Elders recovery remains on track, judging by its latest half year figures, but the beef boom is both helping and hindering the company.
The company told the ASX yesterday it earned a net profit after tax of $24.6 million in the six months to March 31, up from the $15.9 million profit in the prior corresponding period.
The company said what it called “Underlying net profit" improved $3.2 million on the prior corresponding period to $19.4 million.
“Underlying” earnings before interest and tax of $25.2 million "was primarily driven by an uplift in retail earnings, strong livestock agency performance and increased commission earnings from broadacre real estate sales”.
But the strong rise in beef prices hit returns from its live cattle business.
Investors didn’t like the result and sold the shares down 7.7% to $3.55, especially the forecast for “mixed operating conditions” which investors took to be a euphemism for tougher trading conditions ahead, especially in the beef and live cattle businesses.
But they ignored comments from the company suggesting that after a decade long drought, a resumption of dividend payments to shareholders could happen next year.
CEO Mark Allison says next year the firm is likely to resume its dividends as turnaround plan sees the company’s finances rebuilt, along with some ambition for acquisitions.
“Our focus has been to ensure we’re always reviewing business operations and to ensure we’re only investing in opportunities with sound return on capital, which diversify our revenue base,” CEO Mark Allison said yesterday.
“Our retail arm has outperformed its result for the prior corresponding period across all geographies, with a $6.6 million improvement in underlying profit, driven by increased sales activity and recovery of cotton regions in northern Australia,” he said.
Earnings from Elders’ agency services business improved on the prior corresponding period with an increase of $7.4 million. “High cattle prices have driven both higher livestock earnings and also real estate sales demand for large cattle farming properties,” Mr Allison said.
“Return on capital has improved 4% compared to the prior corresponding period, with improvements in retail offset by declines in feed and processing and live export.
“Both the long haul and short haul live export businesses have been adversely affected by high domestic cattle costs and increased competition, resulting in a full review and a realignment of the long-haul business’ sales and procurement functions.”
Looking at the rest of the financial year, Mr Allison said the Company is looking at improvements in safety performance, operational performance, key relationships and efficiency and growth.
“We are pursuing strategic opportunities for growth across both domestic and international markets, with increased operations in Tasmania, China and Vietnam, recent acquisitions including agency and real estate businesses, and a 10% stake in Elders Insurance. “Mixed operating conditions for the remainder of the financial year are anticipated, with encouraging market and seasonal conditions.
“Increased competition and higher supply costs in the live export short haul market will continue to put pressure on earnings, particularly in Vietnam and Indonesia. Opportunities in the China feeder slaughter market will become clearer over the next six months.
“Cattle and sheep prices are expected to remain strong, due to tight supply and high demand.
“Strong activity in rural real estate is expected to continue with interest rates remaining low,” Mr Allison said.
