Less demand for supplies hits Ruralco

Dry weather and heavy debts continue to plague the farming sector, with Australia's largest rural services company, Ruralco, sinking to a loss during the first half.

Dry weather and heavy debts continue to plague the farming sector, with Australia's largest rural services company, Ruralco, sinking to a loss during the first half.

The Hobart-based Ruralco shareholding in listed rival Elders also caused it headaches, forcing it to take a $5.9 million hit on its exposure. This sent Ruralco into a $500,000 loss for the first half, compared with a profit of $10 million for the same period last year.

Abnormally hot and dry weather across east and central Australia had driven down prices of sheep and cattle and reduced demand for rural supplies, Ruralco said.

The conditions have been felt across much of the agriculture sector, with Elders and Nufarm also flagging profit downgrades during the period.

Ruralco warned investors last month that its underlying profit could fall by up to 70 per cent for the period, due to lower livestock prices, slower sales and higher costs tied to its pursuit of Elders.

Instead, its underlying profit was 50.9 per cent lower to $5.4 million, excluding write-downs.

Ruralco chief executive John Maher said despite unusually poor conditions, the business remained resilient.

"The fundamentals of our business and the industry in general remain in good shape," he said. Ruralco was forced to write-down its 12.4 per cent stake in Elders Rural Services in October, after Elders failed to refinance debt on the business and put it up for sale.

Ruralco said it would cautiously push ahead with an acquisition of the business, which it began in March. The competition watchdog is reviewing the takeover.

Ruralco is planning to shave $8 million off the business' operational costs by March 2014, it said in its briefing to shareholders, with savings made primarily through redundancies.

It plans to save more by moving its accounting and IT services from its Hobart headquarters to Sydney in June.

The company also said it would continue to pursue regional partnerships with other businesses to increase its geographic footprint, and announced it had successfully acquired Victorian livestock group Saffin Kerr Bowen.

The Australian Bureau of Agricultural and Resource Economics and Sciences said in March that it expected the value of farm, fisheries, and forestry production to fall up to four per cent over the next five years due to poor economic conditions, high competition from overseas and a strong Australian dollar.

Fertiliser maker Nufarm cut its outlook for profits in March, after reporting a 53 per cent slump in earnings in the first half.

RBS Morgans senior analyst Belinda Moore said the underlying result was strong considering how challenging conditions in the agriculture sector had been.

"It's been the worst first half-year in many, many years," she said. "If you look at where Ruralco makes its better margins, it's in livestock. But cattle stock has been down, and sheep stock has been down."

She said the financial year would be tough on the business but its planned $8.7 million in cost savings would help its outlook.

"It will be very well positioned when an average season returns." Ruralco will pay an interim dividend of 10 cents per share. The company's shares were up 0.4 per cent to close at $2.81 on Tuesday.

Related Articles