A VOLATILE period in the agricultural industry has been attributed to a decline in Elders' half-yearly profit from the lofty heights of 2022, but the farm services giant is expecting a strong finish to 2023.
Weakening crop input and livestock prices were factors that caused a decline of 38 per cent in earnings before interest and tax to $82.8 million, and the company's gross margin declining $20.7m.
Underlying earnings per share declined 45pc to 32.3 cents, with an interim dividend of 23c a share announced.
The company's total sales revenue increased 9pc from the first half of 2022, from $1.514 billion to $1.657b.
During an investor presentation on Monday, Elders leaders described the company's half-yearly performance as "resilient", considering the backdrop of a volatile agricultural industry impacted by softened livestock trading conditions, weaker crop input prices and unseasonably wet weather.
The company said it was in stark contrast to the first half of 2022, which had been underpinned by firmer livestock prices, a strong real estate market and ahead-of-season client purchases of crop products in response to global supply chain uncertainty.
Elders managing director and chief executive officer Mark Allison said the half year financial results had been "satisfactory, given the market and seasonal conditions".
"Elders continues to execute its plan to deliver growth through the cycles," he said.
"The 2022 financial year was unusual with EBIT greater in the first half than the second, primarily because clients brought forward their winter crop procurement due to supply concerns and rising input prices."
The company expects its 2023 earnings to be weighted towards the second half of the year, a return to normality.
Mr Allison said the freeing up of supply chains, lower freight costs and more sustainable fertiliser prices were a great benefit to the agricultural industry, but made comparison between the half yearly results of 2022 and 2023 challenging.
"Elders has taken the decision to provide full year guidance to reinforce our expectation that second half earnings are likely to exceed the first half, a more typical earnings profile for Elders," he said.
"We look forward to the second half given the strong winter crop outlook."
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In its half yearly results, there was a 22pc decline in agency service earnings from $82.2m to $64m, driven by lower livestock prices, negatively impacted by challenging market and unseasonal conditions.
The company believes there is cause for cautious optimism about livestock markets in the second half of 2023, with some domestic and export markets showing signs of recovery.
Retail products sales increased across fertiliser, animal health and crop protection products from $140.8m to $145.5m, but margins declined due to softening crop input prices.
Earnings from real estate services declined from $33.3m to $28.9m, with higher property management earnings offset by lower broadacre turnover.
Financial services revenue grew from $23.3m to $26.5m, which Elders said was predominantly driven by increased demand for insurance products and rising premiums.
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While Elders' financial performance didn't reach the heights of 2022, the company reported positive progress in a number of key areas.
It acquired six new businesses and 26 additional points of presence in the past six months, and while its 16.9pc return on capital was down from 27.8pc in the first half of 2023, it still exceeded its 15pc hurdle rate.
Its workforce now consists of 43pc females to support its goal of an inclusive working environment, while its injury frequency rate declined among employees and its customer satisfaction metrics continued to be strong.
Elders' long-term growth was highlighted during the investor presentation, with a 24.9pc rise in EBIT achieved across the past five years, while earnings per share had increased more than 7pc in the same period.
Outlook positive for rest of 2023
Elders is expecting a strong finish to 2023, supported by improving outlooks for livestock markets, a good start to the cropping year and the continued strong performance of its financial services business.
The company expects its underlying EBIT to be between $180m and $200m for 2023, the midpoint of which is 18.1pc lower than 2022, but up 13.8pc on 2021.
In an ASX announcement, the company said the outlook for rural products in the second half of 2023 was encouraging with sowing under way and supported by generally favourable soil moisture profiles and neutral climactic conditions.
The outlook for agency services is forecast to improve but remain below 2022 levels, with cattle prices expected to remain subdued on volume growth, supported by recent improvement in United States beef import prices.
Lamb prices are expected to remain under pressure due to mixed quality and higher volumes, while mutton prices are showing signs of improvement and wool remains robust.
Elders' expects softer broadacre real estate market conditions to persist, but believes the residential sector will remain robust despite elevated interest rates and inflation.
Mr Allison said demand for food and fibre remained strong globally and "Elders' long-term earning potential persists with equal strength".
Share price continues to drop
Elders' share price continued on a downward trend following the release of its half yearly financial results.
The company's share price closed yesterday (Sunday, May 14) at $8.30 and opened today (Monday, May 15) at $7.96, but had dipped to $7.26 at midday ACST.
The price has steadily decreased in the past 12 months following five years of steady growth, with a slight uptick from September to November the only bright spot for shareholders.
Shares reached close to $15 in June last year, with today's opening price representing a 47pc decline from the same time last year.
Mr Allison said the company's announcement of record profits late last year and his impending departure may be playing a role in the softening share price.
"Our announcement of another record profit probably had a lot of financial analysts thinking 'well, this is as good as it gets in ag', and at the same time we announced I'd be leaving in 12 months," he said.
"I think the general sentiment to agriculture has been one of the drivers, but at the same time it's quite interesting because it's very positive through all commodities and seasonal conditions are positive.
"There are some concerns about El Nino, with a theory that will have a big impact if there are droughts, but with a diversified portfolio like we've got it may impact one area, but not others.
"Through drought, floods, bushfires, COVID, our business has continued to grow because it's so diversified."
Leadership update expected in July
There was no update of note on Elders' search for a successor to Mark Allison as chief executive officer during the investor presentation.
Mr Allison - who joined Elders as a non-executive director in 2009 and served as chairman and executive chairman between July 2013 and April 2014 - will part ways with the company in November.
Elders chair Ian Wilton said the search for a suitable successor was continuing and the board expected to make a further announcement in July.
