Elders looks at Indonesian options

22 Jan, 2018 04:00 AM

WHILE its leaping share price has put on a dazzling performance in recent weeks, the farm services comeback star, Elders, is adopting a more subdued approach to the future of its Indonesian business activities.

The company’s abattoir on the island of Java and its 8200-head Sumatran feedlot, which buys in young cattle from Australia, are potentially up for sale.

The company has not confirmed it will definitely exit its beef production activities in Indonesia, but conceded “our Indonesian feedlot and processing assets are currently performing below the required return on capital”.

“We are reviewing options for this business, including divestment of the assets should a suitable offer be forthcoming,” a company representative said.

It will continue running its Indonesian businesses division, PT Elders International, “on an ongoing basis” in the event a sale does not eventuate.

Elders has owned the western standard feedlot in the province of Lampung in southern Sumartra (north of Jakarta) for 15 years and bought into the abattoir at Bogor (south of Jakarta) 12 years ago.

However, as part of its ‘capital light’ business agenda and its commitment to extracting a healthy 20 per cent return from its capital, the company has already scaled back its overseas livestock activities, selling the North Australian Cattle Company live export business to a Chinese-Australian joint venture six months ago.

Last financial year Elders’ underlying return on capital hit almost 27pc.

That result helped the company pay its first dividend to shareholders in a decade after posting a statutory full-year net profit of $116 million – more than double its result in 2015-16.

Elders’ share price has subsequently responded by bouncing to highs of $8.76 last week – up from $5 in early November and $7 in early December.

Its previous peak price in the past year was about $5.50 in June.

Elders managing director Mark Allison told last month’s annual general meeting that although still strongly committed to working with producers supplying the trade, Elders was shifting away from its non-core live export business involvement.

It was moving towards technical and digital services, “which are much more aligned with our growth agenda”.

The enhanced technical approach had created productivity efficiencies for the company and introduced services which helped clients.

New services include the Thomas Elder Consulting (TEC) division which is being developed as a fee-for-service agronomic technical business, also drawing on research and development work with overseas partners.

However, Elders is not contemplating quitting all its Indonesian ties.

The company will continue its retail meat distribution business across Indonesia if the Bogor abattoir and the feedlot are eventually sold.

“Regardless of the outcome, Elders is committed to the live export industry in Australia and the Elders brand will continue to have a presence in Indonesia through our distribution business,” the company representative said.

Elders supplies its boxed Kooyong and Marlee branded beef and lamb cuts to retailers and restaurants, primarily in Jakarta and tourist hot spots such as Bali.

The feedlot at Lampung has capacity to handle more than 8000 cattle, including quarantine facilities for about 4740 head imported from Australia.

During 2016-17 it sold 12,686 feeder steers after an average 120-day feeding program, mostly to markets in Sumatra and Java.

About 20pc were transported to the company’s Bogor abattoir.

The feedlot also has on-site abattoir available for use by PT Elders Indonesia customers, or for emergency slaughters.

Feeder cattle are managed along the same lines as those in Elders’ Killara feedlot in North West New South Wales, with the Indonesian site enjoying widespread industry respect and conforming to strong animal welfare standards.

PT Elders’ Bogor meatworks is on the grounds of an agriculture university (Institute Pertanian Bogor).

It operates six days a week, providing custom kill and boning services for the Great Giant Livestock company, plus two days of processing for PT Elders’ own retail business.

The facility has HACCP, ISO 9001 and Halal certification and a strong working relationship with the university, including organising study tours for students to visit Australian beef production and processing facilities.

Industry training in association with Meat and Livestock Australia has also been conducted at the Elders abattoir for the past four years.



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