Elders' statutory net profit after tax has wilted 34 per cent to $27.4 million in the wake of a hot and dry six months to March 31.
But the national farm services company insists it's still on target to meet its full-year profit ambitions, helped by recent rain, and may soon be absorbing some of its smaller rivals under pressure from drought and the looming Landmark-Ruralco merger.
Elders is also in the throes of buying QBE's livestock and wool transit insurance business.
"There's been a sufficient enough break in April and May for a quite strong run of sowing activity, so with all things being equal, and some follow-up rain, we'll achieve our targets," said managing director, Mark Allison.
Revenue for the first half of the trading year slipped 12.4pc to $737.5m on the back of poor summer cropping and grazing conditions, lower cattle prices and a shrinking a wool clip.
A 40pc decline in the national cotton crop and increased chemical inventory stocks in its retail stores, particularly in northern NSW and Western Australia, weighed on cash flow and capital costs, as did about $13m in cash costs relating to the integration of the newly acquired Titan Ag chemical business and its stocks.
Despite drought-subdued farm sector business activity and most of NSW still needing general rain, Elders was banking on average seasonal conditions nationally during winter and reaching its target of $72m to $75m in earnings before interest and tax for the full year to September 30.
We're keeping a close watch on companies with prominent exposure to the east coast market which has been under pressure from seasonal conditions
It fully expected to meet its promised 20pc return on capital for the year, despite ROC slipping to 18.4pc in the first half for the first time in four years.
Mr Allison said Elders would also continue to buy "bolt on" agency businesses during the second half, with deals now underway.
Investment in digital and technology areas was also continuing.
While any further testing seasonal conditions may slow the pace of future smaller scale acquisitions, the company was preparing for the potential purchase of independent groups with up to four or six branches each.
"We're keeping a close watch on companies with prominent exposure to the east coast market which has been under pressure from seasonal conditions and may yet see more competition fallout from the Landmark move," Mr Allison said.
The company would look to a share market capital raising to get funds for a larger scale purchase, rather than draw on its own balance sheet.
"We haven't necessarily been approached directly by anybody, but you tend to get the message in various indirect forms that something might be on offer," he said.
"The numbers will have to add up for us to engage, but we see those independent players as a potential sweet spot for us.
"But even without further acquisitions our disciplined approach can still deliver the 5pc to 10pc EBIT growth we've committed to in our eight point plan for the 2017 to 2020 period."
Elders has declared a fully franked interim dividend of nine cents a share.
Underlying EBIT for the first half was $33.5m, down 26pc from almost $46m at the same time last year, reflected lower wool volumes from the drought-reduced sheep flock, increases in costs associated with its footprint growth, and continued investment in digital and technology areas.
We're resolved to achieving continuous high quality growth, despite the very difficult conditions being experienced by the Australian agriculture sector, including many of Elders' clients
Much of the company's $3.1m drop in agency gross margin was due to the wool sector's weaker performance and reduced cattle prices, although higher cattle de-stocking rates partly offset this and its sheep business also benefited from a lift in volumes and prices.
Mr Allison said Elders was resolved to achieving continuous high quality growth, "despite the very difficult conditions being experienced by the Australian agriculture sector, including many of Elders' clients".
He said retail business showed resilience through geographical diversification and other growth initiatives.
In financial services, a deal with Rural Bank, which saw about 95 agri-finance relationship managers and support staff transferred from Elders to the bank in March, would provide "a secure revenue stream for the life of the contract, with lower margins offset by lower costs".
Earnings from its 30pc stake in short term livestock finance business, StockCo, were also expected to lift after Elders provided loan funding to trim the lender's own higher cost debt as it prepared for a surge in restocker borrowing demand in spring
Mr Allison said new livestock and wool in transit delivery guarantees, to be launched coming months, would replace QBE's underwritten insurance products currently distributed by Elders.
They were likely to generate up to $5m in annualised EBIT.
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