New trade deal encourages exporters to diversify, says Elders boss

Elders boss Mark Allison says a new trade deal signed by 15 countries will give Australian exporters better access to huge markets with rising incomes and the chance to diversify away from China, at a time when relations between Australia and its top trading partner are strained.

"This agreement actually sets a platform where we can actively look at diversifying as we've said, away from China, while also rebuilding bridges with China. So I think it's quite positive," Mr Allison said.

The post-drought recovery has boosted the earnings of agribusiness giant Elders.Credit: Joe Armao

"It's a nice calming influence to be honest. We've got good relations with a number of the countries that are included in it, but I think what it says to all of us is we've now got formal options with the ASEAN countries, 800 million population," he told The Age and The Sydney Morning Herald.

The boss of the $1.85 billion agribusiness was speaking after Elders posted an 80 per cent jump in 2019-20 financial year net profit to $123 million, eclipsed market expectations and lifted its final dividend 44 per cent to 13 cents per share.

The results were boosted by the farm sector's recovery from drought, record cattle prices and by the acquisition of a wholesale rural supplies business known as AIRR. Elders sells farm merchandise including fencing equipment and fertilisers, runs a real estate division and provides sales and marketing services for wool and other produce.

The company's underlying profit was $109 million, ahead of Bloomberg consensus of $101.3 million. Revenue rose 29 per cent to $2.09 billion, while underlying EBIT (earnings before interest and tax) rose 62 per cent to $119.4 million, well ahead of its growth target of 5-10 per cent.

Elders' share price has surged through 2020, rising 83 per cent since the beginning of the year. Its shares closed marginally higher on Monday at $11.88 but trading was stopped on the ASX at 10.30 after a technical glitch.

Mr Allison said Elders had a positive outlook for 2020-21 and was considering about six large potential acquisitions, but would be disciplined in its approach.

Elders released its results after Australia signed a new trade agreement with countries such as Japan, Korea and China, and 10 countries from the Association of South-East Asian Nations including Indonesia.

The agreement comes in a year in which Australian agricultural goods including barley, beef, wine and seafood have been hit with multiple trade strikes by China.

Mr Allison said diplomatic relationships between countries was a matter for governments to manage, not business. "The relationships with Chinese business partners haven't soured over this period, they're still strong," he said.

Oscar Oberg from Elders investor Wilson Asset Management said Elders' results beat market expectations by about 10 per cent.

"The pleasing thing for us has probably been the acquisition of AIRR, which has clearly over-delivered in terms of the earnings that it was set to achieve when they bought it back in July last year," he said.

Mr Oberg also said quite a number of rural supplies stores had switched brands and joined the Elders network, and this was "a strong tailwind" for the business.

Morgans analyst Belinda Moore said: "It was a very strong result today. They beat consensus on all fronts, a very solid result in terms of the EBIT result, the net profit result, the dividend was better than expected, operating cash flow was very strong (and) the balance sheet's solid."

Meanwhile, Elders latest annual report revealed Mr Allison's total remuneration for 2019-20 was $3.24 million.