Agribusiness

Ruralco announces $10.6m profit

Sheep Central, November 18, 2014

Ruralco Holdings has this morning announced a full year profit for the year ended September 30, 2014, of $10.6 million, which compares to a $5.7m profit for the previous year.

Ruralco Holdings results release to the ASX this morning reads as follows:

Results Summary:

  • Reported net profit after tax (NPAT) of $10.6m, compared to a profit of $5.7m for the prior corresponding period (pcp), up 86pc. 
  • Underlying net profit after tax (NPAT) of $15.5m, an increase of 78pc on the pcp. 
  • Underlying earnings before interest expense, tax and depreciation (EBITDA) of $43.5m, higher by 45pc on the pcp. 
  • Gross profit of $257.1m, up 26pc compared to the pcp. 
  • Sales revenue of $1,355.9m, an increase of 21pc on the pcp. 
  • Net Debt of $37.9m, lower by 30pc on the pcp, with gearing ratio of 17.1pc.

Ruralco Holdings Limited today announced a reported net profit after tax (NPAT) for the full year ended 30 September 2014 of $10.6m compared to a profit of $5.7m for the prior corresponding period (pcp).

Chairman, Richard England, advised that directors have resolved to pay a final dividend of 8 cents per share fully franked which together with the interim dividend of 8 cents per share, is a return of 16 cents per share fully franked for the 2013/14 financial year.

The dividend reinvestment plan will apply to this dividend with a record date of 17 December 2014. Further information will be provided to shareholders.

Mr England stated that the dividend reflects part year earnings on new investments whereas the new shares issued during the year to acquire these assets will fully participate in both the interim and final
dividend.

Managing Director, John Maher, welcomed the 78pc lift in underlying NPAT for FY14.

“The result emphasises the increasing quality and diversity of our earnings given the sustained drought in Queensland and northern NSW and the dry conditions in the final quarter across much of southern
Australia that has seen a reduction in winter crop yield prospects”, he said.

Gross profit lifted across most of the business portfolio. Activities which featured in this growth included:

  • Rural supplies’ sales revenue lift of 14pc was more than matched by stronger margins which delivered a 28pc increase in gross profit.
  • Agency activities also increased gross profit by 19pc, headlined by a 33pc lift in livestock gross profit.
  • Real estate was also a noteworthy performer in the agency portfolio, lifting gross profit by 11pc.
  • Water services’ 95pc lift in gross profit on the pcp included second half benefit from the Total Eden acquisition, however the existing network also increased on the pcp, led by a significant lift from
  • water broking.

Items which negatively impacted results included:

  • Bank costs increased by 14pc on the pcp.
  • CFO and IT costs increased by 20pc on the pcp primarily due to increased capability investment.
  • Financial services gross profit eased by 5pc on the pcp due to the continuing focus on reducing the seasonal finance book (down $8m on the pcp) in favour of off-balance sheet products. This impact
  • on finance earnings was mitigated by a 22pc lift in insurance activity gross profit on the prior period.

Strategy

Strategically, FY14 was notable for significant investments by Ruralco in water management and live export.

The acquisition in February 2014 of Total Eden, a leading retailer of water products and designer of end to end water solutions, significantly expands Ruralco’s water management platform. Integration
of Total Eden into the Group is proceeding well, with identified synergies on track to the original business case and back office, procurement and supply chain consolidation progressing.

Frontier International commenced live cattle shipments in May and has performed soundly to deliver in excess of 40,000 cattle in the final five months of FY14. The business continues to grow its order pipeline across both feedlot and breeder cattle categories, with potential to increase its dedicated shipping space to meet demand, as required.

The short-term impact on reported profit of the Total Eden acquisition costs and non-recurring establishment costs associated with Frontier was acknowledged, however Mr Maher emphasised the important progression they represent in Ruralco’s strategic agenda as the Company expands its activity portfolio to reduce earnings volatility risk and fully leverage its distribution network.

In addition to recruiting several key staff and agents with established profiles in their local markets during the course of FY14, Ruralco also undertook the following specific initiatives to add further capability and span to its existing network:

The acquisition of the well-established agency business Peter Dargan Livestock, representing the Group in Wangaratta and Corowa (Vic Riverina).

Commencement of livestock and real estate agency business Northern Livestock & Property, based in Moura (QLD), with our local partners bringing a wealth of experience and established customer
relationships to the Group.

The establishment by Rodwells of greenfield outlets at Cobram (Vic Riverina), Heyfield (Vic Gippsland) and Culcairn (NSW) as well as Territory Rural establishing a Broome (WA) rural supplies branch in association with Total Eden’s existing outlet in the region.

Ruralco also increased its equity stake to 100p in two of our leading agency businesses based respectively on the east coast and WA:

  • Davidson Cameron Group, Ruralco’s NSW agency partner with 9 network branches; and,
  • Primaries of WA Group with its sizeable network of livestock, wool and real estate servicing clients across the state.

The Group’s focus on the existing business also triggered a range of business improvement and portfolio management initiatives:

Final consolidation of Ruralco’s back office functions was completed which, in conjunction with the remainder of the existing network migrating to the SAP common IT platform, is delivering scale, efficiency and network management benefits.

Following a successful pilot in FY14, Agfarm’s Accelerate input finance product has been launched in time for the 2015 cereal cropping season. Distributed through Ruralco’s branch and agronomy network and with the financial support of Agfarm joint venture partner, CHS Inc, Accelerate enables growers to finance their cropping inputs purchased through Ruralco outlets and then access Agfarm’s expertise and products to market their harvested grain.

Ruralco Water recently released its new electronic water trading platform to the marketplace.

Enabling transparent and cost-effective water trades, Water Exchange adds a further dimension to Ruralco’s range of personal and web-based client services.

Active management of our asset portfolio also led to the Group realising $21m from non-strategic asset disposals during FY14, which included: sale of shareholding in Elders Ltd at a price of 23c
($12m), sale of 50pc interest in associate Lachlan Fertilizers ($4m) and disposal of surplus properties ($5m).

Outlook

Mr Maher noted the below-average spring rainfall conditions (excluding some areas of WA) had taken the edge off yield and cash flow prospects for the 2014-15 harvest and the majority of livestock producers would be looking for summer storm activity to replenish dams and feed stock.

“The immediate priority is a genuine northern season to relieve drought-affected regions of Queensland and northern given the depleted cattle herds and reduced summer cropping in recent seasons”, he said.

“Nevertheless, Australian agribusiness fundamentals continue to be attractive with robust export demand for Australian grain, meat, other fresh produce and breeding stock as well as increased interest in rural properties offering production leverage to these preferred commodities. While the implications of the China Free Trade Agreement are yet to be fully understood, its announcement last night augurs well for Australian agriculture and Ruralco.

“Ruralco’s increasing diversity of earnings will also assist the Group to maintain its momentum into 1H15 and we anticipate solid contributions from water, live export and grain businesses in the coming months
with support from the traditional retail, wholesale and agency operations.”

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