Elders Limited has reported a statutory loss after tax of $60.6 million for the 12 months ended September 30, 2012.
The result follows a $395.4 million statutory loss the previous financial year.
In its annual report released today Elders Limited said this year’s result includes a number of items considered either unrelated to ongoing operating performance, or relating to discontinued operations.
Despite the overall loss Elders reported an underlying profit after tax to shareholders of $13.2 million in 2012, up from a $9m result in 2011.
Overall earnings before interest and tax increased by 20pc to $38.8 million, including an 18pc increase in EBIT for the Rural Services division to $29.5m and a 10pc increase in EBIT for the automotive services division to $18.5m.
The company also used the previous 12 months to improve its debt position by reducing gross borrowings from $427 million to $385 million, and core net debt was reduced from $205.9m to $96.1m.
The $60.6m statutory loss reflected write downs of $75.3 million in the forestry division and rationalisation costs of $10.9 million in the Rural Services division, $14.1m in the automotive division and $8m in the corporate division.
Acclerated value for shareholders
In his annual report chairman John Ballard explained the board’s decision taken since the September 30 balance date to commence a sale process for the rural services business.
“The rationale for this decision is simple and compelling,” Mr Ballard said.
“That, in the current climate, the value generated by a competitive sales process is forecast to be superior to that than can be delivered by other options.
“These options include the retention of the business as an agriculture pure-play, which would not enable crystallisation of the value that is believed to be available through a competitive sales process in current markets.
“Moreover, directors anticipate that keeping the rural services business embedded within the current listed entity and capital structure is unlikely to generate a share price that reflects the inherent value of the rural services business due to the company’s debt levels, and the associated service requirements, which remain too high.”
Mr Ballard said the directors will present any proposed transaction to shareholders for approval.
Ag investment outlook positive
Chief executive officer Malcolm Jackman said the company is now in the fourth year of a transition from what was the industrial conglomerate Futuris Corporation, which carried $1.2 billion of bank debt, to a focused agribusiness offering
investors exposure to the Australian farm sector and the capacity of the Elders network.
He said the journey has taken longer than anticipated due to events such as the demise of the MIS-funded forestry industry and the effects of the global financial crisis, which had reduced Elders earnings, slowed asset sales constrained the company’s balance sheet.
“Yet the investment case for agriculture is reinforced every day as the world’s population, living standards and demand for food and fibre continue to rise,” Mr Jackman stated.
“Australia, as a net exporter of food and commodities, is clearly a beneficiary of this outlook. The rising international interest, and corporate activity, in the Australian agriculture sector during the year further evidences the favourable outlook for the local industry.”
Rural Services performance
Elders’ Rural Services division reported an increase in underlying EBIT despite the impact of difficult seasonal and market conditions which reduced sales volumes and prices. It attributed the increase to favourable balance date mark-to-market adjustment and strong rebound from its Trading operations.
The Elders annual report provided the following outline of the performance of the Rural Services division for the 12 months ended September 30, 2012:
“After the promising start brought by widespread rainfall, most agricultural regions across eastern, southern and western Australia encountered below average to significantly below average rainfall during the second half of the year, causing crop downgrades and feed availability concerns.
“Tight liquidity and challenging market conditions were reflected in weaker demand for farm supplies, lower sheep and wool prices and subdued broadacre real estate markets.
“Demand for livestock, especially for breeder stock for dairy and beef cattle, continued to remain strong although the strong AUD/USD rate affected Australia’s export competiveness in global markets.
“Sales from continuing operations were down 7pc to $1,813.2m with strong performance from Trading, principally live cattle exports, offsetting lower agency sales in livestock, wool and broadacre real estate. Sales of farm supplies increased 2pc to $1,045.0m despite lower demand for crop inputs and reduced prices.
“Gross margin was 3pc lower, with the significant improvement from trading being offset by the impact of lower agency sales across both the Australian and New Zealand operations.
“Most of the $11.8m (42pc) increase in Trading margin related to the Live Export business $11.3m, which increased volumes 28pc in the long haul breeder export trade, and lifted short haul export volumes 23pc following the significant disruption over the previous two years. Feedlot operating margins were also higher.
“Lower agency commission $(18.8m) accounted for virtually all of the decline in network margins, with the largest decreases in livestock $(11.7m) as a result of the sharp fall in sheep prices (down 13pc year-on-year) and lower volume.
“Wool $(3.2m), Real Estate $(1.3m) and Banking distribution $(0.9m) were other areas of shortfall.
“Improved NZ results in Livestock $0.7m and Farm Supplies were more than offset by lower earnings in Wool $(2.1m) where weak demand and reduced prices affected volumes and margins.
“The focus on costs restricted the overall increase year-on-year to 0.8pc.
“In August, the company implemented a cost reset of the back office functions resulting in a 25pc head count reduction that will deliver on-going benefits from 2013.
“Favourable mark-to-market gain of $5.6m in 2012 reversed unrealised losses in 2011 as a result of the rebound in the AUD/USD.
“Equity earnings of $14.1m were up $2.8m on 2011, with increased contributions from Kilcoy $2.0m, AWH $1.3m and Elders Insurance $0.2m, offset by a lower result from Elders Financial Planning $(0.7m).
“Underlying EBIT of $29.5m was up $4.6m or 18pc above last year.”