Heavy cost-cutting and a rise in live cattle exports to Asia have enabled agribusiness group Elders to deliver a solid turnaround in performance as it continues to reposition after several years of serious difficulties.
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Elders chief executive Mark Allison says the 175-year-old pastoral company is now back on a growth path and the dark days of being debt-plagued and hobbling along with an uncertain future are over.
The company has made a strong start to trading in the opening weeks of its new financial year and is buoyed by the prospect of even stronger gains in its live cattle export business to Asia because of free trade deals.
"We're tracking nicely for the first six weeks," Mr Allison said on Monday.
He said key to this was the shift of the executive previously in charge of asset sales into a role fully focused on strategy and business development.
"The guy who was in charge of divestments is now 100 per cent focused on growing the business," he said, referring to Tom Russo, general manager of strategy and business development at Elders, who oversaw a string of asset sales that have now been completed.
Elders has sliced its net debt levels by 46 per cent to $138 million and Mr Allison said the business has established a solid foundation from which it can grow steadily, as it works away on an eight-point plan designed to deliver EBIT of $60 million by 2017, and a 20 per cent return on capital.
"I think the key turning point was the re-focus of the business to return on capital," he said.
Elders on Monday announced a statutory net profit after tax of $3.0 million for the 12 months ended September 30, 2014, a big improvement from the loss of $505 million a year ago.
Underlying net profit after tax was $8.8 million, up from a loss of $68.5 million.
Underlying earnings before interest and tax was $27.3 million, compared with a loss of $48.9 million in the previous year.
Mr Allison said the core agency services business improved by 13 per cent on the back of a recovery in livestock prices and higher volumes. The live export services business also delivered a strong result because of strong demand from Asian markets.
Elders' retail products business improved its gross margins by 2 per cent even though there was lower demand for agricultural chemicals because of unseasonably dry weather conditions.
Elders generated $28.5 million in cost savings and was able to reduce working capital by 27 per cent.
He said there had been an uplift in earnings from all product and geographic segments, and a 10 per cent reduction in costs,.
Mr Allison highlighted that the auditors had given Elders accounts a clean audit report for the first time since September 30, 2011, which would help it return to more normalised terms with the company's suppliers.
The solid improvement on a financial basis is another step for Elders in its drive to return to being a normal stand-alone agribusiness after almost buckling under the weight of extreme debt levels which reached $1.2 billion several years ago and prompted a string of asset sales as it returned to its core business after expanding in several other industries including automotive parts, telecommunications, forestry and insurance.
Former corporate suitor Ruralco sold its 12 per cent stake in Elders in September for $12.7 million as Elders re-invigorated its balance sheet through a capital raising totalling $57 million, which included a 3-for-5 entitlement issue for existing shareholders at 15¢ per share. Elders shares were trading at around 21¢ at midday on Monday.
Ruralco in 2013 made a bid for Elders' rural services arm valued at around $250 million but it was unsuccessful. It retained the 12 per cent stake until mid-September when it opted to sell out at 23¢ per share, signalling an end to any takeover aspirations in the short term.
But Ruralco hasn't been the only potential suitor. In July this year, Elders confirmed there had been several parties closely looking at the company but that no formal offer had been put to the board. There was speculation that one of them was private equity firm Pacific Equity Partners.
Other potential suitors for Elders earlier this year were rumoured to be live cattle trading firm Wellard, and a group of Asian investors.
Mr Allison became permanent chief executive in April 2014 in an unusual move where he switched from the boardroom. He had been chairman since mid-2013.
