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Elders flags 'profound' revival - but 'mixed' outlook hurts shares

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The rebound in shares in Elders stalled after the veteran Australian agribusiness group tempered enthusiasm over a "profound turnaround" in its fortunes by cautioning of "mixed" operating conditions ahead.

The feedlots-to-farm retail group, unveiling a 10-fold rise to Aus$38.2m in earnings for the year to the end of September, said that it could now "draw the line" on a difficult period in its 176-year history provoked by overexpansion and heavy borrowings ahead of the world financial crisis.

The group, which lost a cumulative Aus$1.6bn from 2009-13, has sold off businesses in areas from banking to car parts in an effort to stave off collapsing under the weight of its debts.

"Elders' turnaround has been profound," said Mark Allison, the group's chief executive, who after being appointed last year had termed 2014 "a year of survival for Elders".

The year to the end of September 2015, "however, was a year of stabilisation and growth," he said.

'Mixed operating conditions'

Nonetheless, Elders shares closed down $6.7% at Aus$4.35 in Sydney, in a decline attributed in part to simple profit-taking after a tear in the stock on the group's revival.

The shares, at Monday's closing price were up 81% so far this year, and earlier touched a four-year high of Aus$4.76.

However, Elders also cautioned of "mixed operating conditions for the next year", citing the prospect of a strong El Nino, which is linked to dryness in eastern Australia, with potential implications for the group's farm retail business.

Furthermore, elevated beef prices were prompting some demand setbacks in the key Indonesian market.

On the more positive side, Elders flagged "positive activity" in the real estate sector, "with low interest rates and continuing local and foreign investments".

Improved profits

In the year to the end of September this year, Elders rise in earnings, on revenues up 5.8% at Aus$1.51bn, was driven by the agency division, which saw its margin rise by 13.8% to Aus$134.7m, lifted by strong livestock prices.

The division handled 9.4m head of sheep and 1.7, head of cattle, prices of which have been boosted by strong meat demand at a time when dryness had limited producers' enthusiasm for expanding herds, allowing livestock numbers to reach unusually low levels and put a squeeze on supplies.

The retail arm achieved a 3.4% rise to Aus$111.5m in margin, "due to increased winter crop demand" and operational improvements, such as a consolidation of suppliers.

The group's reported earnings of Aus$38.2m were its highest in eight years.


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