Fortunes reviving for Elders

08 Sep, 2015 05:16 AM
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Elders chief executive Mark Allison.
It's quite symbolic for our new direction
Elders chief executive Mark Allison.

SHAREHOLDERS in 176-year-old Elders will need to be patient because a resumption of dividend payments is probably two years away, even though the agribusiness firm is enjoying a solid revival of its fortunes.

Elders chief executive Mark Allison said the company still needed to be methodical but all the signs were pointing in the right direction after a brush with corporate death in 2008, caused by excessive debt under previous management after aggressive expansion into the automotive, telecommunications, forestry and aquaculture sectors.

Elders, which has slimmed back down to a pure-play agricultural business, has just been elevated into the ASX/S&P 300 index for the first time in several years, and on September 7 the company moved into a new, slimmed-down corporate headquarters in Grenfell Street in the Adelaide central business district as it breaks with the past.

"It's quite symbolic for our new direction," Mr Allison said.

Elders is also experiencing strong demand for live cattle sales to Asia, while its finance arm in mid-August completed a buyback of about 25 per cent of its separately listed hybrid securities, at a cost of $30 million.

"The business is quite strong," Mr Allison said.

But there are still about $85 million of listed hybrids in existence and they are trading at $74 each. They were issued at $100 each in 2006 and under the complex terms of the hybrids, Elders can't make distributions or capital returns to holders of its ordinary shareholders until it pays an amount equal to 12 months of back distributions to hybrid holders.

Mr Allison said Elders was ahead of its targets on an eight-point turnaround plan put in place when he officially took over as chief executive in May 2014, after stepping out of the boardroom in unusual circumstances because he had been chairman of the firm.

He conceded that dealing with the hybrids would mark a final turning point for Elders.

"It's just a methodical journey back to where we need to be," he said. It might still take another two years.

For Elders to have an investment-grade credit rating, one of the criteria is that it needs to be paying dividends again.

Elders shareholders last received a dividend on the ordinary shares in October 2008. The hybrid holders received a payment in 2009.

While a dividend payment has proved elusive since the financial crisis, Elders' shares have made solid gains in the past 12 months, helped by a consolidation that pulled Elders out of the ranks of the penny-dreadful stocks, which have extreme fluctuations because of their low face value.

In January, Elders undertook a 10-for-1 share consolidation to shrink its capital base, with the equivalent shares trading at $2.15 each, rather than the previous 21.5¢. Elders shares on Friday closed at $3.94, up 1¢. On a preconsolidation basis, this is the equivalent of 39.4¢, which means the shares have almost doubled in the past year.

The fundamentals for long-term demand from China and Vietnam for red meat were strong, and growth was solid in that part of Elders' cattle business, Mr Allison said.

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READER COMMENTS

Mark2
8/09/2015 10:31:35 AM

Shares, shares, shares and bloody dividends. This mob still doesn't really understand, they sacked all their staff who built relationships with clients, how can you be successful in livestock and rural merchandising if you let the bean counters destroy the goodwill on the ground?
Beef man
8/09/2015 8:22:03 PM

Elders was run by incompetent idiots not to mention Eliot and all the mongrels who milked it. Stick to merchandise and livestock which has been the backbone of this great company..I would now consider investing in elders as it is in recovery mode.as long as it doesn't recruit reckless management.

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