Elders shares jump as half-year profit improves and dividends flow

AG business Elders boosts profits in half-year report released today, with fertiliser boosting growth.

AGRICULTURAL business Elders has boosted half-year net profit by eight per cent to $41.4 million compared to $38.3 million profit during the same period last year.

The company’s shares were trading almost 5 per cent higher on the news, which included a return to dividend payments, up 40c to $8.50.

Boosted by high wool prices along with fertiliser and crop protection product sales, the Adelaide-based agricultural business lifted its revenue by 2 per cent to $749.7 million in the six months to March 31.

It announced today that it would pay a 9c, fully franked interim dividend after paying no dividend in the previous interim result.

“Continued strength in the retail business was driven by a combination of organic growth across southern Australia and the acquisition of Ace Ohlsson — a horticulture supplies business based in New South Wales, which has resulted in a $9.4 million improvement in margin,” Elders chief executive Mark Allison said.

“Strong wool performance and additional sheep earnings from agency acquisitions, offset by declining cattle prices and volumes resulted in a $0.7 million uplift in agency margins.”

Elders bought Kerr and Co Livestock in December last year, the largest privately owned independent livestock business in south west Victoria.

It acts as agent in the sale of 416,000 sheep and 16,000 cattle annually.

Mr Allison also reported that the company completed the acquisition of Titan Ag on May 1 and this would grow its participation in the agricultural chemicals space.

Based on Titan’s historical performance, the company expected an annualised additional EBIT between $6.5 million and $7.5 million in its first full year of ownership.

“Cattle prices are expected to ease in the second half of FY18 due to strong international competition,” Mr Allison said.

“This ease in agency earnings will be offset by national footprint expansion and acquisition growth.”

Elders chief executive Mark Allison.

Looking ahead, Mr Allison said while the supply of farm land property could continue to be subdued, sheep prices were expected to remain steady.

“Wool is anticipated to maintain growth with a solid pipeline of wool in store, continued strong wool prices and slow supply growth,” Mr Allison said.

The company reported average net debt over the six month period was $143 million, broadly in line with the prior corresponding period, and Elders’ return on capital remains above its 20 per cent target at 28.2 per cent, driven by strong agency and retail earnings and stable capital levels.

Last month, Elders announced it had entered into a conditional sale contract to divest its feedlot and processing assets from its Indonesian subsidiary, PT Elders Indonesia.

Mr Allison said high cattle costs and changing Indonesian governmental policies had adversely affected its Indonesian business’s performance.

“Elders is committed to the red meat industries in Australia and we will continue to have a presence in Indonesia, China and Vietnam through our retail meat distribution businesses in those countries which we intend to grow,” Mr Allison said.

Fertiliser and chemical sales could be affected by low rainfall across most of the country during April and May this year, with the weather conditions impacting winter cropping.