Rural services and automotive group Elders has incurred a hefty $392 million in pre-tax writedowns related to its decision last month to exit the forestry business.
The writedowns caused the group to report a loss of $395 million for financial year ending September 30, compared with a $218 million loss a year earlier, despite an improvement in underlying earnings during the second half of the year.
Elders shares added half a cent, or 2 per cent, to 26 cents in early trading.
The writedowns also caused the group’s gearing ratio of debt to equity to jump from 43 per cent to 57 per cent, despite the repayment of some $90 million in debt following the sale of businesses including Rural Bank earlier this year.
Elders had also sold some $19 million worth of forestry assets by the end of September and expects further cash proceeds of $90 million from the sale of the rest of the portfolio.
Chief executive Malcolm Jackman said the decision to exit forestry was difficult but given weak woodchip prices and falling demand, the business was burning almost $30 million in cash a year and “retention no longer measures up in terms of return to shareholders”.
Revalued
Questioned by analysts during this morning’s earnings call about the size of the forestry-related writedowns, Mr Jackman said the forestry assets had been revalued in consultation with auditors Ernst and Young.
The $392 million in forestry-related writedowns include:
- forestry land by $141 million to $115 million,
- receivables (mainly accrued income from growers wood) cut by $156 million to $63 million
- the value of Elders own trees was reduced by $27 million to nil.
- the company also cut the value of certain onerous contracts by $47 million, such as leases for land for plantation managed-investment schemes.
The final book value of the forestry assets held for sale is $181 million.
“We’ve tried as hard as possible to make sure the final value attributed to the forestry assets is the actual realisable value,” Mr Jackman said.
“There’s a balancing act in that activity. The board did not want to be overly conservative or overly optimistic”.
Mr Jackman said he had “a lot of confidence” in the final values and while there would be “plusses and minuses on the way through”, the board’s view was that “if we were going to take a writedown we were going to do it once and not end up with death by a thousand cuts.”
The sale proceeds will be used to reduce debt.
Underlying strengthElders reported a strong underlying improvement from its rural services business and reported a $4.7 million net profit after tax from continuing businesses, compared with a loss of $15.1 million a year earlier.
“After a difficult start to the year, seasonal conditions have been positive, and we are starting to see the benefits of the investment made in business transformation over the past three years,” Mr Jackman said.
Mr Jackman declined to quantify the earnings impact of the ban on live cattle exports to Indonesia, imposed earlier this year after an investigation by the ABC’s Four Corners program, as a claim for compensation is currently with the federal government.
Mr Jackman said the value of the claim was consistent with the $4.4 million - $7.3 million impact announced in July.
Futuris has a future
Mr Jackman denied there were any plans to sell the Futuris Automotive components division, previously described as ‘‘non-core’’.
“I don’t believe you’ll see any movement from the company around auto,” he said. “I think you’ll see us retain it … and (we’ll) end up being a two-revenue-stream business.”
Futuris reported a slight increase in earnings despite tough market conditions and had won sizeable new contracts including with American electric vehicle manufacturer Tesla.
Mr Jackman said potential new franchisees would receive valuations of their business within days and he hopes that contracts would be signed by Christmas.
paddy.manning@fairfaxmedia.com.au
