Elders has released its annual report for the year ended September 30 this morning, which confirms a statutory loss of $505.2 million, compared to a loss of $60.6m the previous year.
In a press released issued to accompany its annual report, Elders says its results were impacted by difficult market conditions and impairments primarily driven by divestments and restructure to pure-play agribusiness.
The results include an underlying EBIT loss of $42m for the year, compared to a profit the previous year of $8.2m.
Elders says it has continued to reduce its net debt for the fifth consecutive year, achieving a 14pc reduction in FY2013 to $255.2m
Borrowings have also been reduced from $385.8m to $294.7m.
Elders Limited said the loss was largely driven by $(442.2) million in non-recurring impairment charges, particularly to intangibles, and the de-recognition of tax assets along with other non-recurring items associated with divestments and restructuring to become a pure-play agribusiness. It said challenging seasonal and market conditions also impacted the result.
The non-recurring items included $(201.8) million relating to the divestment of the Automotive business, $(159.3) million relating to the impairment of intangibles within Rural Services offset by profits on divestment of a portion of the Elders Insurance JV, a $(38.1) million write-down of tax assets, a $(16.7) million loss on forestry related items, and an additional $(26.3) million for restructuring costs and losses on discontinued operations.
Underlying EBIT in Rural Services reduced from an $18.2 million profit in the previous corresponding period to a $(36.3) million loss.
Elders attributed this result due to seasonally-affected lower network sales and an unprofitable result from global cattle trading.
It said the Rural Services result included a total $(24.2) million charge "necessary to restate the global livestock trading balance sheet after the Company identified that trading results had not been recorded in line with accounting policies".
Elders provided the following update on its Trading Investigation:
Elders has (through an investigation undertaken by PPB Advisory) quantified accounting discrepancies in the Company’s Universal Live Export business. It is evident that there was an overstatement of
reported profit in the order of $4.8 million for FY12 and approximately $20.5m as at 31 March 2013 (which includes the $4.8 million overstated profits of FY12). The combination of these losses, together with further losses in the period between 31 March 2013 and 30 September 2013, has, as referred to above, impacted FY13 EBIT by $(24.2) million.
The FY12 overstatement appears to be the result of not recognising losses on livestock sold, together with incorrect assumptions related to the fair value of livestock values which did not eventuate. Elders made bonus payments to a number of Trading employees based on the FY12 result. Elders will consider its rights in connection with recovery of those bonuses if the final PPB report indicates that there are grounds upon which to do so.
In respect to the FY13 accounts it appears that losses were effectively “stored” on Elders’ balance sheet rather than being correctly released to the profit and loss. This included losses due to the decline in the market price of livestock, failure to recognise losses on livestock sales and the cost of keeping livestock on hand. The current evidence points to likely inappropriate, and potentially fraudulent, activity.
The Company is continuing with the investigation into the accounting irregularities. Related issues that have been uncovered during the course of the investigation have been notified to the appropriate authorities. A new organisational structure has been implemented that will deliver significantly improved governance and oversight. The Company will make further disclosures on the findings from the investigation at an appropriate time in the future.
Managing Director's comments on FY2013 result:
Elders Limited Managing Director, Malcolm Jackman said: “The 2013 year marks the near completion of a five year process of rationalisation and restructuring of assets, operations, finances and carrying values in order to refocus Elders on its core strength and historical purpose – rural services.”
“The impact on statutory profit was largely driven by non-recurring items associated with this long sought after objective and, without trying to diminish or overlook the costs to many of the stake-holders involved, we are relieved to have finally reached that goal.
He said the company could now finally focus all of its management and staff attention on operating our core business and serving our customers.
“With the completed divestment of Futuris Automotive, the near-completion of the forestry wind-up program, and continued support from our financiers, Elders is again a pure-play agribusiness.
“As a result of these divestments and other initiatives, Elders has achieved substantial reduction in both core bank debt and gross debt, recording the company’s fifth consecutive year of reduced debt.
“Given the seasonal conditions, the downturn in sales and margin generated within the Rural Services business during 2013 appears consistent with industry experience,” Mr Jackman said.
The restructure of the operations announced in September this year, which has been implemented, was expected to improve sales and earnings capability and client focus of the Elders Network, as well as an
anticipated cost savings of approximately $25 million per annum.
Mr Jackman said Elders was continuing discussions with a number of parties that have expressed interest in re-capitalising the company on the basis of its sole focus, brand and network strength as a pure-play agribusiness. At this time no binding or complete proposals had been received. The market would be kept informed as appropriate.