Takeover target, Ruralco, has weathered a drought-driven downturn in cropping activity, cattle prices and its water services business to hold its underlying six-month profit at $16.6 million, helped by higher stock feed demand and saleyard numbers.
The farm services network's revenue lifted three per cent to $686m after cattle sales volumes grew 7pc and more high value rural property sales helped agency earnings through a testing first half of 2018-19.
Live export division, Frontier International Agri, also booked a 25pc rise in sales to Indonesia and returned to profit.
Financial services pre-tax profits lifted $500,000, fertiliser sales jumped in northern Queensland and Tasmania and water broking activity was strong.
Agency gross profit slipped just 1pc on the back of softer domestic cattle prices and a reduced wool clip.
Our diverse national spread of businesses and a mix of retail and wholesale channels worked in our favour, despite some pretty difficult seasonal conditions on the ground.
Managing director, Travis Dillon said Ruralco, which is due to merge with big rival Landmark by September, delivered a "resilient performance" despite a poor summer cropping period and generally weaker livestock prices.
In what had been "another challenging season", he said the company's focus on diversifying its market channels and geographical footprint had met the mixed seasonal and commodity headwinds head-on.
"While other ag sector companies in the grain, crop chemical and fertiliser categories have reported poor results, our diverse national spread of businesses and a mix of retail and wholesale channels worked in our favour, despite some pretty difficult seasonal conditions on the ground," he said.
Live export reward
He also noted how other players had abandoned the live cattle export market in recent years, particularly as rising domestic beef prices decimated live shipping profits, but "underlying demand is still there".
"We've stuck with it because there's still demand for live cattle from South East Asia for various practical reasons, so as long as there is an industry we'll be part of it," Mr Dillon said.
He described the latest profit result as testament to the success of Ruralco's broad agricultural market strategy, and it supported the value which Nutrien's February offer had attributed to the business.
Landmark's Canadian parent company is poised to pay $469m, or equivalent to $4.40 a share to absorb Ruralco.
Mr Dillon said the good trading result in dry times also reinforced to staff and joint venture partners their company's capabilities and its value to Landmark as the merger drew near.
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"These results back up the strategy we've worked towards for four years, and the business fundamentals which attracted Nutrien to offer $4.40," he said.
One-off costs, including expenses related to the Landmark bid, shaved 4pc from Ruralco's eventual reported net profit of $15.5m - down from $16m in the same period last year.
Ruralco will pay shareholders a fully franked 10 cents a share dividend on June 18 - a payout ratio of 63pc of its underlying first half earnings.
Cautious on outlook
Looking ahead, Mr Dillon said eastern Australia had the makings of a widespread and sizeable winter grain crop, but he was cautious of near term seasonal conditions given autumn rainfall had been patchy and soil moisture was poor.
Forecasts indicated a drier than average autumn and winter in parts of eastern Australia and the west which was still to receive any break to trigger sowing activity.
Last year's bumper WA season emerged from a similar prolonged dry start which turned around in winter.
Dry sowing had now begun in earnest in South Australia, Victoria and southern NSW and recent rainfall in some areas had been helpful.
"But we'll need a pretty kind autumn and winter to get a good crop through to harvest," he said.
All going well, Ruralco's merger with Landmark is anticipated to occur during August.
With its half-year results now public, the company was about to lodge details of a scheme of implementation with the Australian Securities and Investment Commission.
Shareholders would receive full details of the offer in a scheme booklet within a month.
The exact timetable for completion of the deal depended on regulatory approvals from the Australian Competition and Consumer Commission, and the Foreign Investment Review Board, but a provisional announcement from the ACCC has been scheduled for mid June.
A shareholder meeting will follow regulatory approvals, which Ruralco chief financial officer, Adrian Gratwicke, said appeared to be progressing as expected, "with positive engagements and no indication of any interruption to the process timeline".
We have not lost any key personnel and there's a very settled mood across the company as we wait and see.
Mr Dillon noted the transaction process still had some way to go, but he was confident in the continued "stability and level of engagement currently seen in our people".
"Obviously everybody across the network, from CRT to agronomists and stock agents or staff in Total Eden stores wants to know what the business will be like in the future, but our people have approached the transaction very sensitively and professionally," he said.
"We have not lost any key personnel and there's a very settled mood across the company as we wait and see."
Competition laws had prevented Ruralco staff from having any current engagement with Landmark management to gauge what the buyer's longer term plans were or what changes the merger might bring to Ruralco businesses.
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