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

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

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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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Updated 4pm

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 the $26.4m performance posted for the same period last year, prompting a 90 cent jump in the company's share price to more than $10.30 each 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.

Nutrien defectors

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 the east.

Unless global volatility from the coronavirus emergency or other trade disruption created significant headwinds, Mr Allison said Elders expected strong spending by broadacre farmers to continue and the company to deliver a full-year net profit between $85.8m and $102.9m.

These events have proved yet again the resilience of our people and our industry, and our ability to rise to the challenge - Mark Allison, Elders

Underlying earnings before interest and tax for the first half had 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 15pc target, at 17.7pc for the half.

Debt shrinks

Net debt levels shrank to $3.1m, and leverage and interest cover ratios improved 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.

Elders 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."

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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 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 volume demand.

Farmer confidence

However, successive rainfall events across major cropping areas on the east coast had lifted farmer confidence and driven 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.

Electronic marketer AuctionsPlus, which is half owned by Elders, was doing a roaring trade as vendors and buyers looked for alternatives to attending sales events in person.

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 beef sector.

Disciplined acquisition plan

Elders would maintain a disciplined approach to acquisitions to grow its 17pc foothold in the farm services market, particularly in high value sectors such as horticulture and irrigation.

Mr Allison said the company was being methodical about its growth plans in categories and localities where it was under represented, including considering approaches from more Nutrien defectors with livestock or merchandise backgrounds.

"There are about 100 towns in Australia where Nutrien now has two businesses - it's likely there will be changes as it goes forward with its target to get $45m in merger synergies," he said.

"We're not looking to approach anybody, but we're happy to be approached."

A 50-50 mix of organic growth and new business growth plans would ensure the resilient Elders model continued to perform well regardless of seasonal or market conditions.

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