Article by: Hari Yellina
The stock of Elders soared nearly 10% after the farm services firm announced a $91.2 million six-month profit on Monday, predicting two more years of good times for the agricultural sector. The net profit after tax was up 34% from the previous year’s $74 million. The huge agribusiness, which expanded its national agency and agricultural inputs activities by five regional companies and 300 full-time employees during the period, also expects full-year pre-tax earnings to increase by 30 to 40 percent over last September’s $166.5 million. Elders reported sales income of $1.5 billion, up 38 percent from the previous year, thanks to strong demand for agricultural fertilisers and other farm goods, as well as high cattle market prices and hot property demand.
Overall earnings before interest and taxes increased by 80 percent to $133 million, while the company’s return on capital increased to over 28 percent from 20 percent in the same period previous year, above Elders’ baseline aim of 15 percent ROC. The positive outlook, which includes a share price exceeding $15, has led to a 40% rise in the interim dividend to shareholders, to 28 cents per share (30pc franked). In all geographies and product categories, Elders’ strong performance surpassed forecasts. The Victoria-Riverina region grew 56 percent to $46 million; West Australia grew 24.3 percent to 31 million, and NSW grew 103 percent to $28 million. Sales of rural products increased by $313 million, or 47 percent, while sales of the Australian Independent Rural Retailers wholesale industry increased by 30 percent.
Due to favourable seasonal conditions across key cropping regions, rural product turnover was fueled by robust demand for fertiliser and crop protection lines. “Our business improvement and growth strategies continue to provide ongoing significant value,” stated managing director Mark Allison. “The company is taking advantage of favourable market conditions to provide an extraordinary outcome for shareholders.” While good seasons and bullish markets aided Elders’ results – including a 354 percent increase in earnings for its B&W Rural division in northern NSW’s summer and winter cropping belt – nearly 60 percent of the company’s growth came from non-market related performance gains and “self-help initiatives,” such as acquisitions.
Mr Allison said, “Favorable market circumstances gave significant upside to our performance compared to this time last year, but 58 percent came from organic growth and acquisitions… and there’s much more to come.” Elders has been adding approximately seven new businesses every 12 months in recent years, but it now has “17 active contenders” in the acquisition pipeline. “He noted the farm sector’s seasonal and commodities market prospects as reasons for optimism in the medium run. “We anticipate very strong market dynamics for the next 18 to two years. “Elders, its stockholders, and its consumers have a bright future for the remainder of 2022.”
Elders had a 15% increase in properties sold in the first half of the year. Given the quantity of properties currently awaiting settlement and strong buyer interest, this business segment was expected to outperform the previous year. Real estate services generated a gross margin of $33.3 million in the first half of 2021-22, up 38 percent over the previous year. Aside from farming agency sales, which included some high-profile deals like Gina Rinehart’s Hancock pastoral divestments, regional residential transactions increased by 7%. Elders also achieved significant progress in regional rental property management, which currently accounts for around 25% of the company’s real estate gross margin.
In the reporting period, the company’s financial services margin increased by $2.8 million, or 14 percent, to $23.3 million, owing to a 9 percent increase in gross written premiums in Elders Insurance and higher Livestock in Transit product penetration rates.