after buying Western Australia’s Southern Districts Estate Agency, based in Bunbury with branches in Collie and Capel.
Elders is also in the throes of buying the 60-year-old Sydney-based horticulture services group ACE Ohlsson which has five branches with strong positions in the grape, vegetable, fruit and flower sectors.
Last year in Tasmania Elders opened a new Winnaleah branch servicing the dairy market, also ramping up its farm supplies and real estate footprint in the state and lately recruiting more agronomists.
The company has also flagged its role in a new industry-wide digital services platform for agronomic and grazing systems advice due for launch mid-year.
“We’re quite serious about acquisitions to fill geographic and commodity gaps where we need to be more active, and to recruit staff who can help us achieve our growth,” Mr Allison said.
“Our focus is to ensure we’re continuing growing our service to clients with strategic initiatives, including extending our current product offerings and expanding our geographical footprint.”
Elders’ recent 30pc equity stake in livestock financing company StockCo and a rise to 20pc equity in Elders Insurance helped boost financial services earnings for the first half, also opening up opportunities to develop business with new customers serviced by StockCo.
Meanwhile, the company’s updated eight point business plan has anticipated 40pc organic growth through business improvement and new opportunities within its existing network.
Efficiency gains, financial discipline and improved use of resources would contribute a further 20pc to earnings growth.
The eight point plan has set a consistent 20pc target for return on capital by 2020.
“We’re driving to be a consistent and quality agribusiness investment,” Mr Allison said.
“Now we’ve cleaned up our hybrid securities (bought back from shareholders in March) and pulled the business back into profitability, we want to be the premium agribusiness stock with a reliable growth and results record.”
Elders’ half-year merchandise retailing business posted a notable $6.5m earnings lift on 2015-16 results, aided by a more normal summer cropping season which fuelled agronomy product sales.
Agency services business earnings improved $5.8m on the prior corresponding period, driven by record livestock and wool prices and benefits from footprint growth.
High livestock prices have also been good for property sales, prompting stronger demand for large cattle and broadacre cropping properties.
Elders’ turnover of farmland real estate increased by $76m or 15pc against the same period in 2015-16, assisted by the low interest rate environment.
However, Mr Allison acknowledged demand for livestock properties was likely to ease in line with the potential decline in livestock prices.
While the company expected high prices for both sheep and cattle to continue in the short term, it was bracing for values to subside as volumes increased in saleyards later this year, particularly if drier seasonal conditions prompted a rise in destocking activity.
Surging wool prices in the past year and the return of some significant long-term former sheep sector clients to Elders’ books would potentially help the company weather lower livestock markets.
“I sense that supply and demand trends in sheep markets will generally be more positive than cattle,” Mr Allison said.
Cattle prices will still be pretty good, but they are expected to ease, and that decline might be more obvious in the cattle side of our business than the sheep half.”