Home' InDaily : September 11th 2009 Contents September 11 - 17, 2009
Mr Jackman arrived fresh
from a five-year stint at Coates
Hire, where he imposed operating
disciplines that saw EBIT
margins double to about 20 per
cent and the share price triple.
He would have seen a parallel
opportunity in the core Elders
rural merchandise business.
Like Coates, Elders operates
from a network of locations and
each store typically only has one
competitor, often a smaller local
The Elders network had not
been well run, with plenty of fat to
be taken out. The opportunity to
buy better through a centralised
approach, and to provide superior
service, was there to be exploited.
Selling off non-core assets to
focus on the Elders operation was
always central to the Jackman
However, circumstances were
against a rapid turnaround in
the early months of his tenure.
A rapid fall in fertiliser and
chemical prices late in the
December half saw Elders turn in
a shocker of a performance due to
lower product margins and losses
on inventory. From there the
focus has been on survival, with
the challenge only increased by
further earnings downgrades.
When Elders finally gets
this raising away it will be
thanks largely to Mr Jackman's
efforts and his role in bringing
credibility to Elders that it
Elders shareholders should
also be putting QBE's Frank
O'Halloran on to the Christmas
card list. It was QBE that stepped
up to pay a full price for Elders'
insurance operations at the end
of July, and also to commit to an
Elders placement at an initial
premium to market.
The QBE deals are yet to go
through, but their announcement
was a shot in the arm for Elders.
If the hugely admired Mr
O'Halloran saw sufficient value
in Elders to deviate from core
insurance business through an
investment in the company, that
was enough to get a host of funds
managers motivated to take a
Given the late announcement
on the terms of the raising,
together with its 2009 result and
guidance for the coming year, it is
too early to make a call on Elders'
investment merits. However, the
opportunity in rural merchandise
is real, and this one justifies a
closer look once the dust has
After a tumultuous year which saw Elders on the brink
of collapse, the rural mechandise giant now appears
set for a brighter future. David Symons looks at the
events leading up to the rescue.
Elders pushed to brink
QBE's Frank O'Halloran played a significant role in keeping Elders afloat.
Holden says large cars have future
Holden says large cars have a
strong future in Australia, despite
the challenging times for the
vehicle market over the past 18
Launching the 2010 locally built
Commodore range on Tuesday,
the company said large cars still
accounted for 10 per cent of all
local sales, despite continued high
petrol prices and a fall in demand
prompted by the global downturn.
"That means nearly 65,000
buyers have gone out and bought
a large car this year alone,"
director of marketing Philip
He said there was no question
that the Australian car industry
had faced tough times in recent
months and that the large car
segment had taken "more than its
fair share" of the impact.
"But it's the way we come out
of this period of time that we'd
rather be judged by," he said.
"We see a strong future for the
large car market."
With the 2010 model cars,
Mr Brook said Holden had
focused on changes that mattered
most to buyers -- fuel economy,
performance and running costs.
The new range will go on sale
later this month with the base
model Omega to be fitted with
Holden's new 3.0 litre engine and
combined with a standard six-
speed automatic transmission.
The new engine offers class-
leading fuel economy with official
figures showing it uses just 9.3
litres of fuel for every 100km.
At that level, Holden said a
motorist travelling 20,000km in
a year could save $325 with a fuel
price of $1.25 a litre.
They would also produce 600kg
less carbon emission than the
previous model Commodore.
Holden said the improvements
would be delivered through state
of the art technology known as
Spark Ignition Direct Injection.
Mr Brook said that, despite
dipping by 12 per cent to the end
of August, Commodore sales in
2009 had already topped 28,000
and the car remained the most
popular on the local market.
He said the Commodore
remained the perfect-sized car
for families and offered excellent
safety and value for money.
"Commodore customers are a
broad church indeed," he said.
"But we can break them into
four key segments -- traditional
families, prestige buyers,
sports drivers and business
fleets. Continuing to appeal to
these drivers needs means the
Commodore range must continue
For months Malcolm Jackman,
the managing director of Elders,
has been looking a little shaky as
he walks the tightrope, trying to keep
the company (known as Futuris until
earlier this year) from stumbling into
the arms of its banks.
At December, last year, the group
carried net debt of about $1.3 billion
with interest cover of less than two
times. At its recent lows, Elders' equity
has been valued at less than $200
A firesale of non-core investments
has helped a little, but it has been clear
for months that the only chance of
survival would be to join the ranks of
the 60-odd companies that have tapped
the capital markets this year with the
primary objective of debt reduction.
Last week's raising of up to $550
million will shore things up.
Chatter regarding the likely
terms of a raising has intensified
as a September 30 deadline looms
for refinancing the company's debt
Elders spent time in a trading
halt and then suspension while the
finishing touches were put to a deal.
On Monday, last week, there were
whispers of a placement and rights
issue at 25c but by last Friday that had
turned into a massive placement and
share purchase plan at 15c.
Achieving a rapid resolution
to the balance sheet crisis has
been paramount but at least it has
provided all shareholders with a fair
opportunity to participate.
Assuming the deal is completed
on the announced terms it will see
Elders shares on issue balloon from
820 million to about 3.6 billion. Even
in the current frenzied capital raising
environment, this will set records.
Elders will be far and away the
largest raising this year not to
involve a pro-rata entitlement offer to
existing shareholders. Further, with
the placement offered at a 62 per cent
discount to the last trading price of
39c, the discount is surpassed only
by the 79 per cent at which Nuplex
completed a 7:1 rights issue in March.
Rather than grumbling about a
massive placement and SPP at a
deep discount, shareholders should
be thankful that Elders is making
it through at all. This one easily
could have gone the other way. The
emergency capital raising has its
genesis in Elders' historically illogical
approach to corporate strategy,
stretching back more than 15 years.
Far from being a well-managed
conglomerate, Elders management
led by Alan Newman and then Les
Wozniczka pursued the piecemeal
ownership of disparate assets,
mostly with a rural or agricultural
The results were as opaque as the
corporate strategy and the stock was
never well held by institutions as a
If a ruthless approach to reshaping
the company hadn't kicked off in
September, last year, with the arrival
of Mr Jackman as CEO, there is no way
that Elders would have weathered the
ELDERS LIMITED (ELD)
Elders had previously been a diverse conglomerate
with a history of volatile profits and one off earnings
adjustments. In what has been a difficult market to
sell assets and raise capital, new management has
made real progress in simplifying the Company's
structure, selling non-core assets and finally focussing
on the Elders Rural Services business. The challenge
will now be to generate improved returns from existing
FY10 earnings from the Rural Services business should
rebound on a return to more normal conditions while
the Automotive and Forestry divisions are also forecast
to improve earnings.
Elders announced that it was raising up to $550 million
at 15.0 cents including a share purchase plan (SPP)
of up to $150 million. We recommend eligible investors
subscribe to the SPP and have a Marketperform
recommendation on the stock at current levels.
Sharebrokers and Investment Advisers
Telephone (08) 8217 3900
Warning (General advice only): Past performance is not a reliable
indicator of future performance. The recommendation in this
advertisement is made without reference to its appropriateness to
your investment objectives, financial situation and particular needs.
Before acting on this general advice, you should discuss with your
investment adviser the appropriateness of this recommendation to
your own specific circumstances.
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