Elders shares have surged after the company released a 9 per cent increase in underlying profit
ELDERS shares have surged after the company reported a 9 per cent increase in underlying net profit on the back of stronger international demand for sheep and wool.
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ELDERS shares have surged after the company reported a 9 per cent increase in underlying net profit on the back of stronger international demand for sheep and wool.
The Adelaide agribusiness posted an underlying net profit of $63.7 million for the 12 months to September, up from $58.4 million in the previous year and exceeding previous guidance of $59-to-$63 million.
Revenue was 2 per cent higher, at $1.6 billion, while net profit fell to $71.6 million from $116 million in the previous year, when the company booked a one-off, $38.3 million reversal of a brand name impairment.
Elders chief executive Mark Allison said the company’s retail division - which includes the sale of fertiliser and farm supply products - was given a boost by recent acquisitions, offsetting the impact of a dry winter cropping season.
“Overall the retail business posted a $14.5 million margin improvement, contributed by acquisition growth in horticulture and organic growth in southern Australia,” he said.
“The retail business completed the acquisition of TitanAg which extends Elders’ participation in the supply chain for quality agricultural chemicals.
“Based on the historical performance of TitanAg, Elders expects it will generate annualised
additional EBIT of approximately $7 million in FY19 and beyond.”
As part of the company’s “Eight Point Plan”, Elders expects 50 per cent of its earnings growth in the three years to 2020 to be generated from acquisitions.
It expanded its Victorian agency footprint in December with the acquisition of Kerr & Co Livestock.
In 2018, the company’s agency division was affected by falling cattle prices resulting from rising competition in the US and Brazil.
Beef cattle prices are expected to fall by 9 per cent this financial year, while Australian herd forecasts have fallen as drought conditions in Queensland and NSW continue to bite.
However, sheep and lamb prices continue to rise on the back of increased demand from major export markets including China, Mr Allison said.
“Agency (division) was down $3.4 million with declining cattle prices having an impact on margin, which was partially offset by solid wool performance and increased sheep trading volumes,” he said.
Looking forward, the company expects dry conditions to affect demand for fertiliser and crop protection products in the first half of the current financial year, while TitanAg is expected to deliver an improvement to earnings in the second half.
Mr Allison said the company’s return on capital of 24.2 per cent continued to exceed its 20 per cent target.
“Looking ahead to 2020 and beyond, we will continue to demonstrate our strength in portfolio
management, geographical segmenting, our core products, innovation, our commitment to
Australian agribusiness and our clients,” he said.
Elders will pay shareholders a final dividend of 9c per share. Its shares closed 19.7 per cent higher today at $8.87.