Call it confidence or perhaps over-optimism but the decision by Elders to maintain interim dividend at 9 cents a share with the drought still biting hard in rural and regional Australia, was a gutsy call by the board and management.
That toughness of that call was underlined by the 34% cut in underlying net profit after tax to $26.4 million for the March first half as wool volumes fell thanks to the drought. Elders’ underlying earnings before interest and tax (EBIT) fell 27% to $33.5 million for six months, with CEO Mark Allison saying Australian agriculture had experienced “very difficult conditions” in the half (an understatement), with many of Elders” clients being impacted severely.
But the company said it remains on track for a full year net profit after tax in the range of $61-65 million, which is in line with last year’s after-tax result of $63.7 million.
And it said it was on track for full-year underlying EBIT of $72-75 million, compared to last year’s result of $74.6 million.
Mr. Allison said that while reduced summer crop production and farm plantings were down, Elders’ results were aided by its geographic and commodity diversification.
Livestock earnings were affected by lower cattle prices, but higher cattle sales volumes helped offset this, he said. While earnings from the company’s sheep business improved due to better prices and better volumes.
Mr. Allison said, “Despite reduced summer crop plantings and production, the Retail business showed resilience through geographical diversification and other growth initiatives including backward integration through Titan.”
“While Agency gross margin was down $3.1 million, this was largely due to Wool performance which followed the market as a whole with lower volumes due to dry conditions and lower sheep levels.
Livestock earnings were impacted by lower cattle prices, however, higher cattle volumes from dry conditions and lack of feed offset this. Additionally, our sheep business improved in both volumes, due to our bolt-on acquisition strategy, and prices.”
Mr. Allison noted “Return to average winter cropping conditions are expected, and increased retail earnings will flow from Titan as inventory held over the half-year balance date is sold to producers for use with their winter crop. Both cattle and sheep volumes are expected to be lower due to limited supply, with sheep prices expected to remain high.”
”Financial Services earnings are expected to increase due to the new Rural Bank arrangement and returns from increased shareholder loans to StockCo.”
“Earnings will be generated from new Livestock and Wool in transit delivery guarantees associated with Elders’ agency services, which will be launched in the second half, replacing the QBE underwritten insurance products Elders currently distributes.”
Elders shares closed down 0.08% at $6.575.