Elders moves past bad headlines

22 May, 2015 02:00 AM
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Elders chief executive Mark Allison.
We're not rushing on any of these projects
Elders chief executive Mark Allison.

ELDERS' share price leapt above $3.80 early this week as the farm services company backed up a $15.9 million half-year profit announcement by confirming plans to expand its bulging feedlots in NSW and Indonesia, rev up its new wholesaling business and possibly franchise a handful of smaller branches.

A month ago its share price was struggling around $2.40.

Although hurt by drought-withered cotton crop product sales in Queensland and NSW, strong livestock prices and greater throughput at Killara feedlot helped Elders post a strong a turnaround from a $10.2m loss recorded last year for the same six months to March 31.

The half-year result is also well ahead of last year's $3m full-year net profit - the first in six years.

After extracting itself from debts totalling up to $1.4 billion in 2009, the reborn agribusiness services and marketing company has reported a positive operating cashflow of $8.3m and cut its net debt to $86.8m, or 63 per cent less than the same time last year.

Elders' underlying earnings before interest and tax (EBIT) grew $8.4m to $21.9, driven by increased earnings from its agency network, live exports, lot feeding and processing businesses.

"The increased and more efficient utilisation of our Killara feedlot, as well as the restructure of our business in China to focus on meat sales, contributed to a $1.6m margin improvement for our feed and processing business," said chief executive and managing director Mark Allison.

Increased sheep and beef prices had helped drive agency earnings, however, Mr Allison warned the surging livestock market would also add to full-year costs for Elders' live export, lot feeding and beef processing and marketing business (in China).

The company's improved first half results represented a "considered and measured approach to operating as a profitable agribusiness".

Back to basics

After Elders' turnaround last year, and the return to agribusiness, there was still a lot of work needed to get the company back to full strength and fund its expansion in strategic growth areas in the industry.

"Our focus has been on delivering our key business priorities and to ensure we are capitalising on opportunities for growth in a sustainable manner," Mr Allison said.

Those priorities include looking seriously at a 10pc to 15pc expansion of the 20,000-head Killara feedlot near Gunnedah in North West NSW and its 1000-head feedlot in Indonesia, where Elders also operates an abattoir.

Management is also looking at how to extend and combine its tropical lot feeding and live export experience in Vietnam, where the company now has a toehold position with three staff on the ground.

Upgrades continue at its Shanghai pattie and meat preparation business, Elders Fine Foods, which supplies leading Australian branded cuts to restaurants across China.

"We're not rushing on any of these projects, especially as other feedlots may also expand their capacity over the next year or two, but we are certainly paying close attention to our feedlot operation and opportunities," Mr Allison said.

Capital not used to fund retail product for the cropping sector last summer was diverted to the feedlot business to make the most of current beef supply chain demand, and a monthly management assessment and quarterly board review of operations, implemented to keep ahead of growth opportunities and get identify the best possible return on capital.

Good returns on capital opportunities were also anticipated from a farm supplies wholesaling business established in the past six months, which is ramping up distribution to retailers in areas where Elders does not have a strong branch presence.

Making acquisitions

A core element of the company's five-year plan was being a player in industry consolidation and making acquisitions, Mr Allison said.

Elders eight-point recovery plan, which is aiming to achieve annual pre-tax earnings of $60m by 2017, has also focused on analysing and fine tuning its branch network.

About 51 branches were currently being benchmarked against the network over 90-day intervals to help staff identify and respond to weak spots.

"We're seeing improvements being rolled out," Mr Allison said.

But he believed up to six may not be sustainable as standalone operations in the long-term and may evolve into franchises or partnerships with other farm services business in their area.

Its 'branchise' initiative, which gives more than 60 branch managers a 'skin in the game' reward for their office's long-term profitability, was also being reviewed so rewards would be more closely linked with salaries.

After emerging from years of tough headlines, Elders also wants to relaunch its brand and is soon to release a television advertising campaign pitched at reinforcing its position and supporting role in the agricultural sector.

Mr Allison said that supporting role currently includes paying close attention to customers in regions hard-hit by drought, where concerns about the mental and physical health of clients was now regarded as a priority issue for staff.

"We've got some long and very close relationships with the people in these communities.

"If you're in Walgett or Winton or anywhere experiencing these seasonal problems we need to be looking at how we can help - including expanding our internal health line services so it's not just available to our staff."

On Thursday evening Elders shares were trading at $3.62.

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FarmOnline
Andrew Marshall

Andrew Marshall

is the national agribusiness writer for Fairfax Agricultural Media
Date: Newest first | Oldest first

READER COMMENTS

Hydatid
22/05/2015 7:07:08 AM

I truly mean this as a compliment to Mr Allison...."Lazarus" !!
Top Ender
22/05/2015 12:20:19 PM

Hydatit "Oh yea of little faith" Great companies are made by the people, not their age. Elders is a classic example of just how correct that statement is. Bet the Ruralco guys are wondering just how they let that get away!!

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