But he said Elders operated a business model that delivered “good returns in bad seasons, and excellent returns in good seasons”.
The company is substantially diversified, with operations in different geographic regions and in different products and channels. In addition to the sale of farm supplies and provision of livestock services and wool broking, it generates income from operations such as real estate and financial services.
The line that I use is that if you fail to plan, you plan to fail, and particularly in agriculture.
Elders chief executive Mark Allison
Mr Allison told The Age and The Sydney Morning Herald the business had transformed in recent years with some parts culled and others rearranged. It also had a lower cost base.
“Our diversification has been magnified. The standard diversification is geographical, but we’ve got it by products, by service, by business model and geographical, and now with the acquisition of AIRR (Australian Independent Rural Retailers) we have it by channel,” he said.
“The line that I use is that if you fail to plan, you plan to fail, and particularly in agriculture,” he said.
Elders does substantial business in north west NSW and has been hit significantly in that area because of the drought, but Mr Allison said that impact had been offset by diversification.
While the company recorded a solid result, on an “apples with apples” comparison its profit was 16 per cent lower than last year. But its numbers were boosted by acquisitions, including the acquisition of Titan Ag, a producer and supplier of agricultural fertilisers and chemicals.
Investors welcomed the results, with the stock up 8.1 per cent in early trade before eventually closing up 4.8 per cent at $6.35.
“Given the severity of the east coast drought, the result is a solid outcome but has been underpinned by acquisitions,” Morgans analyst Belinda Moore said in a note to clients.
“Earnings have also been supported by high lamb and sheep prices and an improvement in the financial services business due to both organic and acquisitive growth. Feed and processing delivered a slightly improved result,” she said.
Oscar Oberg, portfolio manager at Wilson Asset Management, an investor in Elders, said the strategy adopted under Mr Allison was “paying dividends”.
“I think he’s doing a great job in a tough market. The main thing is it’s a diverse business by geography and also by business lines, AIRR will add to that,” he said.
Elders declared a nine cents per share fully franked final dividend, same as last year, to be paid on December 13.
Darren is the mining and agribusiness reporter for The Age and The Sydney Morning Herald.